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Speaker 1: This is Bloomberg surveillance. A terrorist attack slows economic activity.

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Speaker 1: Somebody doesn't take a trip to people change behavior. There

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Speaker 1: are an awful lot of antagonists who don't like the FET,

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Speaker 1: who want to occur the FET's authority. Even if the

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Speaker 1: FET is only projecting a couple of hikes through the

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Speaker 1: balance of the year, that's still about twice as much

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Speaker 1: as what's in the money market. Curved Bloomberg Surveillance your

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

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Speaker 1: Bloomberg Radio, Kid Martin, Everyone, Tom Keene and Michael McKee

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Speaker 1: Mr McKee off Today France and Laquais Yeoman's Duty. I

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Speaker 1: met a Yeoman once at the Tower of London. Yeoman's

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Speaker 1: Duty by Franci Laquix, London, out of our radio studios

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Speaker 1: on Finsbury Square, Finsbury Square in London. A lot to

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Speaker 1: talk about in this hour. Bloomberg Surveillance Marching by Kona

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Speaker 1: Resnick is always by Cone Resnick Accounting, Tax Advisory. It

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Speaker 1: can be hard to navigate through economic uncertainty. Your business

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Speaker 1: needs industry insight and transformative advice to drive it forward.

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Speaker 1: Find out why at Cone Resnik dot com. Francine if

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Speaker 1: you ever met a yeoman or a yo person, I haven't.

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Speaker 1: I need to hang out with Tontine. I got a

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Speaker 1: photo with him at the Tower of London. They were out.

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Speaker 1: They were like off the green there where everybody died

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Speaker 1: many years ago. Even he was shorter than you. Yes

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Speaker 1: they were, they were shorter than me. But they look

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Speaker 1: they look very extinguished all in all, Francine. David Sowerby

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Speaker 1: with Lomas sales Um has a lot of good perspective

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Speaker 1: on not only where valuations are going, but particularly valuations

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Speaker 1: off the market. We talked about our reward of Gamica earlier,

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Speaker 1: about the visible stocks that they grows box soerby looking

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Speaker 1: for things a little more obscure. David, good morning, Good

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Speaker 1: morning Tom. Are you enthusiastic about the acquisition as shares

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Speaker 1: here or are we overpriced? I would I would try

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Speaker 1: to take at least a twelve month view and think

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Speaker 1: that stocks are still the best performing asset class. I

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Speaker 1: think high yield can give them a run for their

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Speaker 1: money on a risk reward basis, but the likelihood that

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Speaker 1: you can still get equity returns between seven to eight

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Speaker 1: percent annualized, particularly when you value them on a company's

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Speaker 1: cash flow versus their knitted net income, that the market

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Speaker 1: still has potential even though off the February eleventh lows,

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Speaker 1: stocks are rallied anywhere from eleven too. But it's not

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Speaker 1: all stocks. I mean, there's there's there's the big you know,

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Speaker 1: the fifty big names of the hundred big names that

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Speaker 1: we're guilty of talking about them too much. Is there

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Speaker 1: value in nitcap or do they escape the carnage of January?

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Speaker 1: I think there's always value in the mid cap. And

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Speaker 1: if you go to what we affectionately refer to as

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Speaker 1: SMIT cap combination as small in mid if, it always

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Speaker 1: amazes me how many stocks can potentially double in a

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Speaker 1: in a in a part of the market that we

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Speaker 1: call the Russell Index, the Russell two thousand index. Small

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Speaker 1: cap stocks have actually modestly outperformed large cap stocks on

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Speaker 1: those February lows. And I always like to think that

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Speaker 1: I'm going to get to a little closer home next

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Speaker 1: to the beach on the back of small cap stocks

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Speaker 1: when it comes time to hang it up in this industry, David,

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Speaker 1: when you look at how what actually do you look

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Speaker 1: at to understand the direction of the markets? Right? You say,

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Speaker 1: equities are are doing fine, and they'll do fine. But

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Speaker 1: this all has to do with central back action, right,

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Speaker 1: A good chunk of it certainly does. Anytime you have

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Speaker 1: still after the FED began to embark on an incredible

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Speaker 1: easing in November two eight, you still have short term

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Speaker 1: interest rates in this country at less than fifty basis

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Speaker 1: points subtract the one point seven percent inflation, right, and

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Speaker 1: for better than roughly close to eight years, we've had

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Speaker 1: negative real interest rates. That is monetary that's monetary stimulus

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Speaker 1: on steroids. But but it goes beyond. I think simply

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Speaker 1: that the FET has been incredibly stimulative. I still believe

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Speaker 1: that companies today are much more sensible at what we'd

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Speaker 1: like to call allocating their capital or how they're spending

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Speaker 1: their cash flow in the spirit of being good for

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Speaker 1: shareholders and companies. Allocation on the back of good free

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Speaker 1: cash flow growth, I think still is a is a

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Speaker 1: tailwind and and a net plus for stocks to move higher.

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Speaker 1: Because companies are are spending their cash wisely, whether it's

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Speaker 1: UH in pursuit of a new piece of capital, hiring,

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Speaker 1: doing an acquisition UH. Companies are are much better at

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Speaker 1: delivering shareholder value with the use of their cash. Are

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Speaker 1: they dead? Because I mean a lot of the companies

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Speaker 1: that we've which may be a little bit bigger than

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Speaker 1: what you invest in A are sitting on cash. And

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Speaker 1: for me, we need a catalyst so that they start

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Speaker 1: spending more. You know, Tom makes a point that maybe

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Speaker 1: there's that's gonna spread M and A. But if if

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Speaker 1: you're not spending your cash, and it means that they're

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Speaker 1: not seeing a great rosy world out there, well let's

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Speaker 1: politely disagree a little bit that they're sitting on cash,

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Speaker 1: perhaps because there's still a little bruised from the near

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Speaker 1: armor getting economic experience of two thousand eight. But but nevertheless, um,

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Speaker 1: I think they're spending their cash. We know that dividends

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Speaker 1: are growing at a double digit pace, share re purchase

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Speaker 1: remains quite healthy. Capital spending outside of energy is growing

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Speaker 1: in a high single digit uh. Commercial loan growth because

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Speaker 1: if companies capital spending is running about ten for commercial

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Speaker 1: and industrial loan growth year over year levels. Employment growth

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Speaker 1: in two thousand fifteen was the best probably in about

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Speaker 1: fifteen years. So I would contend that companies are indeed

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Speaker 1: spending their cash in various ways, and still likely most

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Speaker 1: of them on an individual basis and the best interests

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Speaker 1: of shareholders. What about FED policy? How does that come

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Speaker 1: into your thinking? We had the Feds basically say no,

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Speaker 1: they're not looking at for interest rate hikes, are looking

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Speaker 1: at two. That gives a lot of companies an extra lifeline.

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Speaker 1: I'm always interested in FED policy, but I'll take a

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Speaker 1: step back and say it's usually the micro analysis of

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Speaker 1: individual companies that will lead me to the best investment decisions.

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Speaker 1: But having said that, I think as a portfolio manager,

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Speaker 1: one of the rules that then you should think about

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Speaker 1: with respect to the Federal Reserve is certainly be cognizant

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Speaker 1: of what the FED is doing with with money, particularly

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Speaker 1: the high powered money, the monetary base. But also what

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Speaker 1: I've learned over the years is one rule of thumb

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Speaker 1: with the FETE is they traditionally overdo it, whether it's

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Speaker 1: the tightening side or the using side. And if I

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Speaker 1: stick to that rule, and in this page is the

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Speaker 1: easing site has been very, very aggressive. That's a key.

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Speaker 1: Let me ask you the money question. I ask this

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Speaker 1: of Howard Ward with Microsoft Alphabet the rest of them earlier.

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Speaker 1: Let me ask you, with a smaller cap of you,

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Speaker 1: David Sowerby, can you link equity performance to tap adenominal GDP.

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Speaker 1: You a low terminal value or our corporates so adept

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Speaker 1: they can manage for that reality and keep the cash

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Speaker 1: flow stream going if I promise I look at free

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Speaker 1: cash flow as it's not the silver bullet, but it's

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Speaker 1: probably one of the best metrics for finding good companies.

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Speaker 1: Free cash flow yields are better than five for the

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Speaker 1: broader market from any of the stocks on buying. It's

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Speaker 1: it's it's well in excessive that I'm I am still

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Speaker 1: concourage that free cash flow growth is healthy, healthy as

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Speaker 1: it is when nominal GDP is let's call it at

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Speaker 1: best three and a half percent. We're gonna have you

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Speaker 1: back for another section. Let's get it started right now.

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Speaker 1: David Swerby, Looma Sales, give me a stock I've never

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Speaker 1: heard of. That's what's your best at you've never heard of? Um? Well,

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Speaker 1: Liberty Interactive is that it QBC great retailer, competes with

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Speaker 1: Walmart in a different way. High loyalty Uh better than

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Speaker 1: six percent free cash But isn't that old technology? But

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Speaker 1: it's loyal technology because they know exactly what they're selling

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Speaker 1: the minute by minute. Uh that they can they can

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Speaker 1: move their merchandise quite quickly. They don't have bricks and

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Speaker 1: mortar light the Amazon, but in a smaller way. I

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Speaker 1: think spinouts in the small MidCap area are still a

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Speaker 1: very successful way to buy money. And out of all

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Speaker 1: the liberty businesses, Liberty Interactive uh QVC has been a

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Speaker 1: very good long term spinout. Stocks weaker this year, it's

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Speaker 1: down ten percent, but I think there's there's valuation. But

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Speaker 1: in ther bullmarket it's only up thirty nine percent per year.

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Speaker 1: I mean, I mean, con David, you gotta do a

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Speaker 1: better performance. It's going from five to thirty John Tucker,

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Speaker 1: why didn't David Swerby tell us about this? And March

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Speaker 1: of nine? Well, and while David sorry, Loomis Sales, see Francine,

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Speaker 1: it's amazing you listen to Bloomberg Surveillance and you get

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Speaker 1: equity ideas always four years behind the moment. That's what

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Speaker 1: we like to do here, folks. We're gonna come back

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Speaker 1: and hopefully look forward back. David Sarry's gonna come back.

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Speaker 1: We're gonna try to look forward here a year or

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Speaker 1: three or four to look for the next qv C

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Speaker 1: A as well. He is with Lomas Sales We love

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Speaker 1: having him on because it's not about John Nameless, Stock, Apple, Facebook,

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Speaker 1: General Electric. It's like six. If you look to folks

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Speaker 1: at Bloomberg Surveillance at the percentage of time we spend

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Speaker 1: on the top ten stocks we talk about, it'd be

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Speaker 1: like eight. We're so guilty of the big stock bias.

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Speaker 1: And it's wonderful, seriously wonderful that David Sowerby of Loomin's

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Speaker 1: Sales on fancying any chance we can get George Osborne

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Speaker 1: on today for sure. Yeah, he's about to do a

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Speaker 1: phoner with us. How bad is the world for the Chancellor?

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Speaker 1: It's pretty bad also because he put a you know,

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Speaker 1: budget together last week. He unveiled it last week and

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Speaker 1: then there was public outcry because he caught benefits to

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Speaker 1: the poor and the disabled, and of course Ian Duncan

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Speaker 1: Smith had to resign. So look, he's facing Brexit and

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Speaker 1: he this means that his leadership contest is taking a

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Speaker 1: step back. If he had ambitions to become Prime minister

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Speaker 1: one day. Interesting that big a deal. We'll have to

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Speaker 1: we'll have to do more on that next week, particularly

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Speaker 1: in our five am hour here in New York ten

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Speaker 1: am primetime in London futures negative eleven down futures negative

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Speaker 1: eighty four on this Thursday, and now to the news

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Speaker 1: in New York. Here's Michael Barr, Tom, thank you very much.

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Speaker 1: There may be a second suspect on the loose following

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Speaker 1: this week's bombings and Brussels Belgians State media reports that

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Speaker 1: an attacker is seen on surveillance cameras in the Brussels subway,

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Speaker 1: carrying a large bag and walking alongside the man who

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Speaker 1: has been identified as the actual suicide bomber. The lawyer

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Speaker 1: for the chief Paris attacks suspect says Salah Abd a

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Speaker 1: Slam is not fighting extradition to France and wants to

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Speaker 1: leave Brussels as quickly as possible. A Slam was captured

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Speaker 1: in Brussels last week after four months on the run

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Speaker 1: to following the November Paris terror attacks. Heavy snow and

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Speaker 1: strong winds could hit the Plane States today thanks to

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Speaker 1: a powerful spring snowstorm that closed Denver's airports. Global News

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

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Speaker 1: hundred journalists more than a hundred fifty news bureaus from

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Speaker 1: around the world. I'm Michael Barr, Tom, Michael thanks so much.

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Speaker 1: We're look at equities, bonds, currencies, commudities, wait to the market,

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Speaker 1: not risk off. That's maybe too strong a statement. Dollars

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Speaker 1: stronger euro one eleven sixty This morning, Francy Lakwan, London.

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Speaker 1: I'm Tom keenan New York. Stay with us Bloomberg Surveillance,

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Speaker 1: The News by Mercedes Vans. This month here merced sans

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Speaker 1: trisag others Welcome Spring with living a time offers and

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Speaker 1: select models like the Scories c l A and Versatile

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Speaker 1: g l A, each engineered in price to move a

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Speaker 1: visit m B USA dot com Today Global business news

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Speaker 1: twenty four hours a day at Bloomberg dot com, the

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Speaker 1: Radio plus mobile app and on your radio. This is

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Speaker 1: a Bloomberg Business Flash and I'm Karen Moscow. US dot

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Speaker 1: index futures are falling this morning. Let's go to the

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Speaker 1: First Word Breaking news desk for today's morning call. And

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Speaker 1: here's Bill Maloney. Good morning, Good morning, Karen. That's right,

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Speaker 1: US future remain under pressure. Doubt You're just currently lowered

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Speaker 1: by eighty points, says the futures drop eleven and NAZAC

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Speaker 1: futures declined by two. The US ten yeel falls to

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Speaker 1: one point eight six percent, and main US per markets

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Speaker 1: are also training to the downside. France falls one point

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Speaker 1: eight percent on the US Economic Fronday eight thirty initial Jobs,

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Speaker 1: Claims and Durable Goods Orders and Market U S Services

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Speaker 1: p m I. At ten thirty, natural gas storage change,

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Speaker 1: and at eleven o'clock, Kansas City fed after develops night,

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Speaker 1: Kavey Home and PVH BAT and regarding earnings this morning,

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Speaker 1: finish line europs view trailed estimates, Whinnebago was mixed and

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Speaker 1: accenture boosted sixteen at jse EPs and revenue forecasts. Another

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Speaker 1: News Starboard nominates nine directors to Yahoo's board, and finally,

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Speaker 1: some of your Wall Street upgrades and downgrades. At Bank

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Speaker 1: of America, all Tree a cut to neutral, Philip Morris

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Speaker 1: raised to buy Range Resources, cut the underweight at Barkley's

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Speaker 1: General Dynamics cut to hold over at Deutsche Bank, fantast

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Speaker 1: cut and neutral at Bowman Sacks, and at Raymond James,

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Speaker 1: United Continental cut to market reform, and American Airlines raised

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Speaker 1: to outperform. Live from the First Breaking news desk on

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Speaker 1: bow Maloney, Karen all Right, thanks sa Bailan to hear

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Speaker 1: live breaking news over her Bloomberg type squawk a goo

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Speaker 1: on your terminal, and that's a Bloomberg business flash, Tommy,

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Speaker 1: Francy Karen, thanks so much Bloomberg Surveillance. This morning brought

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Speaker 1: you by invest Go. Investing isn't about meeting benchmarks, It's

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Speaker 1: about achieving goals. Find out how Investco's high conviction approach

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Speaker 1: can help. Visit investco dot com slash high conviction. Francy

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Speaker 1: Laquai in London. I'm Tom keenan New York. We're looking

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Speaker 1: at the equity market and the rationalization of owning stocks.

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Speaker 1: Giving all the columa out there and tempid G d P.

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Speaker 1: David sour me with us with Loomis sales. David, give

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Speaker 1: us an example of how free cash flows developed. Give

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Speaker 1: us a MidCap stock with maybe so so revenue growth,

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Speaker 1: but down the income statement the free cash has developed.

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Speaker 1: What's one good example of that. Um Harris makes set

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Speaker 1: top boxes, communication equipment that makes stuff they make stop.

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Speaker 1: They just are doing more business globally. The stock, whether

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Speaker 1: it's on a price to earnings or on a free

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Speaker 1: cash flow heel basis, is still generating uh good cash

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Speaker 1: flow from operations. Subtract their capital spending is the simplest

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Speaker 1: way to calculate free cash flow. And here's a here's

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Speaker 1: an example of a company that is not widely followed

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Speaker 1: by Wall Street and their free cash flow is attractive.

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Speaker 1: And I think to the broader market. We we talked

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Speaker 1: before the break that there is no silver bullet to

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Speaker 1: kicking good companies. But I think if you value companies

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Speaker 1: on a cash flow basis versus on a what more

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Speaker 1: Wall Street analysts do on that traditional price to earnings,

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Speaker 1: price to book, price to sales. That long term, but

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Speaker 1: particularly in the last ten years, valuing valuing a company

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Speaker 1: on its cash flow has proven to be superior for

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Speaker 1: I kind of line. Not just good stocks, Tom, but

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Speaker 1: I think good good credit as well, good bonds. So Dave,

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Speaker 1: that's one way of making money, right, But we also

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Speaker 1: have to make sure you don't lose money. So how

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Speaker 1: do you see how do you analyze companies that you

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Speaker 1: should be staying away from? Most likely it's when when

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Speaker 1: views are to euphoric, when you're ready to be canonized sainthood.

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Speaker 1: Few companies are that's reflected in in the valuation. I

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Speaker 1: think that that is very often one of the one

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Speaker 1: of the areas of the market to avoid. But but

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Speaker 1: at the same time, I think companies that that do

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Speaker 1: not deploy their cash in the best interest to shareholders,

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Speaker 1: that is always a metric that you you should look at.

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Speaker 1: Two for companies that you don't want to own versus

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Speaker 1: and a portfolio of plane to win in a modest

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Speaker 1: number of securities. I think that that's a key ingredient too.

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Speaker 1: But really looking at there's a great book by Thorndyke

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Speaker 1: called The Outsiders where he talks about ten individual ceo

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Speaker 1: some we've heard of, some we haven't, but that the

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Speaker 1: common threat throughout is individuals who really practiced good capital

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Speaker 1: allocation in the pursuit of shareholder return. Yeah. I look, David,

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Speaker 1: it's sector analysis and and I'm I'm fascinating, sort of

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Speaker 1: like auto parts when Steve Rattner was the cars are.

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Speaker 1: Tell me about oil smaller companies. I mean everybody knows

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Speaker 1: Geez oils down, Exxon oils down, Chevron. Tell me about

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Speaker 1: the smalleries in American oil that I don't know about. Well,

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Speaker 1: if you look at the filings with the with hopeful

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Speaker 1: approval for my compliance, we own a company called uh

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Speaker 1: golf Coort Energy operates oil and gas properties in Louisiana

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Speaker 1: Gulf Coast that the market capitalization is less than five

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Speaker 1: billion dollars. And I'll say again, look at our violence.

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Speaker 1: You'll see that we're an owner of stock and from

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Speaker 1: our perspective in a in a tough industry, particularly when

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Speaker 1: when in the smaller cap names, uh, you have to

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Speaker 1: see your balance sheets that this is a stock that

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Speaker 1: we've we've owned in. We have a good opinion on

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Speaker 1: David Sarvey, thank you so much with Louma sales. Greatly

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Speaker 1: appreciated different, different approach mid cap and small cap stock today. Francine,

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Speaker 1: that's a real clinic we spend I don't know about

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Speaker 1: you know what you do in London, Francine, But over

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Speaker 1: here there's just this huge bias to talk about the

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Speaker 1: big names, and a lot of good research has been

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Speaker 1: done showing mid cap can be a point of value

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Speaker 1: from time to time. Yeah. Here it's a very similar.

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Speaker 1: I think we I guess benchmarks the markets a lot

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Speaker 1: like in the US. I guess you just need to

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Speaker 1: be assure that you also know management. Right. It's easier

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Speaker 1: if if it's a big company then you have more

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Speaker 1: research notes fail. Yeah, I mean I'm looking at the

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Speaker 1: foot seat one hundred, which I think is a hundred stocks.

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Speaker 1: Figure that out, folks think, But but I mean, I

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Speaker 1: mean to me, it's completely devoid. I mean we we

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Speaker 1: don't even we don't even look at it, and particular

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Speaker 1: a market cap basis. You know, I know Barclays, I

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Speaker 1: know Ls. Okay, come and spend some time with me

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Speaker 1: here in London, Tom, Patty Power, bet Fair Plc. You

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Speaker 1: don't know Patty Power. They're better, They're spreadbetters. They're the spreadbetters. Right.

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Speaker 1: So so when you know, if Kate Middleton and her

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Speaker 1: Prince Charming have another baby and you want to put

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Speaker 1: a bet on the name, that's who you go to. Tom.

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Speaker 1: Come on my word, folks, I believe this is our

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Speaker 1: The next time I'm in London. This was an hour

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Speaker 1: on Patty Power spread bet This is where you get

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Speaker 1: bet on everything. They bet on everything. Yeah, you know,

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Speaker 1: well there we are. Francy Lacroian, Tom Keene, stay with

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Speaker 1: us coming up. The all due respect Highlight brought to

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