WEBVTT - Surveillance: Equity Picks With Gabelli 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Farrell and Lisa Brownwitz Jaily, we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com 0:00:23.920 --> 0:00:31.600 and of course on the Bloomberg terminal. Maria Gabelly with 0:00:31.720 --> 0:00:34.560 us right now, needs no introduction with Gabelly Funds and also, 0:00:34.600 --> 0:00:38.159 of course is wonderful individual stock work sometimes see it 0:00:38.200 --> 0:00:40.640 in Baron's were thrilled at Mr Gobelly could join us 0:00:40.840 --> 0:00:43.000 this morning. Mary, I'm gonna stay in a stock theme 0:00:43.400 --> 0:00:46.000 and I'm gonna start out with your wheelhouse long agoing 0:00:46.080 --> 0:00:48.640 far away. You knew where spark plug went. You knew 0:00:48.640 --> 0:00:52.680 the carburetors. You know the automobiles and the tractors. Case 0:00:52.920 --> 0:00:57.880 Holland is a bet on the American agriculture. You go long, 0:00:58.000 --> 0:01:02.240 Case Holland, Why, well, I've got Let's assume the stock 0:01:02.280 --> 0:01:04.480 markets flat for the next two years. Assumed that the 0:01:04.560 --> 0:01:06.200 ten year bond is two and a half of two 0:01:06.360 --> 0:01:11.039 corporate taxes. How do you make so I look for 0:01:11.120 --> 0:01:15.120 companies that can benefit from infrastructure? Case knew how even 0:01:15.120 --> 0:01:18.280 if there isn't any, the construction business will boom in 0:01:18.360 --> 0:01:21.920 part because of the tailwind up CAPEX from corporation. Secondly, 0:01:22.280 --> 0:01:25.920 the agricultural ecosystem farmers have underspent, but more importantly than that, 0:01:26.080 --> 0:01:29.800 tom more importantly, they want precision farming. That's the name 0:01:29.800 --> 0:01:33.559 of the game. Less water, more precise, less labor because 0:01:33.560 --> 0:01:36.679 your factors can do it autonomously. And then what you 0:01:36.720 --> 0:01:40.479 want to own is a company, uh that basically also 0:01:40.520 --> 0:01:43.520 has an ability to do s G. A new CEO 0:01:43.720 --> 0:01:47.000 Scott Wine came up from Fars and so case New 0:01:47.000 --> 0:01:49.040 Holland a fifteen and a half dollars with a bucket 0:01:49.040 --> 0:01:51.440 of quarter and earnings in two years and a spinoff 0:01:51.440 --> 0:01:54.960 of their Ibico business, which is financial engineering. That's enough 0:01:55.040 --> 0:01:58.000 reasons done it and buy it. Well, let's continue the 0:01:58.000 --> 0:02:00.680 theme here. Heister. Yeah, most of our viewer and listeners 0:02:00.680 --> 0:02:04.080 don't know Hoister h y s t R. Heister Yale. 0:02:04.200 --> 0:02:08.600 That's not Amazon. What's the risk here of missing out 0:02:08.639 --> 0:02:11.440 on Amazon and Apple if I go into a gabelly 0:02:11.600 --> 0:02:17.360 case Hollander Heister Yale. Well, the notion is that you 0:02:17.560 --> 0:02:22.320 basically have choice in life and choice in making another 0:02:22.360 --> 0:02:25.079 one of my fifty per centers. Tom is a company 0:02:25.160 --> 0:02:28.400 called GROUPO Televisa. But going back to Hister Yelle, the 0:02:28.400 --> 0:02:31.760 stock seventy three, the sixteen million chairs Rankin, who's a 0:02:31.840 --> 0:02:34.520 young guy at seventy nine, same age as Biden. He 0:02:34.680 --> 0:02:38.239 basically is running the company and they put too much 0:02:38.280 --> 0:02:42.880 money without demonstrating the success in creating a hydrogen fuel 0:02:42.919 --> 0:02:46.320 for their forklift trucks and then taking that skill set 0:02:46.360 --> 0:02:48.600 and moving it elsewhere. You know, it's a it's a 0:02:48.639 --> 0:02:51.840 good bit on the recovery of their business, which benefits 0:02:51.880 --> 0:02:55.000 from the change in the logistics and the stock seventy 0:02:55.040 --> 0:02:57.919 three we thought they would earn five dollars in two years. 0:02:57.919 --> 0:03:00.440 Were still sticking with that. But the it's not one 0:03:00.480 --> 0:03:03.359 of my nifty fifty for the moment, but it's an 0:03:03.360 --> 0:03:06.200 okay play from here and we own it. We're nibbling 0:03:06.200 --> 0:03:08.080 at it again and we own it and we haven't 0:03:08.120 --> 0:03:10.880 sold much. It went from sixty to a hundred back 0:03:10.919 --> 0:03:13.960 to sixty five or seventy where it's training. Now, let 0:03:13.960 --> 0:03:16.680 me on a bigger thing for you in the grants 0:03:16.720 --> 0:03:18.320 you at the line, and this is from your notes. 0:03:18.560 --> 0:03:20.760 I just want to say one word to you. Plastics 0:03:21.160 --> 0:03:24.920 today you say he would have said batteries why marriage. 0:03:25.639 --> 0:03:28.280 Well that's a great point, John, Let's go back one 0:03:28.320 --> 0:03:31.800 giant step. What we have to do is love the planet, 0:03:31.960 --> 0:03:34.840 love the people in our planet, and look at the 0:03:34.840 --> 0:03:39.360 potential in that regard. Climate change requires renewables, that's wind, 0:03:39.480 --> 0:03:43.360 solar transmission, where I have a bunch of companies that 0:03:43.400 --> 0:03:48.480 I like, uh, cybersecurity because there's some crazy organizations around 0:03:48.520 --> 0:03:51.480 the world that are unfettered, but also battery storage. And 0:03:51.520 --> 0:03:55.040 then on top of that you have the E V dynamic, 0:03:55.120 --> 0:03:57.960 and that is do you do lithium eye line or 0:03:57.960 --> 0:04:00.000 do you lose solid state or which of those two 0:04:00.000 --> 0:04:01.560 will work? How do you get fast charged, how to 0:04:01.600 --> 0:04:03.920 get longer distance, how do you recycle it? So the 0:04:04.040 --> 0:04:07.440 battery is an important element in that ecosystem. We're having 0:04:07.440 --> 0:04:11.000 our forty six forty six years of an auto conference 0:04:11.160 --> 0:04:15.000 this time. Last year was featuring three years ago autonomous vehicles, 0:04:15.080 --> 0:04:18.920 last year with pre owned cars, uh, and this year 0:04:19.000 --> 0:04:21.880 it's gonna be batteries. So I like that over the 0:04:21.920 --> 0:04:23.800 next three or four years, how do we get a 0:04:23.839 --> 0:04:26.480 major battery breakthrough? And companies like Berkshire have to we 0:04:26.600 --> 0:04:29.000 understand that what they're doing in their and their field, 0:04:29.000 --> 0:04:32.520 and companies that provide lithium like album mall In Live 0:04:32.600 --> 0:04:34.840 and and so on a benefit from that, And how 0:04:34.839 --> 0:04:36.520 do we do it in the US. Are you more 0:04:36.560 --> 0:04:38.599 interested in doing it then through the batteries, through the 0:04:38.600 --> 0:04:40.920 technology that goes into the car, or can you do 0:04:42.200 --> 0:04:46.000 which one is in Mariott, I've the answer is that 0:04:46.040 --> 0:04:49.720 we look at the entire ecosystem. I'm just picking batteries 0:04:49.720 --> 0:04:52.400 because it was if you saw The Graduate, which was 0:04:52.440 --> 0:04:55.719 at R rated probably at the time, it was that 0:04:55.839 --> 0:04:58.760 scene in there where Dustin Hoffman has to confront the 0:04:58.839 --> 0:05:01.440 husband or is conf unted by the husband of um 0:05:02.000 --> 0:05:04.680 end Up without getting into details for this is a 0:05:04.760 --> 0:05:09.120 next family program, I think that's it. So it's batteries 0:05:09.200 --> 0:05:11.000 is a good sound, like you could have said removal 0:05:11.040 --> 0:05:13.880 of plastics, recycling of plastics on it, but I just choice. 0:05:14.040 --> 0:05:16.839 I chose batteries because I spent my fifty five years 0:05:16.839 --> 0:05:20.200 in the auto industry. So Mario, there is a question 0:05:20.240 --> 0:05:22.839 if we want to go to the Graduate graduating parallels 0:05:23.279 --> 0:05:26.280 where Dustin Hoffman was under the water, blowing bubbles and 0:05:26.320 --> 0:05:28.400 sort of trying to reset his life, and there is 0:05:28.440 --> 0:05:30.600 a question as you try to look for bottom up 0:05:30.600 --> 0:05:34.360 opportunities about how you even evaluate what's been priced in, 0:05:34.400 --> 0:05:36.279 because a lot of the companies that you're talking about 0:05:36.320 --> 0:05:40.560 the industries, particularly within renewable energy and batteries, have been 0:05:40.560 --> 0:05:44.240 incredibly highly bid up because people agree with you, at 0:05:44.240 --> 0:05:46.360 what point is it too much and has it been 0:05:46.360 --> 0:05:50.760 priced in? You always look at value versus price. I 0:05:50.800 --> 0:05:54.440 think you'll make a significant of fifty and four years. 0:05:54.480 --> 0:05:56.000 I'll give you the four names and then you can 0:05:56.080 --> 0:05:58.839 pick whatever you want. I gave it case to Holland, 0:05:59.160 --> 0:06:01.840 I give you Group of Television because the Spanish market 0:06:01.880 --> 0:06:04.520 is doing well, the good management, the financial engineering. They're 0:06:04.560 --> 0:06:08.440 converting it with univisual Univision, and Univision is going public 0:06:08.480 --> 0:06:10.680 sometime in the next six months. And then you have 0:06:10.800 --> 0:06:13.640 in addition to that, a company that's buying at a 0:06:13.680 --> 0:06:18.240 bargain price. Going back to your E D notion Electric 0:06:18.320 --> 0:06:22.080 Vehicles for the last smile electric Vehicles period. Electric Trucks 0:06:22.279 --> 0:06:25.720 Company and UH Volkswagen spun off their truck business traded on, 0:06:25.839 --> 0:06:28.560 but they have a lot of at that intellectual capacity 0:06:28.920 --> 0:06:31.480 and they're buying at a bargain price. Navistar, which is 0:06:31.520 --> 0:06:34.360 closing shorely Tradon is selling at twenty eight euros. They're 0:06:34.400 --> 0:06:37.560 gonna earn four dollars plus and you've got a good play, 0:06:37.760 --> 0:06:41.599 and you know the stock is a fifty in two years. 0:06:41.600 --> 0:06:44.560 So you know, there's a lot of ways to participate 0:06:44.600 --> 0:06:46.920 at the margins on some of these stocks. And uh, 0:06:47.600 --> 0:06:51.440 you know that then obviously you gotta play baseball at 0:06:51.440 --> 0:06:53.680 this time of year, so you don't need to say 0:06:53.720 --> 0:06:57.039 what's over priced in this market? What happens when the 0:06:57.080 --> 0:06:59.240 government comes in with a six point two trillion dollar 0:06:59.279 --> 0:07:01.920 expenditure and and raise only four trillion and we've gotta 0:07:02.000 --> 0:07:04.560 increased deficit. You know, we think about those things, but 0:07:04.640 --> 0:07:08.640 we look at companies Lisa with a microscope, and then 0:07:08.680 --> 0:07:11.120 we look and step back with a telescope and say, 0:07:11.200 --> 0:07:13.800 what's gonna work two years from now? Uh? You know, 0:07:13.840 --> 0:07:16.080 in some of these stocks we don't chase and nor 0:07:16.160 --> 0:07:19.160 that we go short Nicola or al R and so on. 0:07:19.480 --> 0:07:21.880 So I will let you talk about the opportunities in 0:07:21.920 --> 0:07:24.360 baseball with Tom, and I'm sure that you have things 0:07:24.400 --> 0:07:27.360 to sell him for his triple average cash fund. There 0:07:27.400 --> 0:07:29.840 is a question though, about concentration, especially as someone who 0:07:29.840 --> 0:07:32.520 has been bottom up for so many years. Do you 0:07:32.600 --> 0:07:36.120 have more confidence in a higher degree of concentration your 0:07:36.120 --> 0:07:39.080 portfolio if you can do the analysis, then you have 0:07:39.200 --> 0:07:41.520 in the past, just based on where we are in 0:07:41.560 --> 0:07:46.200 the credit cycle. Well, you take our small cap front. Okay, 0:07:46.200 --> 0:07:49.560 we love the ignored and unloved. And so when we 0:07:49.680 --> 0:07:51.760 go see a company, and that, by the way, finally 0:07:51.760 --> 0:07:53.720 getting out to see three or fourth companies, I saw 0:07:53.800 --> 0:07:55.840 one that's not in small cap I, T and T. 0:07:56.600 --> 0:07:58.880 You listen to that story. You listen to how management 0:07:58.960 --> 0:08:00.880 is executing. You listen to how every day they come 0:08:00.920 --> 0:08:02.800 in and work and they worked at fanties off for 0:08:02.840 --> 0:08:05.760 the for the economy, for the company, for the shareholders, 0:08:05.760 --> 0:08:08.400 and for their constituents. So there's a lot of companies 0:08:08.400 --> 0:08:11.160 that are not fully understood because you have the new 0:08:11.240 --> 0:08:15.200 dynamics in the market, MOBI al goes obviously and so on, 0:08:15.280 --> 0:08:17.440 and then there's a lot of risks. The risk that 0:08:17.520 --> 0:08:21.320 you point out, I worry about the high margin requirements. 0:08:21.320 --> 0:08:25.880 Should we increase the margin requirement? I worry about shadow 0:08:25.960 --> 0:08:29.040 banking the dot Frank Today you guys are talking about 0:08:29.040 --> 0:08:31.240 the huge amount of money coming in by the banks 0:08:31.280 --> 0:08:34.720 this afternoon tomorrow. But it's in part they were reined 0:08:34.720 --> 0:08:38.160 in by dot Frank if DoD Frank some credits in 0:08:38.160 --> 0:08:42.439 addition to that. Uh So, we look at the valuations 0:08:42.480 --> 0:08:44.520 and we look at what is the present value of 0:08:44.559 --> 0:08:47.480 the future stream and who's gonna buy the company. Lisa 0:08:47.559 --> 0:08:52.319 think about SPACs, thinks about strategics, buying companies with their 0:08:52.360 --> 0:08:55.520 stocks at these prices using it as a currency. And 0:08:55.679 --> 0:08:58.719 even companies that we like are selling converts when a 0:08:58.840 --> 0:09:02.880 one percent coopon up to raise money. Mario, I want 0:09:02.880 --> 0:09:05.040 to talk about the heart and soul of the matter, 0:09:05.120 --> 0:09:07.760 particularly going into this earning season. And this goes back 0:09:07.800 --> 0:09:12.040 to the wonderful Jack Welch. The idea of pricing power. 0:09:12.240 --> 0:09:14.560 Revenues are made up of a unit dynamic and a 0:09:14.640 --> 0:09:18.040 price dynamic. Are we gonna have pricing power and unit 0:09:18.080 --> 0:09:20.880 growth to go with it? That's a good question. Talk. 0:09:20.920 --> 0:09:22.960 The way we look at the model is everybody talks 0:09:22.960 --> 0:09:26.199 seven percent GDP growth, but that's not that's real. You've 0:09:26.240 --> 0:09:28.880 got three percent inflation. Revenues are gonna grow ten percent. 0:09:28.960 --> 0:09:31.840 So if I was the only company in the United States, 0:09:32.080 --> 0:09:34.400 I'm gonna have temper cent revenue increase and I'm gonna 0:09:34.440 --> 0:09:38.599 basically look for improvement in two in part because of 0:09:38.640 --> 0:09:41.280 the leg effect of certain companies coming through. But if 0:09:41.320 --> 0:09:44.240 I have a surgeon my cost which is crimping my 0:09:44.320 --> 0:09:48.040 gross margin, can I pass through my cost with the 0:09:48.120 --> 0:09:51.319 margin maintained. There are companies that can do that. Sdn 0:09:51.400 --> 0:09:53.800 A is not gonna rise temper cent, so I have 0:09:53.920 --> 0:09:56.880 an increase in pretax mode and then I'm gonna get 0:09:56.960 --> 0:10:00.599 hurt by taxes and I'm gonna be hurt by uh 0:10:00.640 --> 0:10:03.280 an increase the multiple. But but the heart of the 0:10:03.280 --> 0:10:05.920 matter here, and this goes back to the religion of Gabelly, 0:10:06.440 --> 0:10:08.800 is I want my cash back. I want dividend growth. 0:10:08.840 --> 0:10:11.600 They want share buy back. Do you see any change 0:10:11.600 --> 0:10:14.960 in use of cash dynamics. Yeah, I got a big 0:10:15.000 --> 0:10:17.400 fan of cash buy back. And if corporate dipp and 0:10:17.480 --> 0:10:20.640 you're gonna pay on dividends and you've got a soul 0:10:20.760 --> 0:10:24.079 tax that adds thirteen and then you've got the Obama 0:10:24.240 --> 0:10:26.960 tax on top of that you're gonna keep and that's 0:10:27.000 --> 0:10:30.000 a triple tax on childers. No, I'm not a big 0:10:30.040 --> 0:10:32.800 fan of dividends. I like the buffet approach, get good 0:10:32.800 --> 0:10:36.400 managements that compound. Yes, he's buying backstock because it's really 0:10:36.440 --> 0:10:40.079 well below intrinsic value. But but Tom, a year ago, 0:10:40.120 --> 0:10:43.120 when I was on a program, we had shortage people 0:10:43.120 --> 0:10:45.840 who were concerned about financial liquidity. Today they're not as 0:10:45.840 --> 0:10:48.760 concerned about that. They want supplied their overordering, and you're 0:10:48.800 --> 0:10:53.240 gonna see some double some of that and the surgeon prices. 0:10:53.280 --> 0:10:56.160 You saw Lumba come down from seventeen eight hundreds. But 0:10:56.200 --> 0:10:59.760 you're gonna have wage increases because there's a shortage of 0:10:59.840 --> 0:11:02.960 lay and that gives you your wage push element to inflation. 0:11:03.000 --> 0:11:05.800 And that's what we have to be sensitive about. And 0:11:05.840 --> 0:11:08.320 one of my directors call out to Perl when he 0:11:08.360 --> 0:11:12.280 was headed the Bundesbank, said it's like inflations, like two paste. 0:11:13.320 --> 0:11:15.800 Once it gets out, it's very hard to put it 0:11:15.800 --> 0:11:18.360 back in the tube. So we have to be super sensitive. 0:11:18.400 --> 0:11:21.559 At what point does Powell lift this foot off the 0:11:21.600 --> 0:11:25.440 accelerator on financial dynamics in terms of pumping money into 0:11:25.480 --> 0:11:28.280 the system, and how will the market react. But that's 0:11:28.320 --> 0:11:30.600 just a short term pothole in the next ten year 0:11:30.679 --> 0:11:33.760 voyage for stock ownership. Mario, let's not wait another year 0:11:33.880 --> 0:11:36.000 before we talk again. It's got a catch up, sir, 0:11:36.200 --> 0:11:39.960 as always, Mario Cavelly There Caveelli Fund CEO and sharemon 0:11:45.559 --> 0:11:47.480 I want to send to Lori Canvasy, to Tim obviously 0:11:47.480 --> 0:11:49.960 Capital Market's head of US equity strategy, and Laurie let's 0:11:49.960 --> 0:11:52.520 start there. Do we want to stick with what's worked 0:11:52.520 --> 0:11:55.199 so far this year energy the banks for the second 0:11:55.240 --> 0:11:58.920 half too. It's a great question, John. We spent a 0:11:58.920 --> 0:12:01.000 lot of time on that in medias and Look, I 0:12:01.040 --> 0:12:03.880 think that the leadership backdrop is getting a little bit choppier, 0:12:03.920 --> 0:12:05.280 but I think at the end of the day, there's 0:12:05.280 --> 0:12:08.040 still a lot of room in the cyclical value trade UM. 0:12:08.040 --> 0:12:10.240 So your your your poster children of that are going 0:12:10.280 --> 0:12:13.800 to be things like the financials, energy materials UM. I 0:12:13.880 --> 0:12:15.719 might be a little bit cooler on the industrials. I 0:12:15.720 --> 0:12:18.520 don't think you have the same valuation opportunity and industrial 0:12:18.600 --> 0:12:21.080 so you arguably have some you know, catalysts from the 0:12:21.160 --> 0:12:23.720 from the infrastructure bill UM, but I think that you 0:12:23.760 --> 0:12:26.160 still have a lot of room in these banks, in particular, 0:12:26.240 --> 0:12:28.640 it's regularly one of the cheapest sectors in the market. 0:12:28.679 --> 0:12:30.840 We've got catalysts now in the form of what are 0:12:30.840 --> 0:12:33.080 probably gonna be pretty buy back at big, big buyback 0:12:33.120 --> 0:12:36.720 announcements CUP coming, and I think that the underlying economic 0:12:36.760 --> 0:12:38.719 data is going to continue to run pretty hot. I 0:12:38.720 --> 0:12:41.079 think they're gonna be some wobbles here, which might you know, 0:12:41.160 --> 0:12:43.280 kind of keep some of that leadership, you know, moving 0:12:43.320 --> 0:12:45.160 back and forth day to day, week to week. But 0:12:45.200 --> 0:12:47.400 at the end of the day, this economy is running very, 0:12:47.520 --> 0:12:50.680 very hot above long term averages, and that should push 0:12:50.720 --> 0:12:53.640 you into the cyclicals for a while longer. Lore readjust 0:12:53.720 --> 0:12:56.480 market cap right now, do you go to MidCap small 0:12:56.520 --> 0:12:59.320 cap or you barbell and MidCap small cap with selected 0:12:59.360 --> 0:13:02.520 big cap So I think that you want to go 0:13:02.559 --> 0:13:04.680 down into MidCap if you're a large cap manager, and 0:13:04.679 --> 0:13:06.400 if you're a multi cap manager, you do want to 0:13:06.400 --> 0:13:08.840 go all the way down into smaller cap stocks. And 0:13:08.920 --> 0:13:10.760 you know, there are a couple of reasons for that one. 0:13:10.880 --> 0:13:13.120 If you just look at it at the broader index level, 0:13:13.400 --> 0:13:16.960 these companies are still inherently more cyclical than the big 0:13:16.960 --> 0:13:19.319 cap companies, so you're getting more exposure to that, you know, 0:13:19.400 --> 0:13:22.880 kind of hot US domestic economy um. And also, frankly, 0:13:22.920 --> 0:13:25.400 the valuation appeal is there. We've been in this world 0:13:25.400 --> 0:13:27.800 for the last decade or so where large cap growth 0:13:27.840 --> 0:13:30.840 megacap growth has dominated. If you look at the relative 0:13:30.920 --> 0:13:34.360 valuation multiples between mid and large or small and large. Frankly, 0:13:34.400 --> 0:13:37.160 I mean there's still pretty astounding. There's still a lot 0:13:37.200 --> 0:13:40.520 of valuation runway here. LORI, How do you make sense then, 0:13:40.960 --> 0:13:43.120 given your call on the rally that we've seen in 0:13:43.120 --> 0:13:45.520 the tenure, notwithstanding last week where we saw the sell off, 0:13:45.559 --> 0:13:48.079 the idea here that the balance seems to be towards 0:13:48.120 --> 0:13:51.120 lower yields, how does that cohere with his view towards 0:13:51.120 --> 0:13:55.880 cyclicals like financials, which depend on higher yields. Look, I'm 0:13:55.920 --> 0:13:57.960 an equity strategist, but you know, when I talked to 0:13:58.120 --> 0:14:00.400 my friends in the fixed income world, they a very 0:14:00.400 --> 0:14:03.000 good job of convincing me that the yield is not 0:14:03.120 --> 0:14:06.480 necessarily reacting only to macroeconomic conditions, that there's also a 0:14:06.520 --> 0:14:08.960 positioning issue um at play. And I know that in 0:14:09.040 --> 0:14:11.600 my work whenever I look at anything from a tactical 0:14:11.600 --> 0:14:15.400 asset allocation perspective, so I look at the healthhold balance sheets, 0:14:15.440 --> 0:14:17.640 for example, I if I look at tactical assid allocation 0:14:17.679 --> 0:14:20.440 funds tracked by morning Star, I see very very low 0:14:20.520 --> 0:14:23.840 bond exposure and very very high equity exposure. So I 0:14:23.840 --> 0:14:25.240 do think that there is a lot of truth to 0:14:25.320 --> 0:14:28.040 the idea that there is some positioning um at play 0:14:28.120 --> 0:14:30.200 in the in the yield. Let's talk about the positioning 0:14:30.240 --> 0:14:34.800 in your world energy by more than on sp energy. 0:14:34.800 --> 0:14:36.840 On that sect. We talked about the banks briefly a 0:14:36.920 --> 0:14:39.000 couple of moments ago. Laurie, you do some tremendous work 0:14:39.040 --> 0:14:42.960 on ownership. Who owns this story? How well owned is it? 0:14:43.040 --> 0:14:46.440 How well owned is that story right now? So let's 0:14:46.480 --> 0:14:48.360 take energy first, because I think that's a little bit 0:14:48.400 --> 0:14:50.720 different from the financials or the materials. If we look 0:14:50.760 --> 0:14:53.640 at energy, it's actually hilarious, at least if you're a 0:14:53.720 --> 0:14:57.600 data nerd like me, because every positioning study I run, 0:14:57.880 --> 0:15:00.560 everybody does their best to stay neutral the end energy sector. 0:15:00.560 --> 0:15:03.040 Whether I'm looking at large cap value funds, growth funds, 0:15:03.080 --> 0:15:07.080 small cap funds, hedge funds, SMP five, benchmark funds, everybody 0:15:07.120 --> 0:15:10.120 just hugs the benchmark waiting here. And I think that's 0:15:10.120 --> 0:15:13.400 because commodity prices, you know, are difficult for equity folks 0:15:13.400 --> 0:15:15.360 to predict um. And I think frankly, a lot of 0:15:15.360 --> 0:15:17.680 equity folks have been burned over the years trying to 0:15:17.680 --> 0:15:20.240 make big bets on commodity prices. So they try to 0:15:20.440 --> 0:15:22.440 you know, just really hug the benchmark. If you look 0:15:22.440 --> 0:15:25.040 at the Russell reconstitution. One thing we've heard sort of 0:15:25.200 --> 0:15:29.040 forecast season, um, was certain managers were seeing energy going 0:15:29.120 --> 0:15:30.960 up in their benchmark waiting. They're like, well, you know, 0:15:31.520 --> 0:15:33.080 I don't want to be overweight this sector, but I 0:15:33.120 --> 0:15:35.080 need to own another stock. You know, I may have 0:15:35.360 --> 0:15:37.080 one a small position, I need to add a little 0:15:37.080 --> 0:15:39.040 bit more. I think if you look at the financials, 0:15:39.040 --> 0:15:42.040 it's entirely different. The large cap long only to have 0:15:42.280 --> 0:15:45.440 been there for a long time. Frankly, it's something that's 0:15:45.440 --> 0:15:48.320 really impeded their performance in recent years, and it's working 0:15:48.320 --> 0:15:50.200 out for them now. Um. But if you look at 0:15:50.200 --> 0:15:53.240 hedge funds, I mean they were deeply, deeply underweight at 0:15:53.240 --> 0:15:56.840 the end of one que and they actually got more underweight, 0:15:57.040 --> 0:15:59.320 which is the exact opposite of what you would have expected. 0:15:59.360 --> 0:16:02.240 So the financials, if the hedge funds ever come back in, 0:16:02.480 --> 0:16:03.800 I mean, get out of the way. They're going to 0:16:03.880 --> 0:16:07.200 bid this space up in a hurry. Laurie is Amazon, Apple, 0:16:07.320 --> 0:16:10.840 the rest of them? Are they part of your valuation runway? 0:16:11.880 --> 0:16:13.680 So look, when we look at sort of the tech 0:16:13.760 --> 0:16:16.520 space or the communication services space, I actually have a 0:16:16.560 --> 0:16:19.520 basket of T I MT tech, Internet media, telecom. I 0:16:19.760 --> 0:16:21.560 grew up in the kind of aftermath of the tech 0:16:21.600 --> 0:16:25.800 bubble on the street. Uh, you know, we we started 0:16:25.800 --> 0:16:27.440 out thinking it would be the craziest thing, you know, 0:16:27.440 --> 0:16:29.040 we've ever seen in our careers, and it just has 0:16:29.080 --> 0:16:32.280 gotten crazier and crazier. But that's a that's another tangent um. 0:16:32.280 --> 0:16:33.720 But look at the end of the day, you know, 0:16:33.800 --> 0:16:36.800 I think the fundamentals in that space are unbelievably strong, 0:16:37.400 --> 0:16:39.640 and I think the secular growth appeal is there. I 0:16:39.680 --> 0:16:41.800 think that there are two problems with that space today. 0:16:41.840 --> 0:16:44.040 I think number one, you just don't have the same 0:16:44.120 --> 0:16:47.240 valuation opportunity. Now you've gotten better valuations as the year 0:16:47.280 --> 0:16:50.440 has progressed, UM, but we just don't see cheap valuations 0:16:50.520 --> 0:16:52.800 versus the S and P. And that's important because for 0:16:52.960 --> 0:16:54.720 much of the big bull run in that T I 0:16:54.880 --> 0:16:57.680 M T space from the financial crisis up to kind 0:16:57.680 --> 0:17:00.840 of that pre pandemic era, UM, we did cheap relative 0:17:00.880 --> 0:17:02.840 p S. A lot of people forget that it wasn't 0:17:02.880 --> 0:17:05.199 just about the secular growth narrative. And I think the 0:17:05.280 --> 0:17:08.600 problem today when you think about the fundamentals, the fundamentals 0:17:08.600 --> 0:17:11.160 are fine. They're just not all that special. They're just 0:17:11.160 --> 0:17:13.119 just not all that unique. And that's where I go 0:17:13.200 --> 0:17:15.800 back to this idea of a hot economy and the 0:17:15.880 --> 0:17:18.199 aftermath of the financial crisis. We really didn't get a 0:17:18.200 --> 0:17:21.000 lot out of Washington, and we had an economy that 0:17:21.080 --> 0:17:23.880 ran cool below average, below the two and a half 0:17:23.960 --> 0:17:26.520 percent long term run rate for quite some time. And 0:17:26.560 --> 0:17:29.200 that's really the kind of environment that secular growth does 0:17:29.200 --> 0:17:31.359 well in. But right now I'm looking down the barrel 0:17:31.400 --> 0:17:33.840 of you know, kind of six seven percent GDP this year, 0:17:34.160 --> 0:17:37.040 four percent plus next year, getting back closer to average 0:17:37.040 --> 0:17:41.480 frankly in three. But it's you know, it's just not 0:17:41.640 --> 0:17:44.920 the same kind of post crisis environment that we had 0:17:44.960 --> 0:17:47.840 back then. And these secular growth names, they're just not 0:17:47.880 --> 0:17:50.160 that special anymore. That's the problem with them. Right now, 0:17:50.600 --> 0:18:03.399 you're special. We love catching out right now in the 0:18:03.440 --> 0:18:05.720 infrastructure bate debate. It would be good to get a 0:18:05.720 --> 0:18:07.880 little experience. We can do that with decades of work. 0:18:07.920 --> 0:18:12.400 William Hoglan joins us the Bipartisan Policy Center Senior vice President, 0:18:12.680 --> 0:18:16.320 with all sorts of tangible work over the decades with 0:18:16.440 --> 0:18:20.320 Capitol Hill, with the House, and with the Senate Bill Hoglan, 0:18:20.640 --> 0:18:25.000 we don't want to pay for our infrastructure. At what 0:18:25.240 --> 0:18:28.520 point did we decide the gas tax was a bad idea? 0:18:29.640 --> 0:18:31.879 I think that we decided. I think the President decided 0:18:31.960 --> 0:18:33.760 that when he decided that he would not want to 0:18:33.880 --> 0:18:37.920 raise taxes on anybody with incomes less than four hundred thousand. 0:18:37.960 --> 0:18:41.720 I think that was the mark that resulted in their 0:18:41.800 --> 0:18:44.159 not being any increase in the gas tax. I agree 0:18:44.200 --> 0:18:46.639 with you, Tom, I think that's an obvious one. In 0:18:46.680 --> 0:18:50.000 the past, that's been one that we've used to fund 0:18:50.000 --> 0:18:53.119 our fund, our Highway Trust Fund. But it obviously it 0:18:53.240 --> 0:18:55.880 was tied up with the politics of not taxing anybody 0:18:55.880 --> 0:18:58.840 with incomes under four Okay, But the critics here Bill 0:18:58.880 --> 0:19:02.520 Hoglan say, simple, the gas tax goes to other programs. 0:19:03.119 --> 0:19:06.639 Can they in a bipartisan agreement if they say the 0:19:06.760 --> 0:19:11.120 gas tax increase will all go to bridges, etcetera, etcetera. 0:19:11.640 --> 0:19:15.320 Is that doable? Yes, it's absolutely doable, and you can 0:19:15.359 --> 0:19:18.560 define where you want that revenue to go. It goes 0:19:18.760 --> 0:19:22.040 right now, goes into the Highway Trust Fund, and you 0:19:22.080 --> 0:19:25.119 can make certain that that money is spent specifically on 0:19:25.240 --> 0:19:28.800 highways and bridges as example, without having to go to 0:19:28.880 --> 0:19:31.760 other things that you have a transit tax tax also 0:19:31.840 --> 0:19:34.160 that goes into a transit fund. So there are ways 0:19:34.200 --> 0:19:37.680 to handle that bipartisan wise. I think that's a that's 0:19:37.720 --> 0:19:40.560 a bogus argument that you can't you can't do what 0:19:40.760 --> 0:19:43.680 you've just outlined. Tom. But Bill, there is this larger argument, 0:19:43.920 --> 0:19:45.879 which is do we really have to pay for anything 0:19:45.920 --> 0:19:48.920 anymore given the fact that benchmark yields are so low 0:19:48.960 --> 0:19:50.919 and they are around the world. And this goes to 0:19:50.960 --> 0:19:53.720 your more than three decades of service for the government 0:19:53.760 --> 0:19:57.920 crafting budgets. Have we rethought the need to repay or 0:19:57.960 --> 0:20:01.359 actually work over the asked for some of these programs 0:20:01.520 --> 0:20:04.879 based in the fact the bigger deficits haven't proven to 0:20:04.920 --> 0:20:08.359 be a liability for the nation. Well, Lisa, I'm sorry, 0:20:08.400 --> 0:20:10.560 but I'm one of those who still believes that deficits 0:20:10.560 --> 0:20:13.720 and debt matter, and that while interest rates clearly are 0:20:13.760 --> 0:20:15.800 low right now and this is a good time in 0:20:15.880 --> 0:20:19.639 terms of investments and going forward for from the federal 0:20:19.640 --> 0:20:23.320 government's perspective long term, I am not of the mindset 0:20:23.359 --> 0:20:25.800 that those interest rates won't climb back up. And once 0:20:25.840 --> 0:20:29.320 they climb back up, when you're running a debt, total 0:20:29.400 --> 0:20:32.560