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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the radio, plus Globo Last and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters

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Speaker 1: on Katherine Cowdery. The stock market is adding to this

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Speaker 1: week's advanced The SMP five funded on course for its

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Speaker 1: biggest weekly game since March. The equity benchmarks remain higher

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Speaker 1: after funder Reserve chair Janet Yellen said the ongoing improvement

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Speaker 1: in the US economy would warrant another interest rate increase

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Speaker 1: in the coming months. She stopped short of giving an

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Speaker 1: explicit hint that the Central Bank will act in June.

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Speaker 1: The dollar extended its largest monthly game, which, like the markets,

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Speaker 1: every fifteen minutes throughout the trading day. DAL Industrial average

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Speaker 1: is currently up thirty eight points to tens of a

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Speaker 1: percent at seventeen thousand, eight hundred sixty six. SMP five

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Speaker 1: up eight points four tens of a percent to two thousand,

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Speaker 1: ninety eight, NAZDAC higher by twenty seven, I gained a

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Speaker 1: half per centence treating at forty nine West Texas intermediate

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Speaker 1: crude oil up three cents of barrel at fifty spout

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Speaker 1: goal down eleven dollars forty cents announced at twelve eleven

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Speaker 1: thirty ten year treasury down six thirty seconds with the

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Speaker 1: yield of one point eight five And that's a Bloomberg

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Speaker 1: business flash. It is time now for the t report.

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Speaker 1: Thank you, yes Vaneck the exchange traded funds. I was

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Speaker 1: actually looking at it exchange traded fund right now looking

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Speaker 1: at those closed and bond funds. M. Vanneck Vector's et

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Speaker 1: f s. Expect more from your muni's target tax exempting,

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Speaker 1: combined maturity and credit quality, all with low cost e

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Speaker 1: t f s. Visit vanak dot com slash Muni Vanack

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Speaker 1: access the opportunities. Let's go to Catherine Cowdery for our

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Speaker 1: e t F report. Bond dealers maybe using an e

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Speaker 1: t F as a kind of secondary balance sheet. Lisa A.

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Speaker 1: Brahma Witz wrote the column for Bloomberg Gadfly. Basically, this

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Speaker 1: is all adding up to people thinking that the dealers

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Speaker 1: are using these e t f s as if they're

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Speaker 1: their own inventories. Abrahma Witz points to the recent volatile

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Speaker 1: in the biggest junk bond e t F h y

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Speaker 1: G or the I Shares I box high yield corporate

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Speaker 1: bond fund. She notes that it's experienced record breaking daily withdrawals,

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Speaker 1: even though the broader market has encountered relatively little turbulence.

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Speaker 1: According to Abramowitz, in an environment where banks have stepped

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Speaker 1: back as counterparties, e t f s have become a

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Speaker 1: convenient solution for some dealers. They're saying, look, we'll take

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Speaker 1: a client's money, We'll use it to buy shares of

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Speaker 1: this e t F. You can redeem the shares in

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Speaker 1: kind for the underlying security. So basically you give them

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Speaker 1: the shares and then you get a whole bunch of bonds,

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Speaker 1: and then they sell those bonds to their clients. In

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Speaker 1: other words, some dealers are relying on h y G

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Speaker 1: as an easy source of bonds when clients want them.

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Speaker 1: That's your Bloomberg ETF report. I'm Katherine Cowderie. You're listening

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Speaker 1: to Taking Stock with Bill Box and Katholeen Hayes on

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Speaker 1: Bloomberg Radio, taking stock of the stock market, the bond market,

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Speaker 1: e t f s and more. As we head into

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Speaker 1: the Memorial Day weekend and the official start of summer,

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Speaker 1: how does the second half of the year look for investors?

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Speaker 1: What can you do with your money to make sure

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Speaker 1: you make a little money over the rest of the year.

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Speaker 1: Let's put all these questions to Dave Coula. He's CEO

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Speaker 1: and chief investment strategy strategist at main Stay Capital Management. Dave,

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Speaker 1: I'm glad you could find some time for us. Is

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Speaker 1: uh you get ready for the three day weekend? Absolutely?

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Speaker 1: Good afternoon, Kathleen. So I know that even though you

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Speaker 1: are probably thinking about I don't know, barbecues and all

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Speaker 1: the rest of it, you were listening to Janet Yellen's

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Speaker 1: conversation at Radcliffe Harvard University with the Harvard economist Greg

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Speaker 1: Mancute this afternoon. I think a lot of traders were

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Speaker 1: surprised that Gregg asked the obvious question, how does the

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Speaker 1: economy look to you right now? And what about the

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Speaker 1: metis coming up? What about rate hikes? She said, it's

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Speaker 1: appropriate to do another rate hike if the incoming data

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Speaker 1: support it. What do you take away from that? Well,

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Speaker 1: she was pretty direct in the way that she answered

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Speaker 1: that question, but it it confirmed what I think a

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Speaker 1: lot of people in thinking more recently that June or

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Speaker 1: July are on the table for a probable rate hike. Uh,

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Speaker 1: It'll either be June or July. If they want to

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Speaker 1: wait past the Brexit vote. But you know, that's I

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Speaker 1: think being mostly being priced in. FED futures have risen

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Speaker 1: a lot in terms of predicting that as either June

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Speaker 1: or July, and that's our expectation. We'll get a we'll

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Speaker 1: get a hike in June or July. David, what does

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Speaker 1: it tell you about the tone of the investors if

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Speaker 1: everything seems to hang on whether the Federal Reserve raises

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Speaker 1: interest rates five basis points? Is that any way to

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Speaker 1: run a portfolio well, tim The The unfortunate thing about

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Speaker 1: the environment we're in is, you know, it is a

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Speaker 1: like it or not, it's it's been largely a FED

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Speaker 1: fueled UH stock market. If if you look at the

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Speaker 1: volatility that we've had in the first quarter and really

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Speaker 1: over the past several quarters, UH, it seems that, you know,

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Speaker 1: as we look at it and analyze it, it tends

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Speaker 1: to be fundamental. Is a hard look at fundamentals that

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Speaker 1: send the market down and then the federal central banks

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Speaker 1: that come in and prop the market back up. And

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Speaker 1: we had a very good example that in the first quarter,

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Speaker 1: not just our FED, but what was going on in

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Speaker 1: Europe and maybe to a lesser extent Japan, but uh

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Speaker 1: it has become a very important dynamic in terms of

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Speaker 1: the financial markets and specifically stocks. So, Dave, when we

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Speaker 1: have talked to you over the last few months, your

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Speaker 1: position had been for sometime you're pretty bolish on stocks.

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Speaker 1: You turn much more cautious. Where are you now when

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Speaker 1: you when you look at the stock market and the

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Speaker 1: prospects for further gains, for treading water or actually some

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Speaker 1: kind of crustioner sell off. But if we look at

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Speaker 1: where we are and where we've come from, we're now

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Speaker 1: in the eighth year of the second longest bowl market

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Speaker 1: in the history of stocks. You can't go further probably,

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Speaker 1: uh in. And as we've been talking about, you know,

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Speaker 1: people ask the question, are we still in a secular

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Speaker 1: bull market? There was a question, did may have last

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Speaker 1: year start a new bear market? Well, we're only a

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Speaker 1: couple of percent away from new highs, so we might

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Speaker 1: start the clock over on that anyway. But but what

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Speaker 1: we believe is we're in this trading range and it's

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Speaker 1: and it's larger that tug of war between the Fed

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Speaker 1: and fundamentals, as we like to say, and then trading

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Speaker 1: range of the last two years has been five we're

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Speaker 1: bumping up against on the S and P five hundred

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Speaker 1: right now, so we're at high end of that trading range.

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Speaker 1: And so we think for that reason, uh, it makes

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Speaker 1: sense for investors to look at their portfolio. UH, look

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Speaker 1: at the games, you know, with this run back up

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Speaker 1: and with this run over the past seven years plus.

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Speaker 1: Uh and and a little bit of caution we think

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Speaker 1: is prudent. At this point. We're long into this bull

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Speaker 1: market and we're at the top end of the trading

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Speaker 1: range we've had the last two years. So David, you're

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Speaker 1: looking for any beat up assets. I mean, for example,

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Speaker 1: are you looking for any oil or energy companies to

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Speaker 1: add to the portfolio. Well, I think some of the

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Speaker 1: areas that are interesting in this environment that are still

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Speaker 1: on the higher beta side. One is technology. Uh. And

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Speaker 1: it's interesting to know people think about financials, which are

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Speaker 1: also interesting through here with the with the feed hiking rates.

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Speaker 1: As net interest margin improves, they become more attractive. But

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Speaker 1: actually technology is the sector that tends to do the

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Speaker 1: best of all the industry sectors when the feed is

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Speaker 1: hiking rates. The reason for that is it's usually uh,

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Speaker 1: in coincidentally or accompanied by a strong economy. When we

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Speaker 1: have a strong economy, we've got capex cycles underway, which

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Speaker 1: is good for technology. Is industry is UH spending that money?

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Speaker 1: So technology for higher beta names. We like financials attractive

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Speaker 1: through here, but you know, still looking for those areas

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Speaker 1: we diversify into to reduce risk and overall volatility in

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Speaker 1: the portfolio as well. A guess on A today is

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Speaker 1: very keen on closed and bond funds, some of them

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Speaker 1: yielding about ten Is that something that you are watching

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Speaker 1: investing in, Well, we're typically using more E t F

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Speaker 1: E T N s, open end funds. We'll look at

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Speaker 1: closed and we'll look at close to in bond funds,

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Speaker 1: you know where they are relative to trading in A

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Speaker 1: at a premium. From time to time. We do like

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Speaker 1: in the area bonds. We still like preferred treasury inflation

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Speaker 1: protected securities look good through here, and even e M

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Speaker 1: debt has struggled a little bit more recently. But what

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Speaker 1: we've seen is is in the pullbacks we move on

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Speaker 1: to UH two more strength. So there's certainly some areas

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Speaker 1: areas within bonds with the threat of the FED raising

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Speaker 1: rates that are attractive, and that's because sovereign debt around

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Speaker 1: the world. Is the yields are so low that will

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Speaker 1: continue to put pressure on bonds here in the US

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Speaker 1: on the intermediate long end of the curve. David, you

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Speaker 1: have any interest in investing in gold or gold mining shares.

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Speaker 1: We've had some positions in both gold and gold mining

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Speaker 1: shares over the past several months. Gold bullion g l

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Speaker 1: D is h F. You used to play that directly. Uh,

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Speaker 1: it's you know, the problem with with gold we've seen

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Speaker 1: over the past week or several days here. Uh. You know,

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Speaker 1: when when the FED funds rate is at zero, industrates

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Speaker 1: are near zero, bonds are yielding near zero, it's okay

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Speaker 1: to hold a brick of gold that has no yield.

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Speaker 1: But as we look towards yields increasing, the Fed raising rates,

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Speaker 1: yields increasing on bonds, Uh, they don't look quite as attractive.

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Speaker 1: But is a diversifier and a portfolio. Precious metals from

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Speaker 1: time to time make a lot of sense because they

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Speaker 1: have a low or even negative correlation with stocks and

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Speaker 1: low correlation with bonds. Uh. So you know, we think

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Speaker 1: in light doses that can make sense from time to time.

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Speaker 1: So as for any particular ets, any fund that you

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Speaker 1: think is of one people could take a look at. Now,

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Speaker 1: what is a good prospect? Give us a couple of

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Speaker 1: you have them? Sure? So one way, Like I talked

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Speaker 1: about reads, you know in the areas of financials and

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Speaker 1: reads Global X super Dividend Read which is s R

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Speaker 1: E t UM. We we like reads through here we

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Speaker 1: have a high dividing, high yielding red with its dividen

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Speaker 1: yield currently at about seven, diversification geographically, and again reads

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Speaker 1: are a good bond proxy without raids going up quickly.

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Speaker 1: We think reads continue to look good UM and and

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Speaker 1: we like as we said, uh, you know an easy

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Speaker 1: way to play technology XLT, Financials XLF. We think that

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Speaker 1: there's an opportunity there. Thank you very much for spending

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Speaker 1: time with us. David Kudla he is the founder and

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Speaker 1: the chief executive officer and chief investment strategist for Mainstay

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Speaker 1: Capital Management is based in Troy, Michigan, helping to manage

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Speaker 1: more than two billion dollars of customer assets, and you

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Speaker 1: can follow him on Twitter at David Underscore Kudla k

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Speaker 1: U d l A. You're listening to Taking Stock, I'm

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Speaker 1: pim Fox, my co host Kathleen Hayes, and we take

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Speaker 1: you through to the close of trading. Next