WEBVTT - Wells Fargo's Manley: Sees Earnings Lift, Likes Mid-Caps(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>This is a Bloomberg Business Flash from Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie Pellet. Stalks are lower with the SMP five

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<v Speaker 1>hundred index down two points now at two thousand and

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<v Speaker 1>eighty six. To drop there one tenth of one percent.

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<v Speaker 1>Navastank is down eight to thirty five, a drop of

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<v Speaker 1>two tenths of one percent. Down in dust wheels down

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<v Speaker 1>forty five, a drop of three tenths of one percent.

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<v Speaker 1>The tenure of eight thirty seconds that yield one point

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<v Speaker 1>six seven percent. Gold down five dollars the ounce to

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<v Speaker 1>twelve sixty seven to drop there are four tenths of

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<v Speaker 1>one percent, and crude oil is down one and a

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<v Speaker 1>half percent, down seventy four cents of arral right now

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<v Speaker 1>West Texas Intermediate at forty nine dollars and eleven cents.

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<v Speaker 1>I'm Charlie Pellott. That's a Bloomberg Business Flash, Charlie Pellot,

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<v Speaker 1>thank you so very much. Time now for the et

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<v Speaker 1>F Report, brought to you by National Realty Providers of

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<v Speaker 1>one percent satisfaction guaranteed new York City Realty Investments. See

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<v Speaker 1>them at n r I a dot net. Let's turn

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<v Speaker 1>out to our own, Catherine Cowdery. The Obama administration is

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<v Speaker 1>opening US guys to more commercial drones with a long

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<v Speaker 1>awaited regulations. The new rules are designed to allow routine

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<v Speaker 1>use of small drones by real estate agents, farmers, filmmakers,

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<v Speaker 1>and countless other commercial operators. One of the thematic ets

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<v Speaker 1>has launched this year focuses on drones. Andrew chain In,

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<v Speaker 1>chief executive of Pure Funds, on why his firm launched

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<v Speaker 1>the I fly e t F. Drones is something that's

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<v Speaker 1>They've been around, but now their uses are expanding rapidly

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<v Speaker 1>due to technology and realization that they can be used

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<v Speaker 1>for agriculture, to fight diseases, UH, for medical um UH

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<v Speaker 1>for for dropping on medical supplies and remote areas. These

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<v Speaker 1>are things that the uses as technology increases, will be

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<v Speaker 1>much more prevalent in our society. The Pure Funds Drone

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<v Speaker 1>Economy Strategy e t F has two point six million

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<v Speaker 1>dollars in total assets and an expense ratio of seventy five.

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<v Speaker 1>Based his points, it's top holdings include Parrot Air, Environment, Bowing,

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<v Speaker 1>and go Pro. It's gained four point nine percent over

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<v Speaker 1>the past month. That's your Bloomberg ETF report. I'm Catherine Cowdery.

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<v Speaker 1>This is taking Stock with pim Box and Kathleen Hayes

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<v Speaker 1>on Bloomberg Radio. Negative interest rates in the credit markets.

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<v Speaker 1>US Treasury the ten year yielding one pan six seven percent,

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<v Speaker 1>the thirty years under two and a half percent. What

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<v Speaker 1>to do with your money? John Manley is the chief

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<v Speaker 1>equity strategist at Wells Fargo Funds Management, helping to manage

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<v Speaker 1>two hundred and forty five billion dollars, and he joins

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<v Speaker 1>us here in the studio. John, thank you very much

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<v Speaker 1>for coming in. Thank you for having me. All right,

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<v Speaker 1>equity strategist. You're getting a lot of calls from people saying,

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<v Speaker 1>I can't live on my bond income. Can you help

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<v Speaker 1>me out with some equities? Yeah? Absolutely, It's been going

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<v Speaker 1>on for a while. And what else are you gonna do?

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<v Speaker 1>I think it's it's the worst form of investment except

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<v Speaker 1>for all the others. When it comes to yield, and

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<v Speaker 1>I think you can they'll buy pretty good, actually pretty

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<v Speaker 1>high quality companies with a decent yield and some chance

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<v Speaker 1>for appreciation and diving an increase in the future. So

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<v Speaker 1>it's not bad. So I remember, was it year to

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<v Speaker 1>all classes? In my head? But you know, a year

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<v Speaker 1>and a half ago, I guess dividend payers, dividend pays,

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<v Speaker 1>dividend pairs. So everybody jumped in, you know what I mean.

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<v Speaker 1>And and so now some people would say it's still

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<v Speaker 1>a good strategy, but maybe it's just a little more

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<v Speaker 1>expensive to get in. Well, I think, you know, there

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<v Speaker 1>are other fish to fry too. I think one of

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<v Speaker 1>the things that's happened for the last two years that's

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<v Speaker 1>so amazing to me is that neither stocks nor earnings

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<v Speaker 1>expectations have gone anywhere in the U S. And I

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<v Speaker 1>think that's helped the big companies as well as the

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<v Speaker 1>yield play. I think earnings are starting to lift off

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<v Speaker 1>a little bit, and if that happens, I think you

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<v Speaker 1>could see more outperformance in the MidCap sector. So I'm

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<v Speaker 1>sort of agnostic when it comes to this sort of thing.

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<v Speaker 1>I still think for myself being an aging baby when

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<v Speaker 1>we're you know, large caps are not a bad place

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<v Speaker 1>to be aging. You're not aging, John Manley, I'm aged. Actually,

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<v Speaker 1>all right, thanks thanks for setting us straight here, all right.

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<v Speaker 1>So in that con text, though, is there a change

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<v Speaker 1>in the way people view their investments. And the reason

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<v Speaker 1>I ask you, I want to get to the idea

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<v Speaker 1>of liquidity because at times of crisis or chaos, liquidity

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<v Speaker 1>is at a premium, but you don't know you you

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<v Speaker 1>should have bought it previously, right, Yeah, it's but I

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<v Speaker 1>like liquidity. I'm not so sure at real crisis moments

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<v Speaker 1>it matters because if everybody's heading for the door, I

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<v Speaker 1>don't know if you can make a door big enough.

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<v Speaker 1>You've got to be outside for its work. But I

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<v Speaker 1>think most times, one of the things that I like

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<v Speaker 1>about stock markets in mid to large cap stocks is

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<v Speaker 1>you can be wrong and change your mind and get out.

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<v Speaker 1>And I think that's incredibly important. The idea of being

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<v Speaker 1>locked into an investment when you know it's gone bad

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<v Speaker 1>must be a sickening feeling. Yeah, for thirty years, let's

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<v Speaker 1>say you lend your money to the US government for

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<v Speaker 1>thirty years or two and a half percent, you've got

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<v Speaker 1>to find someone else. If rates go higher, you've got

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<v Speaker 1>to find someone else that will take that off your hands. Well,

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<v Speaker 1>you probably will find some much. It depends how much

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<v Speaker 1>you have to cut the price for them to come

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<v Speaker 1>on board and so I think, you know, I think

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<v Speaker 1>one of the things about midcaps that we're finding sort

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<v Speaker 1>of interesting right now is they're sort of the honors

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<v Speaker 1>class of small caps, that they have some of the

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<v Speaker 1>inefficiency of small caps, but they also have some of

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<v Speaker 1>the liquidity of large caps. And I think that's that

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<v Speaker 1>might be that that might not be a bad combination.

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<v Speaker 1>Off earnings start to do better. So what is the

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<v Speaker 1>likelihood of earnings doing better? Well, they're starting to lift

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<v Speaker 1>off a little bit. First of all, I don't believe

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<v Speaker 1>the theory that they can't go higher. I know profitability

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<v Speaker 1>levels are very high, but that's happened without a surge

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<v Speaker 1>in the economy. Usually when the economy gets better, when

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<v Speaker 1>the economy starts to be a bit more robust here

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<v Speaker 1>and around the world, earnings pick up. I think that happens.

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<v Speaker 1>I just think we come from higher levels this time

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<v Speaker 1>because other things that are more secular nature of boosted profits,

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<v Speaker 1>of profitability. So I think it can happen. All right,

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<v Speaker 1>So you talk about MidCap companies, how do you define

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<v Speaker 1>MidCap these? You know, it's I I never am good

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<v Speaker 1>with numbers, so I'll sort of dodge your question as best.

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<v Speaker 1>I think the wrong business. I'm the intuitive type. You

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<v Speaker 1>know what. Sometimes they think numbers give you a false

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<v Speaker 1>sense of accuracy. I think they're smaller than bigger, they're

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<v Speaker 1>bigger than small and uh, they sort of fit somewhere

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<v Speaker 1>in the middle. So I don't have an absolute number.

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<v Speaker 1>So this is not a mid cap. This is well,

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<v Speaker 1>if you are are not wealthy, or if you are wealthy,

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<v Speaker 1>what about diversification? If you if someone comes to you

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<v Speaker 1>with ten million dollars or five hundred thousand dollars, even

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<v Speaker 1>a hundred thousand dollars and not so much. Older people

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<v Speaker 1>do this, but younger people, I mean, how how would

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<v Speaker 1>you tell them to diversify? Would you put ten percent

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<v Speaker 1>in emerging markets and in equities? And if so, what kind?

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<v Speaker 1>I'm just curious when you look at the money you're

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<v Speaker 1>the portfolios you're managing, the people you're advising, how do

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<v Speaker 1>you figure that out? Well, I mean it depends on them.

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<v Speaker 1>They sort of have to answer the questions themselves. How

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<v Speaker 1>much risk coolerant do they have? How much they how

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<v Speaker 1>about if they want to make as much money as

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<v Speaker 1>they can and not lose any Well, okay, I think

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<v Speaker 1>I might buy them dinner and talk about it over that.

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<v Speaker 1>I you know, obviously those those are predict regalship. You

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<v Speaker 1>have to take risk to make money, and I think

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<v Speaker 1>it's a question of balancing. I right now I would

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<v Speaker 1>be overweight equities, probably with a tilt towards MidCap and

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<v Speaker 1>outside the US, I mean, probably with a tilt towards Europe,

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<v Speaker 1>because I think Big Europe is getting better. Uh. And

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<v Speaker 1>I have to own some emerging markets. I do in

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<v Speaker 1>my own account because I feel there's too much potential there.

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<v Speaker 1>If there is such a thing as a compelling value,

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<v Speaker 1>I think emerging markets are compelling value. But you don't

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<v Speaker 1>get compelled right away necessarily. And John, I wonder if

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<v Speaker 1>you could comment on the notion that more and more

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<v Speaker 1>of the stock trading that goes on, the prices that

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<v Speaker 1>we see are influenced by high frequency trading and by

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<v Speaker 1>daily moves in and out. That's a very different kind

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<v Speaker 1>of world than investing your money. That certainly is, and

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<v Speaker 1>it's not a world that I understand very well or

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<v Speaker 1>that I want to participate. I understand it, but I

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<v Speaker 1>don't necessarily want to participate. And I sort of figured

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<v Speaker 1>that these these trading operations create opportunities for people who

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<v Speaker 1>are investors, and it requires you have a strong stomach

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<v Speaker 1>and a sense that you have an idea of what's

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<v Speaker 1>really going on. So how do I want to describe it?

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<v Speaker 1>I think to a degree that the high frequency trading

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<v Speaker 1>may put a little vibration in the market from time

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<v Speaker 1>to time. I don't think at the end of the

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<v Speaker 1>week or the end of the month, and certainly not

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<v Speaker 1>at the end of the year, it's gonna make any

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<v Speaker 1>difference to the way I want to invest my money.

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<v Speaker 1>Though uncertainty Jane Allen is uncertainty, uh to the to

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<v Speaker 1>a maximum degree. She's uncertain enough to say, you know,

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<v Speaker 1>will maybe raise rates this year. I think we will,

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<v Speaker 1>because I think the economy will pick up. But hey,

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<v Speaker 1>I I can't tell you. I just see the signs

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<v Speaker 1>that it could and should, but I've seen signs that

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<v Speaker 1>it might take longer. Well, you know, I think they

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<v Speaker 1>call her data dependent or the FED is data dependent.

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<v Speaker 1>I think that's wonderful. I'm data dependent. When I get

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<v Speaker 1>an airplane, I know it's supposed to land at three,

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<v Speaker 1>but half an hour later, I'm not going to insist

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<v Speaker 1>on getting out over scripton. It's as simple as that.

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<v Speaker 1>I'll do it when I think it's safe. She'll raise

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<v Speaker 1>rates when you think she can do it without adversely

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<v Speaker 1>affecting the economy. So all my fellow equity strategist who

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<v Speaker 1>think they know how many times she's going to do it,

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<v Speaker 1>that's kind of an interesting trick since she doesn't know

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<v Speaker 1>it herself. Yeah, I'm gonna use that metaphor. I love that.

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<v Speaker 1>Like sitting on a plane, if the weather is not right,

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<v Speaker 1>you don't take off. I think that's great for the fit. Well,

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<v Speaker 1>I thought also that John is not getting out over Schenectady.

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<v Speaker 1>If I've done that, well, I hope you've done it

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<v Speaker 1>with while the plane was on the ground. In that context, though,

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<v Speaker 1>you can't wait for what the Federal Reserve is or

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<v Speaker 1>isn't going to do if you're planning for your financial

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<v Speaker 1>future or for the future of your business. So what

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<v Speaker 1>do we know. I mean, we don't know how many

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<v Speaker 1>times are going to raise rates. But I think to me,

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<v Speaker 1>the real question is is the Fed going to want

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<v Speaker 1>to encourage your discourage economic growth from the next twelve

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<v Speaker 1>to eighteen months. And I think that's a much easier question.

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<v Speaker 1>They're not going to try and discourage growth. If they

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<v Speaker 1>try and encourage growth, and they that includes higher rates.

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<v Speaker 1>It only includes higher rates if they think the economy

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<v Speaker 1>can adjust to those rights will not hurt it. So

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<v Speaker 1>the FED, as far as I'm concerned, is still gonna

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<v Speaker 1>be pushing money towards the economy in the next year

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<v Speaker 1>or so. That's at least a supportive factor for stocks,

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<v Speaker 1>pushing money towards the economy. In other words, they will

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<v Speaker 1>not raise rates much, if at all, and they won't

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<v Speaker 1>sell any bonds out of that big, big portfolio bonds.

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<v Speaker 1>I can't see that the next twelve months. I mean,

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<v Speaker 1>it's possible, but we'd have a much stronger economy between

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<v Speaker 1>now and then I think of it. The Fed's job

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<v Speaker 1>is to maximize growth and and and minimize inflation, which

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<v Speaker 1>is sort of the conundrum you gave me earlier in

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<v Speaker 1>the show. How do you do that? The answer is

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<v Speaker 1>they try and regulate the economy, and all they can

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<v Speaker 1>do they can't make is buy things or not buy things,

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<v Speaker 1>build or not build. All they can do is make

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<v Speaker 1>the money seem cheaper expensive. Well, I think there's also

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<v Speaker 1>this minimax theory that the FED and Jennet Ellensama I

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<v Speaker 1>think has mentioned it. You minimize the worst these days,

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<v Speaker 1>mistake you could make, and probably for now, the fed's

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<v Speaker 1>worst mistake would be raising rates prematurely. John Manley taken

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<v Speaker 1>off today here at Bloomberg Radio, chief equity strategist Wells

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<v Speaker 1>Fargo Funds Management. He thinks earnings could pick up. The

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<v Speaker 1>Fed's going to be some wind at the stock market's back,

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<v Speaker 1>and those mid caps look pretty darn good to him.

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<v Speaker 1>Caffeine his pim Fox taking stock on Bloberg Radio