WEBVTT - Pacific Heights' Cuggino Sees Global Growth Long Term (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot Com, the Radio, plus Globo Last and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Katherine Colly. Economic an earnings concerns are dragging the

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<v Speaker 1>stock market lower today. China and the UK reported weaker

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<v Speaker 1>than forecast factory data, reminding investors of the global economic slowdown,

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<v Speaker 1>and US earnings remain mixed. A i G shares are

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<v Speaker 1>defining after recorded a third straight on profitable quarter. Meanwhile,

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<v Speaker 1>Fiser shares are gaining after it raised its outlook. We

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<v Speaker 1>check the markets every fifteen minutes throughout the trading day.

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<v Speaker 1>Down Industrial averages down one hundred fifty two points seven

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<v Speaker 1>eight percent. Is trading at seventeen thousand, seven hundred thirty nine.

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<v Speaker 1>SMP five founded down twenty points a loss of one percent,

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<v Speaker 1>trading at two thousand sixty one. Then NAZZAC is down

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<v Speaker 1>fifty six points one point two percent, trading at forty

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<v Speaker 1>seven sixty. West Texas Intermediate crude oil down a dollar

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<v Speaker 1>eight of barrel two point four two point four at

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<v Speaker 1>forty three seventy. Spot gold is down seven dollars fifty

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<v Speaker 1>cents out at thirty and a tenure treasury is up

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<v Speaker 1>seconds with the yield of one point seven nine. And

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<v Speaker 1>that's the Bloomberg Business Flash. He's taking stock with Kathleen

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<v Speaker 1>Hayes and Grim Fox on Bloomberg Radio, continuing a live

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<v Speaker 1>broadcast here in the City by the Bay where at

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<v Speaker 1>San Francisco's Bloomberg San Francisco Office. We had a nice

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<v Speaker 1>conversation today, in fact, a lovely conversation with the John Williams,

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<v Speaker 1>President of Federals or Bank of San Francisco, and two

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<v Speaker 1>of his top research economist, Mary Daily and John Fernald.

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<v Speaker 1>Now we want to bring in another San Francisco guest,

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<v Speaker 1>Michael Cogino. He's president of Pacific Heights Asset Management. He's

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<v Speaker 1>also a portfolio manager at Permanent Portfolio Funds. To take

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<v Speaker 1>a look at what John Williams said today and connect

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<v Speaker 1>the dots to do a stock market stocks of course

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<v Speaker 1>having a tough day today with concern about a slugger

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<v Speaker 1>pace of global growth. That maybe some uninspiring corporate earnings,

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<v Speaker 1>but when it comes to the global economy, John Williams

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<v Speaker 1>doesn't seem as concerned perhaps as a stock market. So welcome,

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<v Speaker 1>Thank you for joining me down here at our bureau.

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<v Speaker 1>Thanks for having me so we can get to the

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<v Speaker 1>more specifics of the stock market today. But John Williams,

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<v Speaker 1>labor market is still growing, Inflation is not at target,

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<v Speaker 1>but there are signs that it's moving in the right direction.

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<v Speaker 1>He can see the strains in the global economy, but

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<v Speaker 1>absence a big shock, he doesn't see it reverberating back

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<v Speaker 1>to the US. And he did say that the current

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<v Speaker 1>status quo, if I may paraphrase him, would be sufficient

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<v Speaker 1>for him to be on board with that rate hike

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<v Speaker 1>in June. What does that mean for the stock market, Well,

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<v Speaker 1>I mean, I think the stock market is in various

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<v Speaker 1>stages of pricing in zero, one or two rate increases

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<v Speaker 1>this year. So I'm not sure you know, we've come

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<v Speaker 1>a long way since the February lows. UM, we're down

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<v Speaker 1>about two percent off our highs in the SMP five

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<v Speaker 1>hundred based on today's trade, not a material amount, but

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<v Speaker 1>a little bit of a slow down from where we

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<v Speaker 1>were in March and April. So I think the markets

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<v Speaker 1>uh awaiting every word from the Fed and trying to

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<v Speaker 1>adjust and calibrate accordingly UM based on whether it's gonna

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<v Speaker 1>be zero one or two, and I would expect that

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<v Speaker 1>to continue going forward. Hey Michael, you know I was

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<v Speaker 1>looking at the permanent portfolio and you're to date it

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<v Speaker 1>this up more than eleven percent. How did you do that? Well?

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<v Speaker 1>We maintain a disciplined asset allocation approach all the time,

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<v Speaker 1>and so you know, we sit here and talk about

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<v Speaker 1>is the FED going to do this or that, or

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<v Speaker 1>you know, make predictions. Our whole thesis is that we

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<v Speaker 1>don't want to make predictions. We want to be spread

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<v Speaker 1>out among a bunch of different asset classes all the time.

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<v Speaker 1>Thereby we don't have to make predictions. And I think

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<v Speaker 1>that sort of strategy helped us well in the first

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<v Speaker 1>quarter and so far through May here because we were

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<v Speaker 1>in some assets like gold, like silver, like natural resource

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<v Speaker 1>stocks that nobody wanted to touch earlier in the year,

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<v Speaker 1>but we think are an integral part of economic growth

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<v Speaker 1>and wealth building, and so we had exposure um there

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<v Speaker 1>and took advantage of it so far. So I think

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<v Speaker 1>that explains quite a bit of it. The bond market

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<v Speaker 1>helped a little bit, and some of our growth stocks

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<v Speaker 1>again we're leverage twice Facebook. Facebook is a good example.

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<v Speaker 1>Some of the holdings in our transportation sector. Areas that

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<v Speaker 1>were beaten down towards the end of last year that

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<v Speaker 1>nobody really wanted to own were things that uh, we

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<v Speaker 1>owned and continue to own and and added to along

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<v Speaker 1>the way based on valuation, and they helped us so far. Okay,

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<v Speaker 1>So apply that metric to perhaps some overlooked and underloved

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<v Speaker 1>investments right now in the stock market, I'd apply the

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<v Speaker 1>philosophies to the same thing. We don't plan on changing

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<v Speaker 1>our approach, Who've been doing it for thirty four years.

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<v Speaker 1>But uh, I think in any situation when you have

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<v Speaker 1>big moves um in asset classes, there is gonna be

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<v Speaker 1>a consolidation, There is gonna be some sort of profit taking.

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<v Speaker 1>So you know, I think we should expect that in

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<v Speaker 1>some of the areas in the shorter term that have

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<v Speaker 1>run really well so far this year. But in the

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<v Speaker 1>longer term, we think there's an opportunity. I think we're

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<v Speaker 1>at the bottom of a commodity cycle, for example. And uh,

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<v Speaker 1>while some of the stocks energy industrial medals have come

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<v Speaker 1>a long way so far this year, there's still way

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<v Speaker 1>way off where they were, you know, several years ago,

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<v Speaker 1>and probably in their long term trends, and the world

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<v Speaker 1>still needs this stuff. So for it's an investor with

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<v Speaker 1>a strong stomach and you can afford to wait, and

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<v Speaker 1>you you don't mind the volatility. That's an area where

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<v Speaker 1>you go. UM. Certain other areas of the stock market

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<v Speaker 1>I think have been attractive. I mean, texts slowed down

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<v Speaker 1>a little bit. That may present some opportunities. Financial services,

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<v Speaker 1>depending on what the FED does, UM may present some opportunities.

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<v Speaker 1>We do like the transportation sector. We believe in global

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<v Speaker 1>growth as a longer term story. And yes it's hiccupping

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<v Speaker 1>right now, but we think, UM, you know, that area

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<v Speaker 1>has been beaten down, and again for long term investor,

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<v Speaker 1>that's sort of where you want to be. And we

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<v Speaker 1>do worry about UM the declining value of US currency

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<v Speaker 1>as well as the rest of the world's currencies, and

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<v Speaker 1>so hard assets like gold and silver attractive to us

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<v Speaker 1>on a long term basis on that front, regardless of

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<v Speaker 1>where the dollar trades, and these to be that stuff.

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<v Speaker 1>So we we continue to maintain a diversified approach, and

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<v Speaker 1>our view on the FED is probably Yuh, it could

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<v Speaker 1>be zero, could be one could be to UM. A

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<v Speaker 1>June and December move to US makes perfect sense. Then again,

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<v Speaker 1>based on their comments about global growth and them worrying

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<v Speaker 1>about that and the diversions between US rates and the

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<v Speaker 1>rest of the world. I could see them doing nothing

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<v Speaker 1>this year as well. Our view is we don't want

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<v Speaker 1>to try to predict it. Have you gotten many calls

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<v Speaker 1>from clients and customers asking for yield products because they

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<v Speaker 1>are frustrated by low yield environment? Definitely UM And in fact,

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<v Speaker 1>since we tend to invest in in sort of higher volatility,

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<v Speaker 1>higher growth oriented type equities which aren't necessary always high

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<v Speaker 1>dividend payers. Um. You know, we've had investors call up

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<v Speaker 1>and say, gee, you know, you ought to be investing

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<v Speaker 1>in more you know, consumers and utilities, and why are

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<v Speaker 1>you doing some of that stuff and and you know, Um,

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<v Speaker 1>while there are opportunities there, a lot of that stuff

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<v Speaker 1>was was well overbought. And while they are attractive yields,

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<v Speaker 1>we counsel people that you should never buy equities based

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<v Speaker 1>on yield alan stocks can be very, very volatile and

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<v Speaker 1>UM and so investors should be prepared for that. Similarly,

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<v Speaker 1>in the bond market, we tend to have for the

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<v Speaker 1>last few years here tended to be more on the

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<v Speaker 1>conservative side, higher quality balance sheets, lower to medium inter

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<v Speaker 1>intermediate duration UM. You know, our permanent portfolios duration I

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<v Speaker 1>think is less than five years in our bond holdings

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<v Speaker 1>right now, where it's treasuries or corporates UM and our

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<v Speaker 1>Swiss UM our bond funds similarly, we have a duration

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<v Speaker 1>of about five or six years I think UM. And

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<v Speaker 1>we're looking at mostly investment grade UM in both cases

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<v Speaker 1>and permanent it's all investment grade bonds, treasuries and high

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<v Speaker 1>grade corporates. In our versatile bond product we're investing in UH,

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<v Speaker 1>I think we're about three quarters sevent to two thirds

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<v Speaker 1>to three quarters investment grade UM. And we think given

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<v Speaker 1>the uncertain interest rates, given the divergence between the FED

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<v Speaker 1>and the rest of the world central bank, some conservatism

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<v Speaker 1>should be warranted with respect to bonds right now. So

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<v Speaker 1>what about the global outlook again? John Williams, presidents president

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<v Speaker 1>of San Francisco FED, seems uh not overly concerned. He

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<v Speaker 1>can understand that, yes, you have to see what what

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<v Speaker 1>the gyrations in the global economy, what the impact could

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<v Speaker 1>be on the US economy. But what about corporations? What

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<v Speaker 1>about companies with big corporations A lot of them might

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<v Speaker 1>be some of those blue chip dividend pain kind of

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<v Speaker 1>companies that a lot of people still favor. If there

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<v Speaker 1>is concerned about the global economy, what is the outlook

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<v Speaker 1>for them? And are there some again some undiscovered gems there. Well,

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<v Speaker 1>you know, we're in, depending on how you cut it,

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<v Speaker 1>the second third or fourth quarter of an earnings growth

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<v Speaker 1>decline on the SMP five UM. Some industries have felt

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<v Speaker 1>it more than others. You're not gonna be able to

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<v Speaker 1>grow dividends if you can't grow earnings, and you can't

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<v Speaker 1>grow earnings if you don't have top line growth, and

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<v Speaker 1>if you have the additional headwinds of a relatively strong

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<v Speaker 1>dollar visa v. Everybody else, that's going to prevent problems

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<v Speaker 1>as well. So the yields may not be as safe

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<v Speaker 1>as some people believe, especially if you have some sort

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<v Speaker 1>of an economic slowdown in the States UM and a

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<v Speaker 1>general recessionary situation. And let's be you know, let's be honest.

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<v Speaker 1>I mean, the US is growing at UH maybe two

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<v Speaker 1>percent annualized GDP at the best and UH and last

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<v Speaker 1>week's number on Q one was absolutely horrible. UM. Now

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<v Speaker 1>it may get upgraded, but we look like we're decelerating,

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<v Speaker 1>not accelerating, and Uh, I wouldn't predict that, but but

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<v Speaker 1>the data points have been mixed so far. And so yes,

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<v Speaker 1>the employment picture looks good. Yes, we've had some opticks

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<v Speaker 1>and inflation, but we haven't had enough to say we've

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<v Speaker 1>got sustainable inflation. UM. Global growth remains anemic and week

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<v Speaker 1>UM the China p m I number today was not strong.

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<v Speaker 1>So I think investors need to be cautious of all

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<v Speaker 1>of that UM and UH and keep that in mind

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<v Speaker 1>in terms of their risk profile at this point in time.

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<v Speaker 1>Michael Coo, what's the biggest mistake you've made in the

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<v Speaker 1>last twelve months investing money? The last twelve months? Actually, UM,

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<v Speaker 1>if you want to extend it out too long, I'd

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<v Speaker 1>say probably lighten up our gold in the spring of thirteen.

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<v Speaker 1>Maybe UM. More recently, I mean our last six and

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<v Speaker 1>nine months have been pretty good. UM. I would say, uh,

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<v Speaker 1>maybe not lightening up on some of our natural resource

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<v Speaker 1>stocks towards the end of last year UM quicker than

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<v Speaker 1>we did. UM. So I mean we experienced, you know,

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<v Speaker 1>the third quarter for US last year in permanent portfolio

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<v Speaker 1>was not a good one. We stabilized in Q four UM,

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<v Speaker 1>but that quarter took everybody by surprise, and I guess

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<v Speaker 1>us included the sell off and energy that drastically is

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<v Speaker 1>sell off and commodities UM. While we would have had

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<v Speaker 1>exposure there anyway, we might have lightened up and so UM.

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<v Speaker 1>Not being quick enough on that one may have hurt.

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<v Speaker 1>So what you can do differently now? Right now, we're

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<v Speaker 1>looking at a lot of different areas. I mean, am

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<v Speaker 1>I gonna do anything differently in terms of how we

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<v Speaker 1>manage it? No. We manage a diversified fund all the time.

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<v Speaker 1>Are we gonna change the way we look at equities, No,

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<v Speaker 1>definitely not. We're gonna look for opportunities that fit into

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<v Speaker 1>our our longer term profile of how we pick stocks.

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<v Speaker 1>Same with bonds, UM, and same with commodities and precious metals.

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<v Speaker 1>So we're gonna continue to be diligent. We're gonna invest

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<v Speaker 1>to produce the best return we can in the environment

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<v Speaker 1>we're given UM and and troll that we can control,

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<v Speaker 1>so to speak. Thank you very much. Michael Cogino. He

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<v Speaker 1>is the president of Pacific Heights Asset Management and portfolio

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<v Speaker 1>manager at Permanent Portfolio Funds. You're listening to Bloomberg Radio