1 00:00:00,080 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,800 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,400 Speaker 1: of course on the Bloomberg. Dean Current's with us. He's 9 00:00:49,400 --> 00:00:51,400 Speaker 1: the CEO of Macro Risk Advisors. He joins us on 10 00:00:51,400 --> 00:00:54,280 Speaker 1: the Spectrum Enterprise phone line, Spectrum Entro price nationwide fiber 11 00:00:54,280 --> 00:00:57,840 Speaker 1: based network and I infrastructure solutions, and deemed great to 12 00:00:57,880 --> 00:01:00,120 Speaker 1: have you with us. Yes, good morning, Thank you. We'll 13 00:01:00,120 --> 00:01:01,720 Speaker 1: get to Volatilion a moment, but let me start with 14 00:01:01,760 --> 00:01:03,400 Speaker 1: the speech. I know that you, like so many others, 15 00:01:03,440 --> 00:01:05,560 Speaker 1: were lending an ear to that speech, and I wonderstand 16 00:01:05,560 --> 00:01:08,040 Speaker 1: how you interpreted how you, as an investor, interpreted what 17 00:01:08,080 --> 00:01:11,920 Speaker 1: the President had to say last Friday. Well, it's a 18 00:01:11,959 --> 00:01:16,280 Speaker 1: continuation of some of the more nationalist America First policies 19 00:01:16,319 --> 00:01:20,080 Speaker 1: that he's espoused and the essentially that he believes is 20 00:01:20,120 --> 00:01:23,560 Speaker 1: the mandate that got him into office. Um, what these 21 00:01:24,000 --> 00:01:28,440 Speaker 1: policies mean for markets? Uh, clearly you can paint a 22 00:01:28,480 --> 00:01:32,280 Speaker 1: picture of a negative outcome from markets. Of course, so far, 23 00:01:32,360 --> 00:01:37,440 Speaker 1: there's really been very little materialization of risk. Um. And uh, 24 00:01:38,040 --> 00:01:41,679 Speaker 1: you know, these these political type sources of volatility have 25 00:01:41,800 --> 00:01:45,400 Speaker 1: been increasing with with bregnant last year, the Trump upset 26 00:01:45,880 --> 00:01:49,640 Speaker 1: and a very heavy calendar of elections in Europe. It's 27 00:01:49,760 --> 00:01:53,600 Speaker 1: very challenging to know how and when some of these 28 00:01:53,680 --> 00:01:56,960 Speaker 1: risks will make their way into markets, and so investors 29 00:01:57,000 --> 00:01:58,920 Speaker 1: are you know, it could be in for a bumpy 30 00:01:59,000 --> 00:02:01,000 Speaker 1: ride this year. It's gonna be Uh, it's going to 31 00:02:01,040 --> 00:02:04,000 Speaker 1: be challenging. When you look at sources of volatilities, you say, 32 00:02:04,400 --> 00:02:07,760 Speaker 1: are the political type ones the largest? They looming, the largest, 33 00:02:08,440 --> 00:02:13,280 Speaker 1: taking up the most space. They are there in this category. 34 00:02:13,360 --> 00:02:15,799 Speaker 1: I like to call it non market market risks. In 35 00:02:15,840 --> 00:02:19,160 Speaker 1: other words, it's it's not the typical kind of risk 36 00:02:19,200 --> 00:02:24,080 Speaker 1: that that the investors are comfortable with discounting. Um, it's there. Uh. 37 00:02:24,840 --> 00:02:29,720 Speaker 1: Sometimes things happen for reasons that even in advance, you 38 00:02:30,040 --> 00:02:32,919 Speaker 1: believe that the economic outcome won't be a good one, UH. 39 00:02:32,960 --> 00:02:37,040 Speaker 1: For for Brexit, folks argued very strenuously and I would UH, 40 00:02:37,200 --> 00:02:40,760 Speaker 1: I would contend rightly that long term this was not 41 00:02:40,840 --> 00:02:44,800 Speaker 1: the right outcome for the UK, for the EU, and 42 00:02:44,880 --> 00:02:49,120 Speaker 1: yet the citizenry was enraged enough to, you know, to 43 00:02:49,200 --> 00:02:50,800 Speaker 1: vote for the exit. And I think the same as 44 00:02:51,000 --> 00:02:55,440 Speaker 1: is true UH for Trump. For investors and at Macro 45 00:02:55,520 --> 00:03:01,440 Speaker 1: Risk Advisors, we help investors hedge very often. And when 46 00:03:01,440 --> 00:03:04,880 Speaker 1: you're contemplating hedging, of course, you're trying to weigh the 47 00:03:05,240 --> 00:03:08,040 Speaker 1: risks in the market versus the cost of the insurance 48 00:03:08,160 --> 00:03:11,720 Speaker 1: that you're you're buying. And in the last six weeks 49 00:03:11,800 --> 00:03:15,160 Speaker 1: or so, even though we've been consumed by tweets and 50 00:03:15,480 --> 00:03:20,800 Speaker 1: uncertainty on the geopolitical UH landscape, the risks in the 51 00:03:20,840 --> 00:03:23,720 Speaker 1: market that the day to day fluctuations have been quite minimal. 52 00:03:24,040 --> 00:03:26,240 Speaker 1: And so for the folks that did buy hedges, that 53 00:03:26,320 --> 00:03:30,040 Speaker 1: did expand option premium, UH, they've certainly not been rewarded. 54 00:03:30,400 --> 00:03:33,200 Speaker 1: And what that's done is it's continued to weigh on 55 00:03:33,400 --> 00:03:38,640 Speaker 1: the VIX index of Folatility levels continue to decline. When 56 00:03:38,680 --> 00:03:40,960 Speaker 1: when you're looking at this particular type of risk, how 57 00:03:41,040 --> 00:03:42,920 Speaker 1: challenging is it? What what what investor is saying, so, what's 58 00:03:42,920 --> 00:03:44,800 Speaker 1: their biggest concern they're bringing to you when they're when 59 00:03:44,800 --> 00:03:46,640 Speaker 1: they're wondering about how to navigate this kind of non 60 00:03:46,680 --> 00:03:49,680 Speaker 1: market market risk as you call it. Yeah, I think, um, 61 00:03:49,880 --> 00:03:54,640 Speaker 1: it's so unpredictable. He's unpredictable. Um, what version of Trump 62 00:03:54,640 --> 00:03:58,240 Speaker 1: policies our market is going to get? And Uh, in 63 00:03:58,280 --> 00:04:04,000 Speaker 1: the last six eight weeks we've seen uh refleationary enthusiasm 64 00:04:04,040 --> 00:04:06,800 Speaker 1: almost where where the view of Trump is a tax cutter, 65 00:04:06,920 --> 00:04:11,400 Speaker 1: as a source of deregulation, as someone who can rekindle 66 00:04:11,440 --> 00:04:15,480 Speaker 1: animal animal spirits that may have been suppressed during the 67 00:04:15,720 --> 00:04:20,160 Speaker 1: post crisis time frame. So that's the good side. And 68 00:04:20,200 --> 00:04:22,159 Speaker 1: of course markets have priced in quite a bit of 69 00:04:22,200 --> 00:04:25,640 Speaker 1: that already, and the investors I speak to are grappling 70 00:04:25,640 --> 00:04:27,599 Speaker 1: with the question of is it too much too soon? 71 00:04:28,400 --> 00:04:32,239 Speaker 1: Will some of the policies ultimately emerged in a protectionist fashion, 72 00:04:33,600 --> 00:04:36,680 Speaker 1: a trade war with China? These are bigger picture issues 73 00:04:36,720 --> 00:04:40,600 Speaker 1: that you know, certainly UH confound market participants. And then 74 00:04:40,600 --> 00:04:42,240 Speaker 1: the other thing I would just add, I think this 75 00:04:42,360 --> 00:04:46,719 Speaker 1: is really really important is the interaction between fiscal and 76 00:04:46,760 --> 00:04:51,680 Speaker 1: monetary policy has become considerably more complicated. Trump makes Janet 77 00:04:51,720 --> 00:04:55,080 Speaker 1: Yellen's job much harder than it already was. And for 78 00:04:55,120 --> 00:04:57,600 Speaker 1: a long time, the central banks were the only game 79 00:04:57,640 --> 00:05:01,840 Speaker 1: in town. Uh, there's an exhaustion I think among investors 80 00:05:01,880 --> 00:05:07,680 Speaker 1: globally with a force of monetary policy. But already Yelling 81 00:05:07,760 --> 00:05:11,800 Speaker 1: and her counterparts at the FED are trying to articulate 82 00:05:11,839 --> 00:05:15,080 Speaker 1: that they need to anticipate potential inflation through some of 83 00:05:15,080 --> 00:05:17,920 Speaker 1: the Trump policy and briss when JP Morgan said they 84 00:05:17,960 --> 00:05:21,200 Speaker 1: were decidedly focused on the path to some form of 85 00:05:21,279 --> 00:05:24,479 Speaker 1: fiscal stimulus. Good morning everyone, Bloomberg Surveillance from New York. 86 00:05:24,720 --> 00:05:29,200 Speaker 1: David gurn Tom Keen in the same studio. It's been 87 00:05:29,240 --> 00:05:32,760 Speaker 1: New York. It's been a while, like weeks months, den't 88 00:05:32,760 --> 00:05:35,200 Speaker 1: current it with us? With a math of correlation and 89 00:05:35,279 --> 00:05:38,840 Speaker 1: volatility with Macro Risk Advisor's Dean. One of my great 90 00:05:38,880 --> 00:05:43,440 Speaker 1: themes in Davos was the uncertainty within, or the uncertainty 91 00:05:43,720 --> 00:05:48,960 Speaker 1: upon or the uncertainty about the uncertainty. It's a little 92 00:05:48,960 --> 00:05:52,719 Speaker 1: bit like the volatility of the volatility. Tell us about 93 00:05:52,800 --> 00:05:56,480 Speaker 1: that relationship. What are pros trying to do when they 94 00:05:56,520 --> 00:06:02,359 Speaker 1: trade the volvo? Right? This is a nuanced point, but 95 00:06:02,640 --> 00:06:05,360 Speaker 1: I think it's actually quite important. UM. We we spend 96 00:06:05,400 --> 00:06:09,640 Speaker 1: our time UH studying not just volatility, but the correlation 97 00:06:09,720 --> 00:06:14,320 Speaker 1: profile of sectors of stocks in UM assets like the 98 00:06:14,440 --> 00:06:17,520 Speaker 1: SMP five hundred and an important point is that the 99 00:06:17,520 --> 00:06:22,200 Speaker 1: Trump administration has created a huge sector divergence. At least 100 00:06:22,240 --> 00:06:24,200 Speaker 1: in the first eight weeks or so, you had your 101 00:06:24,560 --> 00:06:28,960 Speaker 1: reflationary type sectors things like the XLF, which have skyrocketed 102 00:06:29,360 --> 00:06:33,160 Speaker 1: post the post the wind along with interest rates. And 103 00:06:33,200 --> 00:06:34,720 Speaker 1: then you have the other side of it, which is 104 00:06:34,760 --> 00:06:40,680 Speaker 1: the more disinflation defensive UH sectors, things like consumer staples, 105 00:06:40,720 --> 00:06:44,360 Speaker 1: things like UH utilities, and you know the the I 106 00:06:44,440 --> 00:06:47,799 Speaker 1: R and d X and so again, the the underneath 107 00:06:47,800 --> 00:06:50,200 Speaker 1: the hood of this very low VIX is a lot 108 00:06:50,200 --> 00:06:53,680 Speaker 1: of sector action and UH. And I think that UM 109 00:06:53,680 --> 00:06:56,560 Speaker 1: and this is where your quote vol of vol question 110 00:06:56,640 --> 00:06:59,920 Speaker 1: comes in. Even though the VIX is at twelve, it's 111 00:07:00,000 --> 00:07:02,760 Speaker 1: certainly not going to spike down to six. But I 112 00:07:02,839 --> 00:07:06,039 Speaker 1: do think that investors are under appreciating the potential for 113 00:07:06,120 --> 00:07:09,159 Speaker 1: a more correlated move in stock. And then math guy, 114 00:07:09,200 --> 00:07:11,400 Speaker 1: I want you to take it over to uncertainty where 115 00:07:11,440 --> 00:07:15,120 Speaker 1: you can't create the probability distribution, you can't do the mathematics. 116 00:07:15,360 --> 00:07:19,840 Speaker 1: If we talk about Trump uncertainty. Whatever our politics is, 117 00:07:19,840 --> 00:07:24,160 Speaker 1: is there uncertainty upon uncertainty from where you set. I 118 00:07:24,240 --> 00:07:26,600 Speaker 1: really believe that's the key thing, and that's what's changed 119 00:07:26,640 --> 00:07:28,840 Speaker 1: in the last eight weeks. And again that's what I 120 00:07:28,840 --> 00:07:31,560 Speaker 1: would argue the low VIX does not properly account for. 121 00:07:32,000 --> 00:07:34,320 Speaker 1: It's a little backward looking the vix. It's looking at 122 00:07:34,680 --> 00:07:37,880 Speaker 1: realize volatility and pricing options as if that will continue 123 00:07:38,360 --> 00:07:41,320 Speaker 1: the uncertainty factor with Trump. Again, I'll tie it back 124 00:07:41,360 --> 00:07:45,280 Speaker 1: to how it complicates the complicates the mission of the 125 00:07:45,320 --> 00:07:50,160 Speaker 1: central banks by introducing this potential reflation or even inflationary 126 00:07:50,160 --> 00:07:53,000 Speaker 1: impulse at a time when the business cycle is so 127 00:07:53,080 --> 00:07:56,640 Speaker 1: old and four point nine percent unemployment. Yelling said it herself. 128 00:07:56,720 --> 00:08:00,640 Speaker 1: Is it appropriate to throw a trillion dollars of stimulus 129 00:08:01,240 --> 00:08:03,960 Speaker 1: at a business uh, you know, during the late stages 130 00:08:04,000 --> 00:08:06,520 Speaker 1: of a business cycle, when we're already at four point 131 00:08:06,600 --> 00:08:09,280 Speaker 1: nine percent unemployment? And what does that do? What does 132 00:08:09,320 --> 00:08:12,040 Speaker 1: it do for you know, potential inflationary impulse? And how 133 00:08:12,120 --> 00:08:15,000 Speaker 1: might she have to react? I think that's very challenging 134 00:08:15,040 --> 00:08:17,840 Speaker 1: for investors at this point. That was fabulous, Thank you 135 00:08:17,880 --> 00:08:31,520 Speaker 1: so much to incredent. I don't know about you, David Bureau. 136 00:08:31,560 --> 00:08:35,640 Speaker 1: But my answer is when I'm confused, I like to 137 00:08:35,720 --> 00:08:41,120 Speaker 1: read a lot. I read three lengthy, balanced articles this 138 00:08:41,160 --> 00:08:45,000 Speaker 1: weekend on the Affordable Care Act. Sitting with us is 139 00:08:45,120 --> 00:08:48,960 Speaker 1: truly one of the most experts, whatever Democratic, Republican, whatever 140 00:08:48,960 --> 00:08:52,720 Speaker 1: your politics are, Mike Leavitt has a perspective on the 141 00:08:52,760 --> 00:08:55,280 Speaker 1: Affordable Care Act and what it means with his work 142 00:08:55,840 --> 00:09:01,040 Speaker 1: as a state governor Utah and then as they secretary 143 00:09:01,080 --> 00:09:04,920 Speaker 1: of Health and Humans Services is becoming called h h S. 144 00:09:05,040 --> 00:09:10,920 Speaker 1: I like health and Human Services. Uh better? What's the 145 00:09:11,040 --> 00:09:14,760 Speaker 1: Republican plan? I read a lot and I haven't seen one. 146 00:09:14,880 --> 00:09:16,720 Speaker 1: Is it? Do you have it? Can you show it 147 00:09:16,760 --> 00:09:19,560 Speaker 1: to us this morning? One thing I believe we can 148 00:09:19,640 --> 00:09:21,800 Speaker 1: be certain of is that at some point that will 149 00:09:21,840 --> 00:09:26,920 Speaker 1: be a bill past the Congress titled repeal and Replace. 150 00:09:27,400 --> 00:09:31,160 Speaker 1: They have dined out politically for three different elections. They've 151 00:09:31,200 --> 00:09:34,520 Speaker 1: been rewarded. It's an essential they have to act, and 152 00:09:34,559 --> 00:09:37,800 Speaker 1: I think they're poised to what the actual definition of 153 00:09:37,840 --> 00:09:40,880 Speaker 1: repeal will be and what the definition the place We 154 00:09:40,920 --> 00:09:44,040 Speaker 1: don't know, do you as a grizzled politician? I mean, 155 00:09:44,080 --> 00:09:46,000 Speaker 1: I mean, I know there's like three Democrats in Utah 156 00:09:46,040 --> 00:09:49,040 Speaker 1: so it's not a normal thing. But as a grizzled politician, 157 00:09:49,440 --> 00:09:53,120 Speaker 1: do you assume you can't get to replace and the 158 00:09:53,360 --> 00:09:57,840 Speaker 1: Ryan m McDonald's plan, McConnell plan, you can't get to 159 00:09:57,880 --> 00:10:02,720 Speaker 1: replace until you do the repeal. I find it very 160 00:10:02,760 --> 00:10:06,360 Speaker 1: difficult to think they can do them simultaneously. I think 161 00:10:06,360 --> 00:10:09,400 Speaker 1: that they met the method and the means by which 162 00:10:09,440 --> 00:10:12,120 Speaker 1: Congress works makes that difficult. I think the logic of 163 00:10:12,160 --> 00:10:16,440 Speaker 1: it makes it difficult. Uh. I think they can lay 164 00:10:16,440 --> 00:10:19,360 Speaker 1: a framework out for what they mean by replace and 165 00:10:19,440 --> 00:10:22,960 Speaker 1: do that in a very short order after they do repeal. 166 00:10:23,559 --> 00:10:26,480 Speaker 1: But I think that you can actually begin to chart 167 00:10:26,520 --> 00:10:29,239 Speaker 1: how this looks. I think they will pass a budget resolution. 168 00:10:29,800 --> 00:10:32,400 Speaker 1: Then I think they'll go through a series of of 169 00:10:32,960 --> 00:10:35,520 Speaker 1: executive orders that will have some impact. Then I think 170 00:10:35,559 --> 00:10:38,000 Speaker 1: they'll start unrepeal, and then I think they'll have to 171 00:10:38,040 --> 00:10:41,760 Speaker 1: break the replace down into a series of bills. And 172 00:10:41,960 --> 00:10:44,160 Speaker 1: my own sense is they'll lay a framework out and 173 00:10:44,160 --> 00:10:47,560 Speaker 1: then legislative against it, legislat against it. Secretary Levitt Thom's 174 00:10:47,600 --> 00:10:49,439 Speaker 1: been reading. I've been reading. I'm sure you have as well, 175 00:10:49,440 --> 00:10:51,680 Speaker 1: and you bring to that reading a more perspective on 176 00:10:51,720 --> 00:10:55,280 Speaker 1: this than than we have. When you see President Trump 177 00:10:55,320 --> 00:10:57,880 Speaker 1: signing the executive orders he signed over the weekend with 178 00:10:57,920 --> 00:11:00,600 Speaker 1: regard to the Affordable character What do they mean? Give 179 00:11:00,679 --> 00:11:02,240 Speaker 1: us a sense of what he thinks he's gonna lessen 180 00:11:02,280 --> 00:11:05,320 Speaker 1: the burden on agencies. Uh. And there was a lot 181 00:11:05,360 --> 00:11:08,000 Speaker 1: of commentary about how that was eroding the Affordable Care Act. 182 00:11:08,000 --> 00:11:10,599 Speaker 1: What what's he done thus far? There were two executive 183 00:11:10,679 --> 00:11:14,520 Speaker 1: orders that were signed immediately upon his entering office. One 184 00:11:14,559 --> 00:11:18,160 Speaker 1: of is a fairly standard part of the playbook of transition. 185 00:11:18,840 --> 00:11:22,440 Speaker 1: You want to get control of anything in the regulation 186 00:11:22,559 --> 00:11:27,560 Speaker 1: pipeline that you can still take out before it becomes effective. 187 00:11:27,559 --> 00:11:29,720 Speaker 1: And President Obama did something similar when he was inigated. 188 00:11:29,840 --> 00:11:33,480 Speaker 1: Virtually every president does this, and it's anything after November 189 00:11:34,720 --> 00:11:37,480 Speaker 1: that was put into that pipeline you can bring back 190 00:11:37,600 --> 00:11:39,280 Speaker 1: and take a look at it. And so that was 191 00:11:39,320 --> 00:11:46,240 Speaker 1: the first executive order. This the second basically said, uh, 192 00:11:46,480 --> 00:11:49,160 Speaker 1: I want to repeal and replace the Affordable Care Act, 193 00:11:49,360 --> 00:11:53,000 Speaker 1: and I am instructing all of those in my administration 194 00:11:53,720 --> 00:11:57,160 Speaker 1: to aggressively begin to look at it. Had one piece 195 00:11:57,200 --> 00:11:59,760 Speaker 1: of important information that hasn't been reported, and that is 196 00:12:00,240 --> 00:12:02,560 Speaker 1: I want to go through a policy process before you 197 00:12:02,600 --> 00:12:06,439 Speaker 1: do anything. But I'm telling you this is the direction 198 00:12:06,440 --> 00:12:08,960 Speaker 1: we're going. It was a direction center, it was an enabler, 199 00:12:09,440 --> 00:12:12,800 Speaker 1: and it did give them sufficient authority that in the 200 00:12:12,880 --> 00:12:16,200 Speaker 1: gray area or where there are areas of uncertainty in 201 00:12:16,280 --> 00:12:19,800 Speaker 1: the law, they can regulate. Now that's very significant because 202 00:12:19,840 --> 00:12:24,080 Speaker 1: the Affordable Care Act had many I mean, I've heard 203 00:12:24,120 --> 00:12:27,600 Speaker 1: the term two thousand different places where it said the 204 00:12:27,679 --> 00:12:31,920 Speaker 1: Secretary shall pass regulation, and they have been busy for 205 00:12:31,960 --> 00:12:37,280 Speaker 1: the last six years passing regulation that defined the granularity 206 00:12:37,360 --> 00:12:39,520 Speaker 1: of the Affordable Care Act. Well, there's a lot of 207 00:12:39,520 --> 00:12:41,880 Speaker 1: the tail there that once you take it out, it's 208 00:12:41,920 --> 00:12:44,960 Speaker 1: like taking the thread out of the tapestry. Things begin 209 00:12:45,040 --> 00:12:47,720 Speaker 1: to fall apart. And they can probably do quite a 210 00:12:47,720 --> 00:12:52,880 Speaker 1: bit too restrict the usefulness or restrict the functionality by 211 00:12:52,920 --> 00:12:55,960 Speaker 1: simply passing regulation. As the chairman of Loved Partners, you 212 00:12:55,960 --> 00:12:58,880 Speaker 1: know the principles here. I'm actually no Congressman. Price said, 213 00:12:58,880 --> 00:13:00,960 Speaker 1: the presidents picked to be the head of of HHS 214 00:13:01,000 --> 00:13:03,720 Speaker 1: to be your your successor in that job. And I 215 00:13:03,760 --> 00:13:06,160 Speaker 1: recall reading that he had a plan for replace in 216 00:13:06,160 --> 00:13:08,000 Speaker 1: the Affordable Care Act. What what sense do you have 217 00:13:08,080 --> 00:13:10,160 Speaker 1: from what he's proposed in the past of where he 218 00:13:10,240 --> 00:13:12,240 Speaker 1: might take this going forward. This is a very good 219 00:13:12,240 --> 00:13:15,760 Speaker 1: point because the Republican Congress actually acted with a bill, 220 00:13:16,760 --> 00:13:19,000 Speaker 1: passed it through both the House and the Senate, and 221 00:13:19,040 --> 00:13:22,520 Speaker 1: it was vetoed by President Obama. The best predictor of 222 00:13:22,559 --> 00:13:27,120 Speaker 1: the future is what we can see, and I think 223 00:13:27,160 --> 00:13:28,839 Speaker 1: you can see that there are a number of things 224 00:13:28,920 --> 00:13:32,840 Speaker 1: that that they could and couldn't do. For example, I 225 00:13:32,880 --> 00:13:35,640 Speaker 1: think we'll see a lot of activity on Medicaid. They 226 00:13:35,640 --> 00:13:37,920 Speaker 1: would like to obviously send more of that to the 227 00:13:37,920 --> 00:13:42,720 Speaker 1: states with discretion. Now there's it's a double sided uh coin. 228 00:13:43,120 --> 00:13:46,880 Speaker 1: On one hand, it gives the states more flexibility. On 229 00:13:46,960 --> 00:13:49,240 Speaker 1: the other, it begins to limit the amount of money 230 00:13:49,280 --> 00:13:51,839 Speaker 1: that they receive. And if you're a budget maker, that's 231 00:13:51,840 --> 00:13:54,720 Speaker 1: an appealing thing because it gives you certainty. One of 232 00:13:54,720 --> 00:13:58,920 Speaker 1: the problems for budgeteers in Congress is that they don't 233 00:13:58,960 --> 00:14:01,600 Speaker 1: know with certainty how much money will be spent on 234 00:14:01,679 --> 00:14:03,960 Speaker 1: the entitlement program. How do you respond to the other 235 00:14:04,000 --> 00:14:06,000 Speaker 1: side that says, look whichever way he has slice at, 236 00:14:06,040 --> 00:14:09,560 Speaker 1: whatever the Republicans do. The working numbers I have correct 237 00:14:09,559 --> 00:14:13,320 Speaker 1: me if I'm wrong, Governor, is seven to thirty million 238 00:14:13,400 --> 00:14:17,640 Speaker 1: people go without healthcare with this replacement of the Affordable 239 00:14:17,720 --> 00:14:20,640 Speaker 1: Care Act. Is your math seven to thirty million or 240 00:14:20,640 --> 00:14:22,760 Speaker 1: do you have a different calculus. Well, like I think 241 00:14:22,800 --> 00:14:25,520 Speaker 1: we have to remember the Republicans have made a commitment 242 00:14:25,560 --> 00:14:28,360 Speaker 1: that they're not going to allow people to hang out there, 243 00:14:28,920 --> 00:14:32,760 Speaker 1: which Mr Trump certainly has a excuse me, David, every 244 00:14:32,800 --> 00:14:35,080 Speaker 1: time I say Mr Trump a dollar in the bucket, 245 00:14:35,520 --> 00:14:39,640 Speaker 1: the President says he's going to be sure everybody's happy 246 00:14:39,680 --> 00:14:43,880 Speaker 1: on healthcare. Well, the commitment is initially by the Congress 247 00:14:43,920 --> 00:14:46,240 Speaker 1: that they're not going to allow the twenty million people 248 00:14:46,400 --> 00:14:50,400 Speaker 1: to go without insurance. Now, that causes some problem for 249 00:14:50,480 --> 00:14:53,560 Speaker 1: them on the budget side, because they have to pay 250 00:14:53,600 --> 00:14:57,320 Speaker 1: for that uh while they transition to whatever they're going 251 00:14:57,360 --> 00:14:59,440 Speaker 1: to put into place, and that will have impact on 252 00:14:59,480 --> 00:15:03,240 Speaker 1: the tack that tax bills that they ultimately pass. But 253 00:15:03,360 --> 00:15:06,040 Speaker 1: I think it's a big problem if they do allow 254 00:15:06,640 --> 00:15:08,920 Speaker 1: if they were to break that promise, because they would 255 00:15:09,000 --> 00:15:11,520 Speaker 1: clearly that would be the rallying cry for the next 256 00:15:11,560 --> 00:15:15,240 Speaker 1: three elections by the Democrats. You know, I was talking 257 00:15:15,240 --> 00:15:18,440 Speaker 1: with the head of a few months back, and he 258 00:15:18,440 --> 00:15:19,920 Speaker 1: said the new president would have a few months to 259 00:15:19,960 --> 00:15:21,760 Speaker 1: sort of write the ship here or these spirals were 260 00:15:21,760 --> 00:15:24,000 Speaker 1: going to get out of control and something else he 261 00:15:24,000 --> 00:15:25,960 Speaker 1: said was that when you look at how this law 262 00:15:26,000 --> 00:15:29,600 Speaker 1: was implemented, there was't enough attention paid to the back end. Uh. 263 00:15:29,600 --> 00:15:30,960 Speaker 1: He said, There's a lot that could be done in 264 00:15:31,080 --> 00:15:34,120 Speaker 1: terms of moving healthcare forward, but the back end services 265 00:15:34,160 --> 00:15:35,480 Speaker 1: are still not where they need to be. Do you 266 00:15:35,480 --> 00:15:37,240 Speaker 1: agree with that? And how how do they begin to change? 267 00:15:37,240 --> 00:15:39,480 Speaker 1: How do you begin to change the infrastructure surrounding healthcare? 268 00:15:39,800 --> 00:15:42,520 Speaker 1: I do agree with that, and I also believe that 269 00:15:42,560 --> 00:15:45,200 Speaker 1: there are great lessons for the Republicans to learn in 270 00:15:45,240 --> 00:15:48,360 Speaker 1: this process from what the Democrats did. The first thing 271 00:15:48,440 --> 00:15:52,840 Speaker 1: is they passed it were they strictly partisan vote, and 272 00:15:53,000 --> 00:15:55,960 Speaker 1: that sets that that that makes it very difficult to 273 00:15:55,960 --> 00:16:00,480 Speaker 1: have it sustained politically over time. They have committed publicly 274 00:16:00,480 --> 00:16:05,000 Speaker 1: that they're not going to do that. One component of 275 00:16:05,040 --> 00:16:07,560 Speaker 1: it is they have only a two vote margin in 276 00:16:07,600 --> 00:16:11,120 Speaker 1: the Senate, which is going to essentially require that they 277 00:16:11,160 --> 00:16:15,360 Speaker 1: have that. The second component is the second lesson I think, 278 00:16:15,480 --> 00:16:17,720 Speaker 1: is it takes time to do this. You have to 279 00:16:18,240 --> 00:16:21,720 Speaker 1: the logistics of rolling out a massive program like this 280 00:16:22,320 --> 00:16:25,440 Speaker 1: go well beyond which what most people think about. So 281 00:16:25,680 --> 00:16:28,560 Speaker 1: thinking they're going to immediately do this, it's been in 282 00:16:28,880 --> 00:16:32,280 Speaker 1: place for six years, they need time. Weird from Greg 283 00:16:32,320 --> 00:16:36,080 Speaker 1: Bellier that the Republicans meeting in Philadelphia this week is 284 00:16:36,200 --> 00:16:39,840 Speaker 1: the oddest of oddest things, the GOP with a president who, 285 00:16:40,320 --> 00:16:43,200 Speaker 1: um some would say as a populist, maybe a conservative. 286 00:16:43,640 --> 00:16:45,960 Speaker 1: I'm going to go to the great philosopher Brigham Young. 287 00:16:46,680 --> 00:16:49,040 Speaker 1: Remember a chip on the shoulder is a sure sign 288 00:16:49,040 --> 00:16:51,640 Speaker 1: of would higher up. How big a chip on the 289 00:16:51,720 --> 00:16:55,400 Speaker 1: shoulder does this president have? He's the most unlived president 290 00:16:56,120 --> 00:16:59,680 Speaker 1: or for that matter, on Romney president I've ever seen. 291 00:17:00,080 --> 00:17:04,800 Speaker 1: Is he a Republican? There's a lot that we don't 292 00:17:04,880 --> 00:17:08,199 Speaker 1: yet know about a President Trump. We know Candidate Trump, 293 00:17:08,680 --> 00:17:13,000 Speaker 1: but we're only two days into President Trump. I think 294 00:17:13,000 --> 00:17:17,960 Speaker 1: that we have we have begun to. It's become clear 295 00:17:18,040 --> 00:17:20,960 Speaker 1: that he's not going to be like other presidents. What 296 00:17:21,119 --> 00:17:23,879 Speaker 1: that actually will look like we don't know yet. But 297 00:17:24,000 --> 00:17:26,960 Speaker 1: there's a we don't have. You gotta come back, I mean, 298 00:17:27,040 --> 00:17:28,800 Speaker 1: please try to get back. It would like to speak 299 00:17:28,800 --> 00:17:31,640 Speaker 1: to you, m Bloomberg surveillance again. I think this will 300 00:17:31,680 --> 00:17:34,399 Speaker 1: be evolving, as you say, three days in and a 301 00:17:34,440 --> 00:17:37,800 Speaker 1: busy agenda for the president this morning. Michael Lovitt, thank 302 00:17:37,800 --> 00:17:40,840 Speaker 1: you so much. Mike Lovitt, the former Secretary of Health, 303 00:17:40,920 --> 00:17:45,840 Speaker 1: Human Services and of course Governor of Utah as well. 304 00:17:54,640 --> 00:17:58,119 Speaker 1: Brought you by Bank of America. Mary Lynch. Dedicated to 305 00:17:58,240 --> 00:18:02,359 Speaker 1: bringing our clients insights solutions to meet the challenges of 306 00:18:02,359 --> 00:18:06,879 Speaker 1: a transforming world. That's the power of global connections. Marylynch, 307 00:18:07,000 --> 00:18:15,520 Speaker 1: Pierce Federan Smith Incorporated, Member s I p C. The 308 00:18:15,560 --> 00:18:19,159 Speaker 1: first quarter wasn't good, second quarter wasn't much better. By 309 00:18:19,200 --> 00:18:21,320 Speaker 1: the third quarter, I think that our next guest was 310 00:18:21,359 --> 00:18:24,520 Speaker 1: spitting out his cheese, kurds and culvers. David Harrow joins 311 00:18:24,560 --> 00:18:27,560 Speaker 1: this now. He's partner and Chief Investment Officer at Harris Associates, 312 00:18:27,600 --> 00:18:31,119 Speaker 1: joining us now on the Spectrum Enterprise, oh Human Football, 313 00:18:32,840 --> 00:18:36,600 Speaker 1: Specium Enterprise, Nationwide, Fiber Bass Network, and I T Infrastructure Solutions. 314 00:18:36,640 --> 00:18:38,240 Speaker 1: David Hair, there's a great deal to talk about. Who 315 00:18:38,240 --> 00:18:39,920 Speaker 1: you want to talk about? The game? First of all, 316 00:18:41,359 --> 00:18:48,120 Speaker 1: which game was Tom mentioned? You might play coy But again, well, 317 00:18:48,160 --> 00:18:50,760 Speaker 1: I have to say, and I have mentioned this, the 318 00:18:50,800 --> 00:18:53,480 Speaker 1: packard defense has been suspect for such a long time 319 00:18:53,560 --> 00:18:58,160 Speaker 1: and it was really exposed. It was really exposed last night. 320 00:18:58,280 --> 00:19:02,600 Speaker 1: It was just awful, really, I mean that's I mean, 321 00:19:02,640 --> 00:19:05,400 Speaker 1: they just converted just about every third dial and they 322 00:19:05,400 --> 00:19:07,640 Speaker 1: moved the ball at well, and then when the Packers 323 00:19:07,680 --> 00:19:10,240 Speaker 1: look to be doing something while that phone was nasty. 324 00:19:10,320 --> 00:19:13,320 Speaker 1: But yeah, let's talk about the patriots. They earned it, 325 00:19:14,000 --> 00:19:16,520 Speaker 1: and you know, Tom and I've always been big Patriot fans, 326 00:19:16,560 --> 00:19:21,520 Speaker 1: and we're just so prove that they are undogs. Get 327 00:19:21,520 --> 00:19:24,680 Speaker 1: a chance. Yes, life will go on and the Packers 328 00:19:24,720 --> 00:19:31,359 Speaker 1: will rebuild. Are you at a point in your international investment? No? 329 00:19:31,680 --> 00:19:36,240 Speaker 1: Seriously after Mr Trump's speech, what is the response of 330 00:19:36,280 --> 00:19:40,520 Speaker 1: the executives you speak to each and every day abroad? Well, 331 00:19:40,520 --> 00:19:42,800 Speaker 1: it's kind of a wait and see approach. And it 332 00:19:42,960 --> 00:19:46,320 Speaker 1: is interesting now you know, travel frequently meet we meet 333 00:19:46,359 --> 00:19:50,640 Speaker 1: with our managements and they're all very, very interested. This 334 00:19:50,720 --> 00:19:53,520 Speaker 1: is the first thing that anyone's looks really is is 335 00:19:53,600 --> 00:19:56,439 Speaker 1: what the Trump administration going to do? And is it 336 00:19:56,440 --> 00:19:58,400 Speaker 1: going to be positive? Is it going to be negative? 337 00:19:58,800 --> 00:20:01,440 Speaker 1: And as I mentioned, I mean certainly there are there. 338 00:20:01,480 --> 00:20:06,879 Speaker 1: There's both. There's some very strong positive policy implications and 339 00:20:06,920 --> 00:20:09,040 Speaker 1: there's some negative. And the negative has to do with 340 00:20:09,080 --> 00:20:12,720 Speaker 1: this trade and protectionism. And you know, he keeps claiming 341 00:20:12,760 --> 00:20:15,560 Speaker 1: that they're free traders as long as it's fair trade. 342 00:20:15,640 --> 00:20:20,280 Speaker 1: I think that has to be clearly defined because businesses, Uh, 343 00:20:20,320 --> 00:20:22,879 Speaker 1: if they want to invest in places that will be 344 00:20:23,080 --> 00:20:26,560 Speaker 1: exporting into the United States, I think they want to 345 00:20:26,560 --> 00:20:30,000 Speaker 1: make sure that those assets and those investments aren't for 346 00:20:30,119 --> 00:20:33,800 Speaker 1: not um. So it is something they're all very, very 347 00:20:33,840 --> 00:20:35,800 Speaker 1: concerned about. But on the other hand, you know, the 348 00:20:35,840 --> 00:20:39,919 Speaker 1: positives are pretty obvious. The deregulation. As you know, regulation 349 00:20:40,000 --> 00:20:42,840 Speaker 1: has strangled certain sectors of the U. S economy for 350 00:20:42,920 --> 00:20:47,040 Speaker 1: eight years. If you look at Mr Barrow's essays from 351 00:20:47,119 --> 00:20:49,640 Speaker 1: a e I about one of the reasons why he 352 00:20:49,720 --> 00:20:54,560 Speaker 1: believes the recovery from the Great Recession was so soft 353 00:20:54,720 --> 00:20:57,680 Speaker 1: was because of the over burdensome regulation. And I think 354 00:20:57,720 --> 00:21:00,920 Speaker 1: this is one thing Mr Trump is really the President Trump, 355 00:21:00,960 --> 00:21:04,280 Speaker 1: I guess, is really working to alleviate what do you 356 00:21:04,280 --> 00:21:07,960 Speaker 1: would be positive on trade and on protection? And what 357 00:21:07,960 --> 00:21:09,680 Speaker 1: are you what are you hearing? Are you hearing anything 358 00:21:09,720 --> 00:21:12,200 Speaker 1: that makes that clearer for you? When you hear Wilbur 359 00:21:12,240 --> 00:21:15,080 Speaker 1: Ross testifies say, or Stephen Manuchin, are they giving you 360 00:21:15,119 --> 00:21:17,240 Speaker 1: a better sense of where this administration might be headed. 361 00:21:17,240 --> 00:21:18,920 Speaker 1: I think back of what Greg Valier was saying about 362 00:21:19,200 --> 00:21:21,960 Speaker 1: Doris Kurrns Goodwin's team of rivals, and and the fact 363 00:21:22,040 --> 00:21:24,320 Speaker 1: that maybe the cabinet here will have some robust disagreement 364 00:21:24,359 --> 00:21:27,160 Speaker 1: and influence what the president does. Are are you closer 365 00:21:27,200 --> 00:21:31,000 Speaker 1: to having more clarity? I don't. I don't really think so. 366 00:21:31,080 --> 00:21:32,399 Speaker 1: I mean I think we just I think in the 367 00:21:32,440 --> 00:21:35,640 Speaker 1: next couple of weeks that will be flushed out. Um. 368 00:21:35,680 --> 00:21:39,000 Speaker 1: But just from what these people say in front of 369 00:21:39,040 --> 00:21:44,000 Speaker 1: their congressional testimony, I mean, we know what these are like, 370 00:21:44,200 --> 00:21:47,159 Speaker 1: a lot of the commerce people are just grandstanding, so 371 00:21:47,200 --> 00:21:50,359 Speaker 1: they say the safe conservative thing pretty much just to 372 00:21:50,440 --> 00:21:54,320 Speaker 1: get you know, then um, the appointment. So I mean, 373 00:21:54,359 --> 00:21:56,800 Speaker 1: I just don't know how serious to take the this, 374 00:21:56,800 --> 00:22:01,320 Speaker 1: this this testimony in front of these committees. Let's start 375 00:22:01,400 --> 00:22:04,720 Speaker 1: David with a portfolio. Do you do you restructure your 376 00:22:04,720 --> 00:22:08,880 Speaker 1: portfolio at the margin? Do you adapt your portfolio? Well, 377 00:22:08,880 --> 00:22:11,560 Speaker 1: as you know, we tend to act in a very 378 00:22:11,760 --> 00:22:16,640 Speaker 1: very evolutionary fashion. We priced businesses as as price moves 379 00:22:16,720 --> 00:22:21,040 Speaker 1: to our evaluations of these businesses, we make adjustments. And 380 00:22:21,119 --> 00:22:23,080 Speaker 1: so if you look at the third and fourth quarter, 381 00:22:23,200 --> 00:22:25,720 Speaker 1: we had a tremendous rally and some of the sectors 382 00:22:25,760 --> 00:22:30,560 Speaker 1: we were overweight consumer discretionary industrials, financials, and so maybe 383 00:22:30,640 --> 00:22:33,080 Speaker 1: we've trimmed a little bit of this as they've reached 384 00:22:33,119 --> 00:22:37,880 Speaker 1: their prices, their cell prices were still very much overweight 385 00:22:38,000 --> 00:22:42,679 Speaker 1: these areas. Because the revaluation has begun, but it isn't 386 00:22:42,720 --> 00:22:47,919 Speaker 1: anywhere near completion. The pricing differential between these sectors and 387 00:22:48,000 --> 00:22:53,480 Speaker 1: say consumer staples and utility stelecoms is still way too large. 388 00:22:53,840 --> 00:22:57,480 Speaker 1: So though we've trimmed a little bit um and maybe 389 00:22:57,480 --> 00:23:01,280 Speaker 1: we look a little less overweight, were still over Wait, doctors, 390 00:23:01,680 --> 00:23:03,679 Speaker 1: I would say we're on the third or fourth inning. 391 00:23:04,160 --> 00:23:06,919 Speaker 1: We still have a long way to go before this 392 00:23:06,920 --> 00:23:10,520 Speaker 1: this uh we get proper valuation differentials in these sector. 393 00:23:10,640 --> 00:23:12,720 Speaker 1: What we're gonna do is come back and talk to 394 00:23:12,800 --> 00:23:16,879 Speaker 1: David Harrow solely about investment. Everything seems to be tinged 395 00:23:16,920 --> 00:23:20,320 Speaker 1: with politics, tinged with international relations. Can we do that, 396 00:23:20,440 --> 00:23:24,600 Speaker 1: David Girl, Can well try and come back and just 397 00:23:24,800 --> 00:23:29,760 Speaker 1: talk about investment investment management with David A It's probably 398 00:23:29,760 --> 00:23:31,760 Speaker 1: a good first question. If is it possible to do 399 00:23:31,840 --> 00:23:34,640 Speaker 1: that in this day and age value investor exclusive? Yeah? 400 00:23:34,680 --> 00:23:36,840 Speaker 1: I mean, I mean, can we come back and not 401 00:23:36,920 --> 00:23:39,479 Speaker 1: speak about Donald Trump? Can we come back and not 402 00:23:39,600 --> 00:23:42,439 Speaker 1: speak about the Green Bay Packers? We will try that 403 00:23:42,480 --> 00:23:46,720 Speaker 1: way to do that with David Harrow. Our stocks rich, 404 00:23:47,040 --> 00:23:51,679 Speaker 1: David UH, certain places, I think it's hard to find value. 405 00:23:51,720 --> 00:23:53,879 Speaker 1: In other places it's a a bit easier. And I 406 00:23:53,920 --> 00:23:56,959 Speaker 1: think it's it's really hard to generalize and say stocks 407 00:23:56,960 --> 00:24:00,440 Speaker 1: are rich. Stocks generally are richer than they were three 408 00:24:00,520 --> 00:24:02,639 Speaker 1: quarters of a year ago. That is for sure, remember 409 00:24:02,640 --> 00:24:06,960 Speaker 1: those loads of February. But um, yeah, they're still good 410 00:24:06,960 --> 00:24:11,480 Speaker 1: places to find value. Do you find value abroad in 411 00:24:11,520 --> 00:24:14,960 Speaker 1: the land of Arrow? Or is your foreign nation the 412 00:24:15,080 --> 00:24:17,680 Speaker 1: United States? Where your value is this year? Which is it? 413 00:24:19,200 --> 00:24:22,960 Speaker 1: You know? I actually still think that the valuation differential 414 00:24:23,119 --> 00:24:27,600 Speaker 1: between internationalisted companies and the US domestic companies is still 415 00:24:27,880 --> 00:24:32,360 Speaker 1: is still pretty large in favor of UH foreign stocks 416 00:24:32,359 --> 00:24:37,119 Speaker 1: being a bit more attractively priced. Now, I have always 417 00:24:37,200 --> 00:24:40,520 Speaker 1: argued that U S stocks should sell at some premium 418 00:24:40,640 --> 00:24:45,000 Speaker 1: foreign stocks given the higher return characteristics of US equities 419 00:24:45,040 --> 00:24:49,040 Speaker 1: over non US equities. But I think the valuation differentials, 420 00:24:49,080 --> 00:24:51,320 Speaker 1: if you look at just kind of conventional price, the 421 00:24:51,400 --> 00:24:55,119 Speaker 1: cash flow price to book, are a bit more expensive 422 00:24:55,160 --> 00:24:57,600 Speaker 1: than they should be. So I do think if you 423 00:24:57,640 --> 00:25:01,560 Speaker 1: look at the universe of equities, um, that foreign stocks 424 00:25:01,720 --> 00:25:06,400 Speaker 1: look a bit more attractively priced than than US based stocks. 425 00:25:06,680 --> 00:25:08,480 Speaker 1: I want to bide by Thomas Rules here for the segment. 426 00:25:08,560 --> 00:25:11,200 Speaker 1: I want to talk about politics directly. But how difficult 427 00:25:11,240 --> 00:25:13,560 Speaker 1: is it to be a value investor right now? There 428 00:25:13,680 --> 00:25:15,679 Speaker 1: is so much noise, if we can call it that happening. 429 00:25:16,080 --> 00:25:17,920 Speaker 1: Uh is it harder than it has been in the 430 00:25:17,960 --> 00:25:21,320 Speaker 1: past to be a purely value based investor? You know, 431 00:25:21,480 --> 00:25:25,800 Speaker 1: to be honest, it's it's never easy because as value investors, 432 00:25:25,880 --> 00:25:29,520 Speaker 1: we really make investment decisions based on the intrinsic value 433 00:25:29,520 --> 00:25:34,119 Speaker 1: of the businesses and which we're investing, and your shareholder base, 434 00:25:34,200 --> 00:25:37,080 Speaker 1: your client base. The consultants, all they want to talk 435 00:25:37,080 --> 00:25:41,080 Speaker 1: about is macro, macro, macro macro. Now we're not We 436 00:25:41,119 --> 00:25:45,080 Speaker 1: don't believe macro economics is unimportant. We just believe it's 437 00:25:45,160 --> 00:25:48,840 Speaker 1: only important to the degree which it impacts the medium 438 00:25:48,880 --> 00:25:52,480 Speaker 1: and long term earnings and cash flow streams the businesses 439 00:25:52,520 --> 00:25:56,200 Speaker 1: in which we're analyzing, and it tends to happen, is all. 440 00:25:56,280 --> 00:26:00,240 Speaker 1: This macro noise seems to have very, very little as 441 00:26:00,320 --> 00:26:04,560 Speaker 1: any impact on long term valuation, which is frustrating and 442 00:26:04,720 --> 00:26:09,560 Speaker 1: dealing with your constituents, But it's actually better in terms 443 00:26:09,600 --> 00:26:13,080 Speaker 1: of looking for opportunity because of the market prices move 444 00:26:13,920 --> 00:26:16,639 Speaker 1: on factors that have very little impact on medium and 445 00:26:16,680 --> 00:26:21,159 Speaker 1: long term valuation. That provides one with an opportunity to 446 00:26:21,320 --> 00:26:25,160 Speaker 1: enhance return by and taking advantage of the markets short 447 00:26:25,240 --> 00:26:29,440 Speaker 1: termism and focus on non fundamental factors. So it is 448 00:26:29,480 --> 00:26:33,240 Speaker 1: frustrating and that you always have to talk about X, 449 00:26:33,400 --> 00:26:35,919 Speaker 1: y Z and why it's underperformed, or why it's lagged, 450 00:26:36,000 --> 00:26:37,960 Speaker 1: or why you're having a bad corner, or why you're 451 00:26:38,000 --> 00:26:41,639 Speaker 1: having a bad half year. I do believe there's a tradeoff. 452 00:26:41,880 --> 00:26:45,520 Speaker 1: There's a tradeoff between short term performance and medium and 453 00:26:45,560 --> 00:26:48,240 Speaker 1: long term performance. And as you know, a good bottom 454 00:26:48,240 --> 00:26:51,320 Speaker 1: of value investors tend to do is they'd rather perform 455 00:26:51,359 --> 00:26:53,119 Speaker 1: over the medium and long term. And this is what 456 00:26:53,160 --> 00:26:56,000 Speaker 1: we explain to our clients, but sometimes they don't quite 457 00:26:56,320 --> 00:26:59,920 Speaker 1: get it that way. Now, I wonder if you could 458 00:26:59,920 --> 00:27:01,840 Speaker 1: just walk us through how your positioning has changed here 459 00:27:01,840 --> 00:27:03,399 Speaker 1: at the beginning of the year. I wonder when you 460 00:27:03,440 --> 00:27:06,800 Speaker 1: look at consumer staples and utilities in particular, if if, 461 00:27:06,840 --> 00:27:10,359 Speaker 1: if your outlook for those two sectors is markedly different 462 00:27:10,359 --> 00:27:13,200 Speaker 1: this year than they were in two thousand sixteen. Yeah, 463 00:27:13,200 --> 00:27:16,160 Speaker 1: the outlook isn't so different, but the valuations of course 464 00:27:16,200 --> 00:27:19,879 Speaker 1: swing um now over Okay, the years about three or 465 00:27:19,920 --> 00:27:22,720 Speaker 1: four weeks. So we live just a little change here 466 00:27:22,720 --> 00:27:25,640 Speaker 1: and there is if there's an abrupt price movement somewhere, 467 00:27:25,960 --> 00:27:27,880 Speaker 1: if there's a stock that you know, it's a large 468 00:27:27,920 --> 00:27:31,480 Speaker 1: position that's keeps getting edging closer to our cell price, 469 00:27:31,600 --> 00:27:34,600 Speaker 1: we might trem a little bit, but we we don't 470 00:27:34,680 --> 00:27:39,600 Speaker 1: really um similar to changes in value being very slow 471 00:27:39,680 --> 00:27:42,480 Speaker 1: paced over time. I mean a company should be creating eight, 472 00:27:42,560 --> 00:27:45,640 Speaker 1: nine times eleven twelve percent value for share every year. 473 00:27:46,280 --> 00:27:49,760 Speaker 1: So when we value a business, that value curve should 474 00:27:49,800 --> 00:27:53,399 Speaker 1: have a positive slope. It's the price that's volatile, and 475 00:27:53,480 --> 00:27:56,440 Speaker 1: we don't really move a lot unless their value moves 476 00:27:56,440 --> 00:28:00,159 Speaker 1: a lot and underlying intrinsic value or price when so 477 00:28:00,160 --> 00:28:03,760 Speaker 1: a lot in either direction, especially if one moves in 478 00:28:03,840 --> 00:28:07,920 Speaker 1: the other dozen' that's what causes us to be more 479 00:28:08,000 --> 00:28:10,800 Speaker 1: active in terms of portfolial positioning. If one of those 480 00:28:10,880 --> 00:28:13,720 Speaker 1: lines moves a lot quicker than the other, and our 481 00:28:13,760 --> 00:28:16,359 Speaker 1: weights might be a little off. Kilder David Harrell, thank 482 00:28:16,400 --> 00:28:19,120 Speaker 1: you so much, greatly appreciate. He is with Harrison Scis 483 00:28:30,000 --> 00:28:33,760 Speaker 1: shes Quinn, professor at the Booth School, Austin gils We 484 00:28:33,880 --> 00:28:35,879 Speaker 1: joins us and of course with the service to the 485 00:28:35,920 --> 00:28:39,320 Speaker 1: Obama administration. I guess we could try to avoid the 486 00:28:39,360 --> 00:28:44,040 Speaker 1: politics here, Austin, let's do that. Avonage, Dick Say, Avanage, Dixit, 487 00:28:44,160 --> 00:28:47,400 Speaker 1: and Bury Nilbo their classic book The Art of Strategy, 488 00:28:48,000 --> 00:28:50,360 Speaker 1: and buried in it they pay homage to the late 489 00:28:50,400 --> 00:28:54,320 Speaker 1: Tom Shelling, one of our great losses of two thousand sixteen, 490 00:28:54,840 --> 00:28:57,720 Speaker 1: and Michael Porter, who was with us in Davos on 491 00:28:57,880 --> 00:29:02,480 Speaker 1: the game theory of a zero some world. Here's the headline, Austin, 492 00:29:03,000 --> 00:29:06,560 Speaker 1: we are going to be imposing a very major border tax, 493 00:29:07,360 --> 00:29:10,840 Speaker 1: which implies, if there's a cake and they have too 494 00:29:10,920 --> 00:29:13,480 Speaker 1: much of the cake, whether it's Canada or Mexico, I 495 00:29:13,480 --> 00:29:16,320 Speaker 1: believe those are the borders, We're gonna get our piece 496 00:29:16,320 --> 00:29:19,040 Speaker 1: of the cake at the expense of them. Are we 497 00:29:19,120 --> 00:29:22,280 Speaker 1: back to neo mercantilism? With what you've observed in the 498 00:29:22,360 --> 00:29:26,920 Speaker 1: last five days, Smith starting to smell like it doesn't it? 499 00:29:26,920 --> 00:29:30,479 Speaker 1: And you know, I thought with the border adjustment tax 500 00:29:30,520 --> 00:29:33,080 Speaker 1: they were calling it UH that they were going to 501 00:29:33,160 --> 00:29:37,160 Speaker 1: reform the corporate income tax, it might be a creative 502 00:29:37,200 --> 00:29:40,680 Speaker 1: way to get around the normal problems of putting in 503 00:29:40,800 --> 00:29:44,520 Speaker 1: tariffs and trying to build up walls to to your 504 00:29:44,560 --> 00:29:48,040 Speaker 1: advantage at the expense of the other guy. But I 505 00:29:48,080 --> 00:29:50,200 Speaker 1: don't know it has seen. It seemed like from the 506 00:29:50,240 --> 00:29:54,360 Speaker 1: Twitter feed that that President Trump isn't for that border 507 00:29:54,360 --> 00:29:57,880 Speaker 1: adjustment tax anymore, that he's that he's literally just kind 508 00:29:57,880 --> 00:30:02,840 Speaker 1: of talking back to the to the mercandilist side um. 509 00:30:02,960 --> 00:30:06,440 Speaker 1: And that makes me nervous because, as you know, Tom, 510 00:30:06,560 --> 00:30:09,040 Speaker 1: that's been tried hundreds of times. It's not like that 511 00:30:09,080 --> 00:30:11,920 Speaker 1: has never been tried before. That has been tried, and 512 00:30:12,000 --> 00:30:15,120 Speaker 1: we know it doesn't work. So if they do that, boy, 513 00:30:15,200 --> 00:30:17,520 Speaker 1: I don't think the market's going to react well. The 514 00:30:17,520 --> 00:30:19,600 Speaker 1: new president has whipped out his sharpie and signed a 515 00:30:19,640 --> 00:30:21,960 Speaker 1: few executive orders, one of which is to renegotiate the 516 00:30:22,000 --> 00:30:25,800 Speaker 1: North American Free Trade Agreement Austin, and I wonder if 517 00:30:25,840 --> 00:30:27,960 Speaker 1: if you have any sympathy for doing that, if if, 518 00:30:28,000 --> 00:30:30,240 Speaker 1: as many people say, this is an old agreement it 519 00:30:30,280 --> 00:30:33,240 Speaker 1: could be revised, any common ground there between Democrats and 520 00:30:33,240 --> 00:30:37,520 Speaker 1: Republicans revising that that deal at least, Yeah, though you 521 00:30:37,560 --> 00:30:41,600 Speaker 1: know the negotiating parties in that are not Republicans and Democrats. 522 00:30:41,640 --> 00:30:44,560 Speaker 1: As you know, it's you know, getting Canada and Mexico 523 00:30:45,240 --> 00:30:47,960 Speaker 1: on board. I I do have some sympathy for it, 524 00:30:48,040 --> 00:30:53,560 Speaker 1: And a little known aspect by those outside that world 525 00:30:53,960 --> 00:30:59,040 Speaker 1: is that the TPP was a renegotiation of NAFTA. Both 526 00:30:59,120 --> 00:31:01,880 Speaker 1: Mexico and the United States we're going to be parties 527 00:31:01,920 --> 00:31:04,720 Speaker 1: to t p P and it changed a bunch of things, 528 00:31:04,760 --> 00:31:08,200 Speaker 1: which you know, in the twenty years or so since 529 00:31:08,200 --> 00:31:11,920 Speaker 1: we passed NAFTA, we've gotten better at trying to figure 530 00:31:11,960 --> 00:31:16,120 Speaker 1: out ways to figure out what kind of things can 531 00:31:16,200 --> 00:31:19,560 Speaker 1: go wrong. So I'm sympathetic that if they went at 532 00:31:19,600 --> 00:31:23,200 Speaker 1: it with an open mind that they could revise us 533 00:31:23,240 --> 00:31:26,720 Speaker 1: a whole series of things. I don't know. We're gonna 534 00:31:26,720 --> 00:31:29,080 Speaker 1: have to see if that's what he intends. It feels 535 00:31:29,120 --> 00:31:33,000 Speaker 1: more like what he intends is in the zero sum 536 00:31:33,040 --> 00:31:36,800 Speaker 1: mentality that he's gonna have, you know, a collection of 537 00:31:36,880 --> 00:31:39,840 Speaker 1: threats and a collection of demands and try to try 538 00:31:39,880 --> 00:31:44,000 Speaker 1: to get our trading partners to give us more. And look, 539 00:31:44,160 --> 00:31:46,000 Speaker 1: all power to him if he can do that, but 540 00:31:46,120 --> 00:31:48,760 Speaker 1: just please don't start a series of trade wars that 541 00:31:48,760 --> 00:31:51,440 Speaker 1: would be a disaster. A question about your Council of 542 00:31:51,480 --> 00:31:55,000 Speaker 1: Economic Advisors. We talk a lot about trumponomics. How much 543 00:31:55,040 --> 00:31:57,840 Speaker 1: of of defining a prison's economic policy is done by 544 00:31:57,840 --> 00:32:02,640 Speaker 1: the Council, all of it. It's the most important job 545 00:32:02,680 --> 00:32:06,800 Speaker 1: in the government. Look, the Council of Economic Advisors is 546 00:32:06,840 --> 00:32:12,320 Speaker 1: the president's own personal think tank basically, and so it's 547 00:32:12,640 --> 00:32:18,440 Speaker 1: influence and effectiveness depends critically on the relationship between especially 548 00:32:18,520 --> 00:32:22,000 Speaker 1: the chair and the President. So the president is listening 549 00:32:22,360 --> 00:32:25,720 Speaker 1: to the c a chair and and that chair is 550 00:32:25,760 --> 00:32:29,000 Speaker 1: having an influence on them, then the then the CIA 551 00:32:29,200 --> 00:32:32,280 Speaker 1: is powerful, is important, and and the arguments are being 552 00:32:32,320 --> 00:32:35,560 Speaker 1: taken seriously. If the President is basically like thank you, 553 00:32:35,560 --> 00:32:39,160 Speaker 1: you know, and uh, then the CIA's effectiveness is not 554 00:32:39,200 --> 00:32:42,280 Speaker 1: there because it's not a cabinet It is a cabinet agency, 555 00:32:42,320 --> 00:32:45,320 Speaker 1: but it's not one that has a bunch of regulatory 556 00:32:45,360 --> 00:32:48,240 Speaker 1: oversight directly. So there's there's nothing you can do if 557 00:32:48,240 --> 00:32:50,640 Speaker 1: nobody will listen to your argument. And now, folks, we 558 00:32:50,720 --> 00:32:53,160 Speaker 1: go back to early Austin goes this is six weeks 559 00:32:53,160 --> 00:32:57,440 Speaker 1: out of Milton Academy. What happens? What happens when you 560 00:32:57,520 --> 00:33:02,160 Speaker 1: text the rich? Evidence from Executive Compensation Journal and Political 561 00:33:02,200 --> 00:33:06,800 Speaker 1: Economy seventeen years ago. Mr Trump, I believe is gonna 562 00:33:06,840 --> 00:33:11,480 Speaker 1: stop taxing the rich. Do they spend it? No? Look, 563 00:33:11,560 --> 00:33:14,959 Speaker 1: look what what that paper showed and it's it's just 564 00:33:15,120 --> 00:33:19,800 Speaker 1: one paper of a large, large literature that says the 565 00:33:20,480 --> 00:33:23,640 Speaker 1: Laugher curve argument that if you cut taxes for rich 566 00:33:23,680 --> 00:33:26,480 Speaker 1: people will pay for themselves. It's totally not true. That 567 00:33:26,640 --> 00:33:31,320 Speaker 1: data is disproven that hundreds of times, uh, and so 568 00:33:31,440 --> 00:33:33,840 Speaker 1: in that in that one paper, I was looking at 569 00:33:33,880 --> 00:33:37,200 Speaker 1: corporate executives, and you saw around the time when Bill 570 00:33:37,240 --> 00:33:41,280 Speaker 1: Clinton raised taxes on inh income people, there was a 571 00:33:41,360 --> 00:33:44,360 Speaker 1: shifting of the timing of when they took their compensation. 572 00:33:44,400 --> 00:33:46,840 Speaker 1: They tried to get as much as they could cash 573 00:33:46,880 --> 00:33:50,720 Speaker 1: out stock options before he took office. But the longer 574 00:33:50,800 --> 00:33:55,400 Speaker 1: run impacts were quite modest. Here's here's a basic question. 575 00:33:55,600 --> 00:33:58,520 Speaker 1: Why why is tax reform so difficult? Why has it 576 00:33:58,560 --> 00:34:00,120 Speaker 1: taken so long? Why is it proving to be so 577 00:34:00,200 --> 00:34:03,560 Speaker 1: difficult time and time again? Well, you guys know why 578 00:34:03,600 --> 00:34:08,920 Speaker 1: it's difficult. Tax cutting is easy. Tax reform I anything 579 00:34:08,960 --> 00:34:12,000 Speaker 1: that broadens the base or rationalize the system. It's very 580 00:34:12,000 --> 00:34:16,359 Speaker 1: difficult because some people have to pay more in that situation. 581 00:34:16,920 --> 00:34:20,440 Speaker 1: And a lot of times the biggest advocates of tax 582 00:34:20,520 --> 00:34:25,759 Speaker 1: reform are also the people who are advocating tax cuts. 583 00:34:25,800 --> 00:34:29,600 Speaker 1: So whenever the Republicans come forward with a plan that is, 584 00:34:29,640 --> 00:34:31,640 Speaker 1: we're going to lower the rates and broaden the base. 585 00:34:32,560 --> 00:34:36,480 Speaker 1: You see the their their advocates say, wait, wait, wait, 586 00:34:36,480 --> 00:34:41,120 Speaker 1: wait wait, don't raise our taxes. Let's just cut it. 587 00:34:41,239 --> 00:34:43,160 Speaker 1: Let's leave it in the same system and cut And 588 00:34:43,160 --> 00:34:45,040 Speaker 1: that's what I think they're gonna do again. Austin, don't 589 00:34:45,040 --> 00:34:48,000 Speaker 1: be a stranger. Let's get you here. From much conversation 590 00:34:48,080 --> 00:34:52,120 Speaker 1: Bloomberg servants, Austin goes to be the Boost School Chicago. 591 00:34:59,120 --> 00:35:03,480 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 592 00:35:03,520 --> 00:35:08,600 Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform 593 00:35:08,719 --> 00:35:12,280 Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David 594 00:35:12,320 --> 00:35:16,000 Speaker 1: Gura is at David Gura. Before the podcast, you can 595 00:35:16,120 --> 00:35:32,359 Speaker 1: always catch us worldwide on Bloomberg Radio. Brought you by 596 00:35:32,600 --> 00:35:36,320 Speaker 1: Bank of America. Mary Lynch. Dedicated to bringing our clients 597 00:35:36,400 --> 00:35:40,560 Speaker 1: insights and solutions to meet the challenges of a transforming world. 598 00:35:41,040 --> 00:35:44,760 Speaker 1: That's the power of global connections. Mary Lynch, Pierce Feeder 599 00:35:44,840 --> 00:35:48,320 Speaker 1: and Smith Incorporated Member s I p C.