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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
Speaker 1: I'm Katherine Colly. Economic an earnings concerns are dragging the
Speaker 1: stock market lower today. China and the UK reported weaker
Speaker 1: than forecast factory data, reminding investors of the global economic slowdown,
Speaker 1: and US earnings remain mixed. A i G shares are
Speaker 1: defining after recorded a third straight on profitable quarter. Meanwhile,
Speaker 1: Fiser shares are gaining after it raised its outlook. We
Speaker 1: check the markets every fifteen minutes throughout the trading day.
Speaker 1: Down Industrial averages down one hundred fifty two points seven
Speaker 1: eight percent. Is trading at seventeen thousand, seven hundred thirty nine.
Speaker 1: SMP five founded down twenty points a loss of one percent,
Speaker 1: trading at two thousand sixty one. Then NAZZAC is down
Speaker 1: fifty six points one point two percent, trading at forty
Speaker 1: seven sixty. West Texas Intermediate crude oil down a dollar
Speaker 1: eight of barrel two point four two point four at
Speaker 1: forty three seventy. Spot gold is down seven dollars fifty
Speaker 1: cents out at thirty and a tenure treasury is up
Speaker 1: seconds with the yield of one point seven nine. And
Speaker 1: that's the Bloomberg Business Flash. He's taking stock with Kathleen
Speaker 1: Hayes and Grim Fox on Bloomberg Radio, continuing a live
Speaker 1: broadcast here in the City by the Bay where at
Speaker 1: San Francisco's Bloomberg San Francisco Office. We had a nice
Speaker 1: conversation today, in fact, a lovely conversation with the John Williams,
Speaker 1: President of Federals or Bank of San Francisco, and two
Speaker 1: of his top research economist, Mary Daily and John Fernald.
Speaker 1: Now we want to bring in another San Francisco guest,
Speaker 1: Michael Cogino. He's president of Pacific Heights Asset Management. He's
Speaker 1: also a portfolio manager at Permanent Portfolio Funds. To take
Speaker 1: a look at what John Williams said today and connect
Speaker 1: the dots to do a stock market stocks of course
Speaker 1: having a tough day today with concern about a slugger
Speaker 1: pace of global growth. That maybe some uninspiring corporate earnings,
Speaker 1: but when it comes to the global economy, John Williams
Speaker 1: doesn't seem as concerned perhaps as a stock market. So welcome,
Speaker 1: Thank you for joining me down here at our bureau.
Speaker 1: Thanks for having me so we can get to the
Speaker 1: more specifics of the stock market today. But John Williams,
Speaker 1: labor market is still growing, Inflation is not at target,
Speaker 1: but there are signs that it's moving in the right direction.
Speaker 1: He can see the strains in the global economy, but
Speaker 1: absence a big shock, he doesn't see it reverberating back
Speaker 1: to the US. And he did say that the current
Speaker 1: status quo, if I may paraphrase him, would be sufficient
Speaker 1: for him to be on board with that rate hike
Speaker 1: in June. What does that mean for the stock market, Well,
Speaker 1: I mean, I think the stock market is in various
Speaker 1: stages of pricing in zero, one or two rate increases
Speaker 1: this year. So I'm not sure you know, we've come
Speaker 1: a long way since the February lows. UM, we're down
Speaker 1: about two percent off our highs in the SMP five
Speaker 1: hundred based on today's trade, not a material amount, but
Speaker 1: a little bit of a slow down from where we
Speaker 1: were in March and April. So I think the markets
Speaker 1: uh awaiting every word from the Fed and trying to
Speaker 1: adjust and calibrate accordingly UM based on whether it's gonna
Speaker 1: be zero one or two, and I would expect that
Speaker 1: to continue going forward. Hey Michael, you know I was
Speaker 1: looking at the permanent portfolio and you're to date it
Speaker 1: this up more than eleven percent. How did you do that? Well?
Speaker 1: We maintain a disciplined asset allocation approach all the time,
Speaker 1: and so you know, we sit here and talk about
Speaker 1: is the FED going to do this or that, or
Speaker 1: you know, make predictions. Our whole thesis is that we
Speaker 1: don't want to make predictions. We want to be spread
Speaker 1: out among a bunch of different asset classes all the time.
Speaker 1: Thereby we don't have to make predictions. And I think
Speaker 1: that sort of strategy helped us well in the first
Speaker 1: quarter and so far through May here because we were
Speaker 1: in some assets like gold, like silver, like natural resource
Speaker 1: stocks that nobody wanted to touch earlier in the year,
Speaker 1: but we think are an integral part of economic growth
Speaker 1: and wealth building, and so we had exposure um there
Speaker 1: and took advantage of it so far. So I think
Speaker 1: that explains quite a bit of it. The bond market
Speaker 1: helped a little bit, and some of our growth stocks
Speaker 1: again we're leverage twice Facebook. Facebook is a good example.
Speaker 1: Some of the holdings in our transportation sector. Areas that
Speaker 1: were beaten down towards the end of last year that
Speaker 1: nobody really wanted to own were things that uh, we
Speaker 1: owned and continue to own and and added to along
Speaker 1: the way based on valuation, and they helped us so far. Okay,
Speaker 1: So apply that metric to perhaps some overlooked and underloved
Speaker 1: investments right now in the stock market, I'd apply the
Speaker 1: philosophies to the same thing. We don't plan on changing
Speaker 1: our approach, Who've been doing it for thirty four years.
Speaker 1: But uh, I think in any situation when you have
Speaker 1: big moves um in asset classes, there is gonna be
Speaker 1: a consolidation, There is gonna be some sort of profit taking.
Speaker 1: So you know, I think we should expect that in
Speaker 1: some of the areas in the shorter term that have
Speaker 1: run really well so far this year. But in the
Speaker 1: longer term, we think there's an opportunity. I think we're
Speaker 1: at the bottom of a commodity cycle, for example. And uh,
Speaker 1: while some of the stocks energy industrial medals have come
Speaker 1: a long way so far this year, there's still way
Speaker 1: way off where they were, you know, several years ago,
Speaker 1: and probably in their long term trends, and the world
Speaker 1: still needs this stuff. So for it's an investor with
Speaker 1: a strong stomach and you can afford to wait, and
Speaker 1: you you don't mind the volatility. That's an area where
Speaker 1: you go. UM. Certain other areas of the stock market
Speaker 1: I think have been attractive. I mean, texts slowed down
Speaker 1: a little bit. That may present some opportunities. Financial services,
Speaker 1: depending on what the FED does, UM may present some opportunities.
Speaker 1: We do like the transportation sector. We believe in global
Speaker 1: growth as a longer term story. And yes it's hiccupping
Speaker 1: right now, but we think, UM, you know, that area
Speaker 1: has been beaten down, and again for long term investor,
Speaker 1: that's sort of where you want to be. And we
Speaker 1: do worry about UM the declining value of US currency
Speaker 1: as well as the rest of the world's currencies, and
Speaker 1: so hard assets like gold and silver attractive to us
Speaker 1: on a long term basis on that front, regardless of
Speaker 1: where the dollar trades, and these to be that stuff.
Speaker 1: So we we continue to maintain a diversified approach, and
Speaker 1: our view on the FED is probably Yuh, it could
Speaker 1: be zero, could be one could be to UM. A
Speaker 1: June and December move to US makes perfect sense. Then again,
Speaker 1: based on their comments about global growth and them worrying
Speaker 1: about that and the diversions between US rates and the
Speaker 1: rest of the world. I could see them doing nothing
Speaker 1: this year as well. Our view is we don't want
Speaker 1: to try to predict it. Have you gotten many calls
Speaker 1: from clients and customers asking for yield products because they
Speaker 1: are frustrated by low yield environment? Definitely UM And in fact,
Speaker 1: since we tend to invest in in sort of higher volatility,
Speaker 1: higher growth oriented type equities which aren't necessary always high
Speaker 1: dividend payers. Um. You know, we've had investors call up
Speaker 1: and say, gee, you know, you ought to be investing
Speaker 1: in more you know, consumers and utilities, and why are
Speaker 1: you doing some of that stuff and and you know, Um,
Speaker 1: while there are opportunities there, a lot of that stuff
Speaker 1: was was well overbought. And while they are attractive yields,
Speaker 1: we counsel people that you should never buy equities based
Speaker 1: on yield alan stocks can be very, very volatile and
Speaker 1: UM and so investors should be prepared for that. Similarly,
Speaker 1: in the bond market, we tend to have for the
Speaker 1: last few years here tended to be more on the
Speaker 1: conservative side, higher quality balance sheets, lower to medium inter
Speaker 1: intermediate duration UM. You know, our permanent portfolios duration I
Speaker 1: think is less than five years in our bond holdings
Speaker 1: right now, where it's treasuries or corporates UM and our
Speaker 1: Swiss UM our bond funds similarly, we have a duration
Speaker 1: of about five or six years I think UM. And
Speaker 1: we're looking at mostly investment grade UM in both cases
Speaker 1: and permanent it's all investment grade bonds, treasuries and high
Speaker 1: grade corporates. In our versatile bond product we're investing in UH,
Speaker 1: I think we're about three quarters sevent to two thirds
Speaker 1: to three quarters investment grade UM. And we think given
Speaker 1: the uncertain interest rates, given the divergence between the FED
Speaker 1: and the rest of the world central bank, some conservatism
Speaker 1: should be warranted with respect to bonds right now. So
Speaker 1: what about the global outlook again? John Williams, presidents president
Speaker 1: of San Francisco FED, seems uh not overly concerned. He
Speaker 1: can understand that, yes, you have to see what what
Speaker 1: the gyrations in the global economy, what the impact could
Speaker 1: be on the US economy. But what about corporations? What
Speaker 1: about companies with big corporations A lot of them might
Speaker 1: be some of those blue chip dividend pain kind of
Speaker 1: companies that a lot of people still favor. If there
Speaker 1: is concerned about the global economy, what is the outlook
Speaker 1: for them? And are there some again some undiscovered gems there. Well,
Speaker 1: you know, we're in, depending on how you cut it,
Speaker 1: the second third or fourth quarter of an earnings growth
Speaker 1: decline on the SMP five UM. Some industries have felt
Speaker 1: it more than others. You're not gonna be able to
Speaker 1: grow dividends if you can't grow earnings, and you can't
Speaker 1: grow earnings if you don't have top line growth, and
Speaker 1: if you have the additional headwinds of a relatively strong
Speaker 1: dollar visa v. Everybody else, that's going to prevent problems
Speaker 1: as well. So the yields may not be as safe
Speaker 1: as some people believe, especially if you have some sort
Speaker 1: of an economic slowdown in the States UM and a
Speaker 1: general recessionary situation. And let's be you know, let's be honest.
Speaker 1: I mean, the US is growing at UH maybe two
Speaker 1: percent annualized GDP at the best and UH and last
Speaker 1: week's number on Q one was absolutely horrible. UM. Now
Speaker 1: it may get upgraded, but we look like we're decelerating,
Speaker 1: not accelerating, and Uh, I wouldn't predict that, but but
Speaker 1: the data points have been mixed so far. And so yes,
Speaker 1: the employment picture looks good. Yes, we've had some opticks
Speaker 1: and inflation, but we haven't had enough to say we've
Speaker 1: got sustainable inflation. UM. Global growth remains anemic and week
Speaker 1: UM the China p m I number today was not strong.
Speaker 1: So I think investors need to be cautious of all
Speaker 1: of that UM and UH and keep that in mind
Speaker 1: in terms of their risk profile at this point in time.
Speaker 1: Michael Coo, what's the biggest mistake you've made in the
Speaker 1: last twelve months investing money? The last twelve months? Actually, UM,
Speaker 1: if you want to extend it out too long, I'd
Speaker 1: say probably lighten up our gold in the spring of thirteen.
Speaker 1: Maybe UM. More recently, I mean our last six and
Speaker 1: nine months have been pretty good. UM. I would say, uh,
Speaker 1: maybe not lightening up on some of our natural resource
Speaker 1: stocks towards the end of last year UM quicker than
Speaker 1: we did. UM. So I mean we experienced, you know,
Speaker 1: the third quarter for US last year in permanent portfolio
Speaker 1: was not a good one. We stabilized in Q four UM,
Speaker 1: but that quarter took everybody by surprise, and I guess
Speaker 1: us included the sell off and energy that drastically is
Speaker 1: sell off and commodities UM. While we would have had
Speaker 1: exposure there anyway, we might have lightened up and so UM.
Speaker 1: Not being quick enough on that one may have hurt.
Speaker 1: So what you can do differently now? Right now, we're
Speaker 1: looking at a lot of different areas. I mean, am
Speaker 1: I gonna do anything differently in terms of how we
Speaker 1: manage it? No. We manage a diversified fund all the time.
Speaker 1: Are we gonna change the way we look at equities, No,
Speaker 1: definitely not. We're gonna look for opportunities that fit into
Speaker 1: our our longer term profile of how we pick stocks.
Speaker 1: Same with bonds, UM, and same with commodities and precious metals.
Speaker 1: So we're gonna continue to be diligent. We're gonna invest
Speaker 1: to produce the best return we can in the environment
Speaker 1: we're given UM and and troll that we can control,
Speaker 1: so to speak. Thank you very much. Michael Cogino. He
Speaker 1: is the president of Pacific Heights Asset Management and portfolio
Speaker 1: manager at Permanent Portfolio Funds. You're listening to Bloomberg Radio