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Speaker 1: This is Bloomberg surveillance. China is reflating through credit growth,

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Speaker 1: and the set has become a bit more dubbish and

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Speaker 1: has served to weaken the dollar a bit. Clearly, it

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Speaker 1: wasn't the fet intervention that was bringing down interest rates.

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Speaker 1: It was the good clot of global savings. I don't

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Speaker 1: think to fetch you just raise rates for the sake

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Speaker 1: of rating. And they certainly want to make sure that

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Speaker 1: the steps that they take are well justified. Bloomberg Surveillance

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Speaker 1: your link to the world of economics, finance, and investment

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Speaker 1: on Bloomberg Radio. Good Morning at eight o'clock on Well Street.

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Speaker 1: I Michael McKy, Francine Lacklaw sitting in this morning for

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Speaker 1: Tom Keene, who is using Francine's vacation days to take

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Speaker 1: a few days. Was the very nice of your friend

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Speaker 1: here to give it to him? Or did he tell

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Speaker 1: you we're conducting a contest. Where in the world is

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Speaker 1: Tom Keene? If you think you know you can tweet us,

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Speaker 1: We're not saying anything other than they accept dollars where

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Speaker 1: Tom is uh and no, John Tucker, We're not going

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Speaker 1: to make sure it's a one way ticket anything to

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Speaker 1: come back we're watching markets a little lower today. There's

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Speaker 1: some pessimism, but overall the general feeling has been that

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Speaker 1: things are getting a little better, and you see that

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Speaker 1: may be reflected in oil prices as much a question

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Speaker 1: of demand as well as surprise a supply. Uh. David

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Speaker 1: Harrow is a longtime friend of Bloomberg Surveillance. He's a

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Speaker 1: portfolio manager and chief investment officer for the Oakmark Funds

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Speaker 1: that Harris associates, and he's with us now. There's an

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Speaker 1: interesting story of the Bloomberg today from Michael McDonough. He's

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Speaker 1: the chief economist at Bloomberg Intelligence, and basically the headline

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Speaker 1: says it all peak pessimism on global growth maybe passing.

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Speaker 1: Is that kind of the feeling you see generated in

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Speaker 1: the markets these days, that we started off the year

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Speaker 1: about as depressed as we could be, and now people

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Speaker 1: are beginning, maybe as a other warms up, to feel

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Speaker 1: better about the well, you're starting to see it when

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Speaker 1: we meet with company management, they're starting to sound a

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Speaker 1: little bit better. Um. And it's all all based on

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Speaker 1: this notion. I believe that perhaps growth has bottom. You

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Speaker 1: see the United States, the world's largest economy, growing at

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Speaker 1: the two plus percent. Europe seems to finally be slowly

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Speaker 1: waking out of its somber Uh, perhaps China has bottomed.

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Speaker 1: So you're starting to get this feeling from companies that

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Speaker 1: things perhaps don't look like they're getting worse, which is which,

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Speaker 1: which is a positive? And the last thing I would

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Speaker 1: say in regards to this is the consumer, the global consumer.

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Speaker 1: It's actually quite strong. If you look at unemployment rates

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Speaker 1: and the major economies, and low interest rates and low

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Speaker 1: energy costs. You combine these three things together and the

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Speaker 1: biggest driver of global economic growth. Consumer is actually fairly healthy.

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Speaker 1: So your view would be optimistic as well at this point. Yeah,

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Speaker 1: I think especially when you look when you combine this

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Speaker 1: with valuations of businesses, business valuations are attractive. Growth perhaps

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Speaker 1: is picking up. You have very very little dislocation as

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Speaker 1: far as as as far as large imbalances in the

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Speaker 1: global economy. I mean, things could always be better. And

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Speaker 1: of course the political environment is awful, and I think

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Speaker 1: this is one of the things dragging markets down. People

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Speaker 1: vote via the stock market even though you know this

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Speaker 1: political environment really doesn't have much to do with medium

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Speaker 1: and long term earnings growth prospects. So this is I

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Speaker 1: think one of them influences that is providing opportunity to

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Speaker 1: buy quality businesses at lower prices. David, I'm so excited

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Speaker 1: to have you on because you're truly one of the

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Speaker 1: f shareholders that instills fears in the size of a

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Speaker 1: lot of European c o s. Are you increasing your

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Speaker 1: stake in Deutsche or Critics given the overhauls that we

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Speaker 1: have seen, or macy Um. By the way, I think

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Speaker 1: many many of the management teams who are committed to

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Speaker 1: having long term shareholders who agree with the core objective

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Speaker 1: of value creation are happy to have us on the

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Speaker 1: registry UM because we are long term shareholders who only

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Speaker 1: do who only hope to invest with managements that share

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Speaker 1: that objectives because often other objectives come into um, you know,

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Speaker 1: the the horizon for these managements, and we want to

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Speaker 1: just focus on building value. And if you're looking around

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Speaker 1: spoken than what we're up well, because there's been some

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Speaker 1: instances in the past where you know, we we assert

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Speaker 1: our rights as large shareholders. UM, I mean we are

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Speaker 1: owners of the business. And and it's unfortunate that sometimes

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Speaker 1: corporate boards forget that private enterprise is listed. Enterprises are

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Speaker 1: not government entities, were not not for profits. Uh, and

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Speaker 1: and what we're not here to employ um lots of

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Speaker 1: people on boards of directors. We're here to make money.

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Speaker 1: We're here to be a recipient of recycled savings. I mean,

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Speaker 1: these are people's retirement phones, as their children's inheritances, etcetera, etcetera.

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Speaker 1: And we just wish that they would all think that way.

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Speaker 1: But back to your question about adding to positions as

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Speaker 1: some of these financials. We're not in Deutsche Bank, but

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Speaker 1: we are in credit suites, and we have used price

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Speaker 1: price weakness as we usually do to increase our holdings.

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Speaker 1: If we think of business is worth X, and it's

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Speaker 1: trading at one half x or less and the price

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Speaker 1: keeps falling and we don't believe excess changed much, we

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Speaker 1: increase our holding just as some kind of a matter

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Speaker 1: of how we do business, oparks David Harrow with us

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Speaker 1: here on Blueberg Surveillance. We are brought to you by

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Speaker 1: Clone Resnick Accounting Tax Advisory to minimize risk and capture

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Speaker 1: value in private equity. You need Clone Resnick before we're

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Speaker 1: thinking creates results fight out how at comb Resnik dot com.

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Speaker 1: I want to follow up on what you were just

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Speaker 1: saying about Credit Swiss. And if we think a there's

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Speaker 1: value in a company, you're saying we're adding to it.

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Speaker 1: What's the value you're seeing in Credit Sweets because a

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Speaker 1: lot of people wonder they start behind UBS in terms

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Speaker 1: of being a Swiss bank that wants to go into

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Speaker 1: the money management firm. They're still dealing with some of

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Speaker 1: the legacy legal issues. How fast can they grow? How

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Speaker 1: much can they return? Uh? I mean actually in Credit

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Speaker 1: Suisses position, they are kind of the same tact as UBS,

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Speaker 1: and that they're trying to de emphasize the investment bank. Now,

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Speaker 1: they tried this a couple of years ago and evidently,

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Speaker 1: and now we look in hindsight, they did not make

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Speaker 1: the transition fast enough. And I think with the new

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Speaker 1: management came in in the middle of last year, it's

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Speaker 1: been accelerated. When you have these changes, it's not often

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Speaker 1: pretty or friction less, and the case of Credit Sweets,

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Speaker 1: you know, has been some friction. But they're headed in

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Speaker 1: the right direction. And the right direction is allocating capital

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Speaker 1: to places where you can get the best through the

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Speaker 1: cycle return on that capital employed. And for instance, where

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Speaker 1: Credit Suite is doing is they're really building their wealth

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Speaker 1: management business in an emerging market, specifically in Asia, which

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Speaker 1: has been its kind of been starved with capital because

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Speaker 1: perhaps the investment bank was taking too much of it.

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Speaker 1: Areas in the investment bank which we're not able to

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Speaker 1: earn their through cycle return, we're getting the funds instead

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Speaker 1: of places like the Asian wealth management business which is

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Speaker 1: able to achieve this. And the beauty of what's happening

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Speaker 1: at Credit suitees returning the corner and we're starting to

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Speaker 1: really look at that capital allocation in a better way.

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Speaker 1: But David, at the same time, the critic sweet share

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Speaker 1: price has lost thirty since the beginning of the year,

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Speaker 1: and when I speak to a lot of banking analysts

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Speaker 1: here in London, they say the problem is that we

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Speaker 1: don't really understand what the endgame is or they want

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Speaker 1: more details from the ct gent Em. Do you refuse

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Speaker 1: those accusations, Well, I think in especially last year when

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Speaker 1: they presented their plan again you have it could be

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Speaker 1: a little more specific, but I think quite clearly as

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Speaker 1: of today, I think the direction is known and it

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Speaker 1: just takes all time because as you as you shut

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Speaker 1: off for e squided assets, you don't want to fire sale.

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Speaker 1: These are sophisticated people, Why why just give assets away?

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Speaker 1: But eventually you have to slim down your risk weighted

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Speaker 1: assets and then and then recycle those proceeds back into

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Speaker 1: what is If you look at the last set of numbers,

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Speaker 1: are very strongly growing private banking business and in Asia,

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Speaker 1: and this is really when you look at growth of

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Speaker 1: wealth creation, This is right where you want to be.

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Speaker 1: And others are leaving it because they don't have scale credits.

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Speaker 1: We does have scale. So I think, especially as we

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Speaker 1: get through some of these transitional periods in the next

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Speaker 1: six months, it will become very evident to what's happening

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Speaker 1: and the value of this company we will see is

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Speaker 1: substantially higher than today's share price. These short term price movements,

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Speaker 1: they're not pleasant, but if they don't really reflect reality,

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Speaker 1: we're okay with it. Now. If we saw permanent value destruction,

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Speaker 1: you know you mentioned that price decline, we would be concerned.

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Speaker 1: But we really don't see permit value destruction. That is,

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Speaker 1: the price of the company has gone down, has behave

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Speaker 1: far differently than the underlyingtrinsic value. David Harrow from Oak

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Speaker 1: Work is with us. Will continue our conversation with him

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Speaker 1: in just a moment. Right now, we're looking at markets

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Speaker 1: that are not particularly friendly if you're if you are

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Speaker 1: an investment manage sure GP investment officer, maybe it's better

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Speaker 1: to just sit back today and listen to Bloomberg Radio

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Speaker 1: all day. SMP futures have really start to decline down

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Speaker 1: now by six points. They were flat about an hour

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Speaker 1: hour and a half ago. That's a three tents decline down.

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Speaker 1: Futures off by forty four, that's three tents, and NASDAIC

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Speaker 1: futures are down by three tents this stocks markets in

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Speaker 1: Europe are also dropping. Stock six D down two points,

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Speaker 1: about six tenths of eight percent um, and I don't

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Speaker 1: see a real cause to it at this point. Friend, Right,

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Speaker 1: it's a naturally fascinating conversation because you know, when you

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Speaker 1: look at the volatility and when you look at really

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Speaker 1: the future of what European investment banks will look like,

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Speaker 1: it's something that people are really starting to question whether

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Speaker 1: we're getting the free lunch to the U S. Alright, well,

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Speaker 1: stay with us here on Bloomberg Surrounds. Michael McKay and

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Speaker 1: Francine Laka and David Harrold of Oak Park. Time to

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Speaker 1: check in now with Michael Barr and get the latest

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Speaker 1: world and national headlines. Mike Francine, thank you very much.

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Speaker 1: President Obama has a read to send two hundred fifty

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Speaker 1: additional military personnel to Syria as part of the effort

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Speaker 1: to combat the Islamic State Group. President Obama announced the

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Speaker 1: plans during a speech today and hanover Germany. Afghanistan's president

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Speaker 1: is calling on Pakistan the battle to Taliban rather than

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Speaker 1: try to bring them to the peace talks. Astraf Ghani

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Speaker 1: made the remarks today during an addressed parliament, the week

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Speaker 1: after a Talimann assault on the Afghan capital Cobble killed

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Speaker 1: sixty four people and wounded another three hundred forty. Ted

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Speaker 1: Cruz and John cass I have cut a deal in

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Speaker 1: an effort to stop Republican front runner Donald Trump from

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Speaker 1: winning the number of delegates out right for the party's nomination.

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Speaker 1: Cruise and Casi say they will divide certain upcoming states.

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Speaker 1: Global News twenty four hours a day, powered by our

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Speaker 1: twenty four hundred journalists and more than a hundred fifty

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Speaker 1: news bureaus from around the world. I am Michael barr

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Speaker 1: like Francy, Thank you very much. Michael bar Well. It's

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Speaker 1: a hockey week ahead with the Capitals facing the Penguins.

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Speaker 1: Tom Keen on vacation watching all the games. Maybe we'll

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Speaker 1: get a report from him this week. In the meantime,

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Speaker 1: we're counting it out of the opening bell. Brought to

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Speaker 1: you by the Grand Cherokee most awarded suv. Ever, the

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Speaker 1: Grand Cherokee continues to raise the bar with its luxurious

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Speaker 1: your local jeep dealer. Today, Global business news twenty four

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Speaker 1: mobile lapt and on your radio, this is a Bloomberg

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Speaker 1: Business flash and I'm kerin Moscow. US dock index future

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Speaker 1: is moving lower this morning. Let's go to the first

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Speaker 1: Word Breaking news desk for today's morning call, and here's

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Speaker 1: Bell Malone. Ay, Good morning Bill, Good morning Karen. US

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Speaker 1: teachers have extended their losses since the last time we spoke.

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Speaker 1: Death you just currently lowered by fifty four points, has

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Speaker 1: to be down six and a half and as a

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Speaker 1: futures declined by sixteen. The US ten yield at one

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Speaker 1: point eight six per cent and up of markets are

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Speaker 1: also declining, led by one point three percent losses in Italy.

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Speaker 1: On the US Economic Fund, a tent o'clock new home sales,

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Speaker 1: and a ten thirty Dallas fed. In other news, Howibert

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Speaker 1: reported at two point one billion dollar charge delayed earnings.

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Speaker 1: Two May three, Surrepta halted ahead of f D. A

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Speaker 1: panel Parago named John Hendrickson, a s CEO, also cut

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Speaker 1: your ps view below lowest estimates. In deal news, Gainet

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Speaker 1: proposes to buy Tribune Publishing for twelve five share Rigard airings.

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Speaker 1: This morning, lab Corps raised your view by ten cents

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Speaker 1: first day to EPs beat by a penny, and Xerox

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Speaker 1: was mixed. Finally, some of your Wallstreet upgrades and downgrades.

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Speaker 1: Kimberly Clark cut to hold over at Deutsche Bank, at

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Speaker 1: Goldman Sachs, Joy Globaline, Caterpillar raised to neutral, Public Storage

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Speaker 1: cut to sell the International Paper Cuts second reform over

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Speaker 1: at RBC, and Jazz Farmer raised to buy over at

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Speaker 1: sun Trust. Live from the first Breaking news desk, Gombo Maloney, Karen,

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Speaker 1: thanks bail to hear live breaking news over your Bloomberg

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Speaker 1: type squawk and go on your terminals squ a w

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Speaker 1: K go. That's to Bloomberg Business Flash. Mike and Francine,

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Speaker 1: thank you very much, Karen Bloomberg Surveillance, brought to you

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Speaker 1: by Investco explore what high conviction investing means to investors

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Speaker 1: uh Investco's value to equity managers. Watched the conversation at

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Speaker 1: investco dot com slash interactive. We're talking with David Harrow

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Speaker 1: from oak Mark about some of the stocks he loves

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Speaker 1: and hates. One of the stocks, David, that you loved

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Speaker 1: when others hated it was Glencore certainly has paid you

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Speaker 1: back over the last few months. So far a year

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Speaker 1: to date, it's up seventy three. However, this last week

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Speaker 1: we've seen iron or come roaring back and then has

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Speaker 1: a lot of the mining and commodities stocks up, you know,

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Speaker 1: like Rio Tinto's up and Glencore only up five. Is

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Speaker 1: the run running out of steam for Glencore um? I

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Speaker 1: think not at all, and we're very happy. We'd much

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Speaker 1: rather be invested in Glencore, which exposes us to copper

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Speaker 1: and zinc as opposed to iron ore. And why because

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Speaker 1: the cost curves of these metals are vastly different. Iron

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Speaker 1: ore has an extremely flat cost curve, so as prices lift,

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Speaker 1: you'll see supply come back rather quickly. Coppers not quite

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Speaker 1: the same at all. It has. It has a very

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Speaker 1: steep cost curve, so as prices lift still it's it's

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Speaker 1: difficult and uneconomic to bring or to the market at

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Speaker 1: an economic and an economic fashion. Uh. And if you

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Speaker 1: really believe in more, more and more electric cars. Uh,

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Speaker 1: copper there's sixty sixty pounds of copper and an electric car.

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Speaker 1: So this is a green story, Michael. You can feel

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Speaker 1: good about your investment while you really the heavy lifting

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Speaker 1: that really cause that kind of share price spike, and

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Speaker 1: Glencore with a stabilization of the balance sheet. Glencore today

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Speaker 1: is really really trimming down, has really trimmed down its

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Speaker 1: debt this year at four thousand dollars a ton copper

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Speaker 1: and today we're at five thousand. At four thousand, they're

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Speaker 1: still cash fall positive and that's because there where they

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Speaker 1: are in terms of cost of production of the minerals.

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Speaker 1: And of course their trading operation was which is very

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Speaker 1: unique and very strong, always seems to generate say two

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Speaker 1: and a half to three billion and ebit through thick

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Speaker 1: and thin, because they're the bigger trader, the biggest trader

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Speaker 1: in many of these commodities. So you have the margin

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Speaker 1: of safety from the trading operation. You have a good

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Speaker 1: operations and and coal, zinc and copper, and you have

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Speaker 1: a less a lot less leverage on the balance sheet.

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Speaker 1: So if we look at normalization of copper prices and

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Speaker 1: and what Glencore continue to do to generate pre cash flow,

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Speaker 1: we still think the company has significant upside. But David,

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Speaker 1: when you look at you know, some of the sell offs,

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Speaker 1: and you were mentioning the fact that they've been downsizing.

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Speaker 1: So they sold the agriculture business a couple of weeks

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Speaker 1: ago for two and a half billion. Was that enough?

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Speaker 1: Could they have got a better price? Well? That was

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Speaker 1: that was an acceptable price. Now, recall they didn't sell

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Speaker 1: control of it. They sold so they still controlled the

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Speaker 1: business and now they have a partner. Really, this is

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Speaker 1: a good business that hopefully they could continue to grow

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Speaker 1: and make more valuable. So they still control the business.

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Speaker 1: What they sold was a minority stake and they shouldn't

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Speaker 1: have to do much more in terms of asset sales

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Speaker 1: with the cash fold they're going to generate with the

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Speaker 1: asset sales they've already done. I think the big asset

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Speaker 1: sales are basically completed at Glencore. Well, so this company

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Speaker 1: has its worst behind it, then I certainly believe so.

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Speaker 1: And you know, some of it does depend on the future.

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Speaker 1: Basically is thinking copper in particular. These are metals which

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Speaker 1: they're really attached to, copper and specific and again copper

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Speaker 1: is a metal that we do want to be hooked

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Speaker 1: up to because of the steady demand, the more and

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Speaker 1: more costly supply, which kind of provides a floor to

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Speaker 1: the price of copper because this this is a metal

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Speaker 1: that has very few good substitutes, you know, because if

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Speaker 1: it's an electric conductivity and everything else, whether it's being semiconductors,

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Speaker 1: electric motors, etcetera. And as I said, this is a

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Speaker 1: metal let's in order to get cheaply out of the ground.

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Speaker 1: To extract cheaply out of the ground gets more and

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Speaker 1: more and more costly. Are you adding um? And now

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Speaker 1: we haven't. We haven't recently because at this stage, but

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Speaker 1: you know, it's very volatile. So again I just recited

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Speaker 1: our rule as if we believe a company's worth accident

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Speaker 1: dropped significantly away from X, you can assume that it's

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Speaker 1: it's that's a signal to add a little bit to

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Speaker 1: your position. And so it has been very strong, but

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Speaker 1: you know the price is volatile. I mean I think

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Speaker 1: it was almost at one seventy about a week ago

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Speaker 1: and I'm looking at my screen today it's at one.

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Speaker 1: I mean, in any given day, the trading range of

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Speaker 1: Glencore is at least five percentage points. It seems it

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Speaker 1: is one of the more volatile stocks we own, and

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Speaker 1: I think it's because traders use it as a surrogance

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Speaker 1: for commodity prices, and it's a very poor sarrogance. But

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Speaker 1: this is in efficiencies to the market which long term

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Speaker 1: investors could exploit. Well, we thank you very much for

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Speaker 1: for your analysis. There. We gotta leave it there. Unfortunately,

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Speaker 1: David Harrold we runs the oak Park Funds for Harris Investments,

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Speaker 1: Chief investment Officer. Coming up, we're going to check in

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Speaker 1: on the latest on like Gannette Tribune deal. Coming up there.

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