WEBVTT - Too Much Worry About Emerging Markets: Van Eck's Fine 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:24.880 at Bloomberg dot com. There is a push pull dynamic 0:00:24.920 --> 0:00:27.560 when it comes to emerging markets. On the one hand, 0:00:27.680 --> 0:00:31.600 you have an increasingly doubbish federal reserve potentially weaker dollar. 0:00:31.760 --> 0:00:34.360 On the flip side, you have trade wards that arguably 0:00:34.479 --> 0:00:37.680 may end up slowing certain economies, particularly those tied to 0:00:37.800 --> 0:00:40.880 China more than developed markets. Here to sort of pass 0:00:40.960 --> 0:00:43.919 through where the opportunities are here. As Eric Fine, portfolio 0:00:43.960 --> 0:00:47.440 manager focus on a marketing emerging markets fixed income at 0:00:47.479 --> 0:00:49.760 van Eck Global, he joins us here in our Bloomberg 0:00:49.760 --> 0:00:53.280 Interactive Broker studios. So where are we in terms of 0:00:53.320 --> 0:00:56.080 this dynamic? Is the sort of bull case for EM 0:00:56.120 --> 0:00:59.960 stronger right now or or the bear case? Um well, 0:01:00.200 --> 0:01:03.600 I as a you know twenty five plus your EM 0:01:03.600 --> 0:01:05.760 person um for twenty five years, I've been asked what 0:01:05.760 --> 0:01:08.080 do I think about emerging market sponds, and for years 0:01:08.120 --> 0:01:10.200 I've said I don't know, and I feel more and 0:01:10.240 --> 0:01:13.040 more comfortable. I think it depends country by country. However, 0:01:13.080 --> 0:01:15.280 that wasn't your question. Your question was broadly speaking, and 0:01:15.280 --> 0:01:18.760 so my answer would be if quote unquote emerging markets 0:01:18.840 --> 0:01:23.800 to you means um um a lot of exposure uh 0:01:23.840 --> 0:01:28.800 to names like Mexico or Turkey, um, or it means 0:01:28.840 --> 0:01:31.559 significant exposure to quote unquote E m f X, then 0:01:32.080 --> 0:01:34.840 then UM, I would be more cautious. Um. Right now 0:01:34.880 --> 0:01:37.240 the countries we are concerned about happen to be big 0:01:37.240 --> 0:01:41.120 ones UM, Mexico in particular, Turkey, ongoing, Russia is tricky 0:01:41.160 --> 0:01:43.400 because it's the fundamentals are fine. It's more about sanctions 0:01:43.480 --> 0:01:47.160 risk um. Um So, Uh I think you could. I 0:01:47.200 --> 0:01:50.560 think you could make a mixed case um and uh 0:01:50.600 --> 0:01:52.000 so I would say, but I would I would say 0:01:52.000 --> 0:01:55.160 the biggest concerns we have are that, uh, countries like 0:01:55.200 --> 0:01:59.720 Turkey there's too much trapped exposure. Essentially, countries like Mexico 0:01:59.760 --> 0:02:02.600 there's too much comfort with its ratings and we think 0:02:02.600 --> 0:02:06.480 it's a d rating story. Claberg is mixed. Um. You're 0:02:06.520 --> 0:02:08.800 saying that Mexico, you think it's going to default, No 0:02:08.960 --> 0:02:12.440 D rating, D rating, D rating, Oh no, no, no no 0:02:12.760 --> 0:02:16.640 default D rating. Um. I I would say that there's 0:02:16.720 --> 0:02:19.400 there's a non trivial chance in a country like Turkey 0:02:19.400 --> 0:02:22.000 that's in the midst of a bounce payments crisis right now. Um, 0:02:22.080 --> 0:02:25.240 but no Mexico's D rating. So if you if you're 0:02:25.480 --> 0:02:29.120 going to be very very married to the existing um 0:02:29.200 --> 0:02:32.880 amount of debt that's out there essentially um, then um um. 0:02:32.880 --> 0:02:35.200 Then I'd be cautious, and I'd be biased towards dollars, 0:02:35.600 --> 0:02:39.000 towards dollar denominated debt, because the more profound thing that's 0:02:39.040 --> 0:02:41.200 happened is that the FED has gotten activated. That seems 0:02:41.200 --> 0:02:44.320 to me the big wheel turning um and uh. And 0:02:44.360 --> 0:02:47.040 it gets to what you think happens. Let's say, let's 0:02:47.040 --> 0:02:50.480 say that the Fed's reaction is discounting um a slowdown 0:02:50.480 --> 0:02:53.680 in the economy. Well, most people with my experience that 0:02:53.760 --> 0:02:56.639 believe in the so called dollar smile, which is um 0:02:57.040 --> 0:03:00.280 um in in uh in extreme good time times, in 0:03:00.360 --> 0:03:03.160 extreme bad times, the dollar can do. It does really 0:03:03.200 --> 0:03:07.400 well and uh and and in a recession you've had 0:03:07.400 --> 0:03:09.760 through all this dollar dead issuece essentially a big shorten 0:03:09.840 --> 0:03:12.280 the dollar, we're going to a recession. The traditional behavior 0:03:12.280 --> 0:03:14.320 is what we've seen, let's say, out of Turkey, when 0:03:14.360 --> 0:03:16.720 they when they're worried about access to finance or a nowntern, 0:03:16.919 --> 0:03:19.560 they buy dollars right and then if the policy reaction 0:03:19.680 --> 0:03:23.399 is bad, they the authorities uh step in and try 0:03:23.440 --> 0:03:25.600 to muck around with that. So, Eric, is there an 0:03:25.680 --> 0:03:29.280 argument to me to be made that investors should avoid 0:03:29.520 --> 0:03:34.639 or underweight emerging markets broadly until the China situation is resolved. 0:03:34.680 --> 0:03:38.920 There's just too much uh, you know, tape risk. Absolutely not. 0:03:39.040 --> 0:03:42.040 That's my one of my strongest is in general, people 0:03:42.040 --> 0:03:45.560 are way too worried about emerging markets. UM as you 0:03:45.600 --> 0:03:48.880 get paid. Let's just look at corporum corporates. You get 0:03:48.920 --> 0:03:50.520 paid a higher spread for the same rating as a 0:03:50.600 --> 0:03:53.600 US corporate, and that e M corporate has to work 0:03:53.640 --> 0:03:56.800 harder to get that same ratings. You're basically you're in 0:03:56.840 --> 0:03:59.120 a sense getting that lower leverage lower you know, not 0:03:59.240 --> 0:04:02.520 that even those of those sorts of variables um uh, 0:04:02.640 --> 0:04:05.600 typical US pension funds have about three allocated to e 0:04:05.720 --> 0:04:07.800 M debt. If you look at the boring old efficient 0:04:07.800 --> 0:04:09.800 frontier and I'm not a fan of looking backwards. But 0:04:09.840 --> 0:04:12.400 the last fourteen years, and you look at the different 0:04:12.400 --> 0:04:14.840 elements of fixed income you're supposed to have depending on 0:04:14.880 --> 0:04:18.800 your risk tolerance of your bonds in e M debt, 0:04:19.240 --> 0:04:21.719 and we're living in a post quee era where the 0:04:21.760 --> 0:04:24.640 storytelling works with it. What are we talking about these days, 0:04:24.760 --> 0:04:28.960 last ten fifteen years, sustainable level of debt, independent central banking, 0:04:29.240 --> 0:04:32.080 getting paid for political risk. Those are all three. Those 0:04:32.080 --> 0:04:34.400 are three things that EM has an answer for us. 0:04:34.400 --> 0:04:37.040 So broadly speaking, I think this is e MS continues 0:04:37.080 --> 0:04:39.920 to quit itself. My my concern is that as we 0:04:39.960 --> 0:04:43.880 go through a trickier period, the names that are vulnerable 0:04:43.960 --> 0:04:46.679 happen to be names that are household names, big names 0:04:47.200 --> 0:04:48.880 in our portfolio. You know what we do is we 0:04:48.960 --> 0:04:52.000 avoid them. Um. But one of the big phenomena, the 0:04:52.000 --> 0:04:53.880 other phenomen has happened in the last ten years, is 0:04:54.080 --> 0:04:58.520 that there has been increasing exposure to names because they're 0:04:58.520 --> 0:05:01.880 part of an index, not because investors are choosing to 0:05:02.080 --> 0:05:04.760 to to invest. And so I worry about Oh, I 0:05:04.760 --> 0:05:07.719 don't like it, therefore I'm underweight behavior as opposed to 0:05:07.760 --> 0:05:10.920 I don't like it and I don't own it behavior. Well, 0:05:10.920 --> 0:05:14.120 so I'm wondering where do you find value. You said 0:05:14.160 --> 0:05:18.360 dollars nominated bonds. Of which nations I'd say, some great 0:05:18.560 --> 0:05:22.120 UH names out there are Brazil, UM and Ukraine. Brazil 0:05:22.200 --> 0:05:23.840 is a big name, so that's why I mentioned it's 0:05:24.040 --> 0:05:28.920 a big important one. UM Brazil has essentially one core problem. 0:05:28.920 --> 0:05:32.240 It's fiscal in particular pension reform. Other than that, it's 0:05:32.240 --> 0:05:36.719 an okay shape. Reserves are high well, certainly relative to imports. Um. 0:05:36.760 --> 0:05:38.599 The economy is coming out of one of the deepest 0:05:38.600 --> 0:05:40.800 recessions about a hundred years. They're going through number of 0:05:41.200 --> 0:05:44.239 implementing a number of structural reforms. If and the central 0:05:44.279 --> 0:05:47.880 bank is independent, inflation and inflation expectations are low and anchored. 0:05:48.080 --> 0:05:50.240 If the economy grows, there's plenty of capacity, so you 0:05:50.240 --> 0:05:52.920 won't see it past through the inflation immediately or you know, 0:05:53.040 --> 0:05:55.200 and of structural reform. So so I think that's a 0:05:55.320 --> 0:05:58.720 very very positive story, assuming they get pension reform through, 0:05:58.720 --> 0:06:01.000 which is you know, a daily weekly soap opera. But 0:06:01.080 --> 0:06:02.600 that is one of the great stories there. I think 0:06:02.640 --> 0:06:05.360 pet Bra is a is a good way to um 0:06:05.480 --> 0:06:07.440 UM get exposure. By the point of good corpus. I'd 0:06:07.480 --> 0:06:11.120 also say Ukraine north of six over spreads. UM was 0:06:11.160 --> 0:06:13.240 on an IMF program. It's likely re inter and IMF 0:06:13.320 --> 0:06:16.559 program very popular. UM It's does have some issues, mainly 0:06:16.640 --> 0:06:19.279 short term debt liabilities, but most of them are to 0:06:19.279 --> 0:06:22.560 the US and can be handled through sponsorship from you 0:06:23.040 --> 0:06:25.440 or or association with the I'm of Eric Fine, thank 0:06:25.480 --> 0:06:29.560 you so much toward a force through emerging markets investing. 0:06:29.600 --> 0:06:32.240 I guess the takeaways don't be scared away from emerging 0:06:32.279 --> 0:06:35.080 markets given the trade tensions. Eric Fine, portfolio manager for 0:06:35.120 --> 0:06:39.040 Emerging Markets Fixed Income Strategy at ben Global, joining us 0:06:39.200 --> 0:06:56.159 UH in our Bloomberg Interactive Broker Studio. Let us turn 0:06:56.160 --> 0:06:59.080 our sights to the one and only Mark Bennioff, who 0:06:59.080 --> 0:07:02.039 has been a force unto himself when it has come 0:07:02.040 --> 0:07:07.120 to consolidation. Salesforce dot Com now buying Tableau, a software 0:07:07.200 --> 0:07:10.280 company h for a fifteen point three billion dollars in 0:07:10.320 --> 0:07:14.520 an all stock deal. Sales Salesforce shares are down today 0:07:14.520 --> 0:07:18.240 more than four percent. Tableau shares, however, UH surging more 0:07:18.280 --> 0:07:21.360 than thirty percent. Luckily, we have Una Grana Software and 0:07:21.360 --> 0:07:24.320 I T Services analyst for Bloomberg Intelligence here with us 0:07:24.360 --> 0:07:27.400 in our Interactive Broker Studios to help us understand why 0:07:27.520 --> 0:07:31.840 markets are perceiving this as a good deal currently for 0:07:31.840 --> 0:07:36.160 for Tableau and perhaps not so much for Salesforce. Well, 0:07:36.200 --> 0:07:39.400 it's all stock deal, so you would expect Salesforce to 0:07:39.480 --> 0:07:42.120 go down a little bit. But you know, frankly, Salesforce 0:07:42.160 --> 0:07:44.520 has done such a good job about a quieting companies 0:07:44.520 --> 0:07:47.280 over the past few years, adding it to the portfolio 0:07:47.320 --> 0:07:50.080 of already present companies it has. They bought a company 0:07:50.120 --> 0:07:53.360 called mules Soft last year, and this particular deal actually, 0:07:53.480 --> 0:07:56.440 you know, really complements the business of those guys, all right, 0:07:56.520 --> 0:08:00.240 So why is Salesforce doing this deal? This is really 0:08:00.240 --> 0:08:01.800 a big trade for them. Why are they doing this deal? 0:08:02.240 --> 0:08:04.640 So one of the biggest themes in enterprise software today 0:08:04.680 --> 0:08:07.800 is and you know, artificial intelligence, getting more analytics out 0:08:07.840 --> 0:08:11.480 of your existing customer base, getting more insights. So for that, 0:08:11.560 --> 0:08:13.960 you really need to you know, pull out data that 0:08:14.040 --> 0:08:17.920 you have internally on your you know systems as well 0:08:17.920 --> 0:08:21.280 as married to social media other kind of data systems. 0:08:21.320 --> 0:08:22.960 But then at the end of the day, after you 0:08:23.040 --> 0:08:25.720 gain insights of it, you need to visualize those particularly 0:08:25.720 --> 0:08:28.640 in dashboards and beautiful graphs. And this is what tableou 0:08:28.680 --> 0:08:30.720 does better than anybody else out there, can you just 0:08:30.840 --> 0:08:33.040 zoom out a little bit and just give us a 0:08:33.080 --> 0:08:36.319 sense of how much this deal is just yet confirmation 0:08:36.360 --> 0:08:40.200 of Mark benning off strategy and frankly his his sort 0:08:40.240 --> 0:08:43.080 of instinct and trusting his internal instinct to just go 0:08:43.160 --> 0:08:45.760 with the deal when he sees it and moving quickly. 0:08:46.360 --> 0:08:48.560 Moves very quickly, definitely, And you know we have seen 0:08:48.559 --> 0:08:51.199 over the years, whether it was demand where um or 0:08:51.920 --> 0:08:54.120 Force dot com, which is part of their platform as 0:08:54.120 --> 0:08:56.200 a service at that time. I mean, all of these 0:08:56.240 --> 0:09:00.360 things eventually adds very well to their exist in core 0:09:00.440 --> 0:09:02.640 customer base, which is, you know, the people who buy 0:09:02.679 --> 0:09:05.360 their sales cloud or their customer service cloud. All of 0:09:05.400 --> 0:09:07.800 this you know, ties very well into that. So it 0:09:07.920 --> 0:09:09.559 is you know, as you said, it is something that 0:09:09.640 --> 0:09:11.840 market backing off just better than you know, almost everybody 0:09:11.880 --> 0:09:14.000 out there at this point. Boy, I'm looking at the 0:09:14.320 --> 0:09:18.319 Salesforce stock price chart five years on the Bloomberg terminal here. 0:09:18.559 --> 0:09:20.800 That is a good story. I mean, wow, so he 0:09:20.920 --> 0:09:25.360 and the market clear, He's obviously earned the markets support, um, 0:09:25.400 --> 0:09:27.840 but the stock is down today. You know, I think 0:09:27.840 --> 0:09:30.480 this is gonna be deluded to earnings initially, I mean, 0:09:30.480 --> 0:09:33.280 did he overpay here potentially, it's so it is expensive. 0:09:33.320 --> 0:09:35.800 Sixteen times sales is probably one of the largest. I mean, 0:09:35.840 --> 0:09:38.000 I would say higher valuations that we have come across. 0:09:38.120 --> 0:09:40.320 But again he's paying with stock, so that you take 0:09:40.360 --> 0:09:43.240 that into account as well. It's not cash um And 0:09:43.320 --> 0:09:45.520 you know, I think SIP bought a company called Qualtricks 0:09:45.640 --> 0:09:48.560 just a few months ago. They actually paid more than this. 0:09:48.920 --> 0:09:52.080 So current valuation in software is so high that if 0:09:52.120 --> 0:09:54.440 you really need to get some deal done, you need 0:09:54.480 --> 0:09:56.920 to take out you know, cash on at a much 0:09:56.960 --> 0:10:00.319 higher multiple. So right now, who does this hurt them most? 0:10:00.360 --> 0:10:03.400 In terms of Salesforce dot com competitors, They are trying 0:10:03.440 --> 0:10:06.520 to be as aggressive so that Microsoft doesn't you know, 0:10:06.600 --> 0:10:09.800 really become bigger in this space. So that's one second. 0:10:10.040 --> 0:10:12.319 I think Article needs to step up their game a 0:10:12.400 --> 0:10:14.680 little bit because their stock has not done as well 0:10:14.720 --> 0:10:17.240 as Salesforce has over the last three to five years, 0:10:17.480 --> 0:10:19.319 and they may not have that mouth currency to use 0:10:19.360 --> 0:10:21.400 their stock to buy that. So they you know, they've 0:10:21.400 --> 0:10:23.800 been buying back stock aggressively. They really need to think 0:10:23.840 --> 0:10:26.080 back and say, do I need to get more cloud 0:10:26.120 --> 0:10:28.920 deals to to to grow over the next few years 0:10:28.960 --> 0:10:31.400 or not? Alright, So my favorite question when we talk 0:10:31.440 --> 0:10:34.320 about deals, is this going to set off more deal 0:10:34.360 --> 0:10:37.200 flows so my banker friends can get paid. It has 0:10:37.280 --> 0:10:39.840 been for a while software deals has been so hot. 0:10:39.920 --> 0:10:43.160 That's just I mean, I I won't be surprised over 0:10:43.200 --> 0:10:45.440 the next few months if you see more deals in 0:10:45.440 --> 0:10:48.959 those space. So what what So in a software space 0:10:49.040 --> 0:10:51.240 is this? Is it all about the cloud here? I mean, 0:10:51.360 --> 0:10:54.160 I guess we saw Google just uh last week with 0:10:54.679 --> 0:10:56.959 two an a half billion dollar acquisition. Is is cloud 0:10:57.160 --> 0:11:00.920 still the area where these tech companies are uh, you know, 0:11:01.040 --> 0:11:04.440 investing money, making deals, putting capital to work. Cloud is 0:11:04.480 --> 0:11:07.080 one Customer insights is another one. So Google, you know, 0:11:07.080 --> 0:11:08.959 buying look at It is the same exact thing as 0:11:09.280 --> 0:11:12.520 as Salesforce buying Tableau in terms of visualization of that data. 0:11:12.800 --> 0:11:15.040 So you are trying to figure out a lot of 0:11:15.040 --> 0:11:18.880 these enterprises, legacy enterprises, companies like Pepsi, Coca Cola, they 0:11:18.920 --> 0:11:22.199 have so much of data on their own systems they 0:11:22.240 --> 0:11:24.800 really need to extract it, get value out of it, 0:11:25.000 --> 0:11:26.880 and then go back to that same customer and sell 0:11:26.960 --> 0:11:29.280 more products to them. And that's where a lot of 0:11:29.320 --> 0:11:32.000 these things are coming through. Is you know, your ability 0:11:32.080 --> 0:11:35.000 to extract that data, clean it up in just then 0:11:35.080 --> 0:11:39.360 analyze it and then finally show social you know, dashboards 0:11:39.360 --> 0:11:41.520 along with it. Anaag ran I, thank you so much. 0:11:41.760 --> 0:11:44.680 Anaa Ran as a senior analysts for software and I 0:11:44.760 --> 0:11:47.599 T Services for Bloomberg Intelligence here in our Bloomberg and 0:11:47.640 --> 0:12:07.400 Reactor Broker studio. Well trade tensions appear to be abating 0:12:07.640 --> 0:12:10.400 somewhat today on news of the Mexico deal. Of course, 0:12:10.480 --> 0:12:12.959 China is still to be determined, but looking at the 0:12:12.960 --> 0:12:17.120 action today, market certainly liking the reduced attentions with Mexico. 0:12:17.480 --> 0:12:19.559 To get a sense of where to go next, we 0:12:19.559 --> 0:12:23.439 welcome Brad McMillan. Brad is chief Investment Officer of Commonwealth 0:12:23.480 --> 0:12:27.319 Financial Network, about a hundred sixty one billion dollars under management. 0:12:27.400 --> 0:12:30.440 He joins us on the phone from Waltham, mess Uh, Brad, 0:12:30.559 --> 0:12:34.120 thanks so much for joining us. Do you think that 0:12:34.320 --> 0:12:39.520 this storm is passing financial markets as we speak? I do, Paul, 0:12:39.600 --> 0:12:42.000 and I'll tell you why. There's been a tremendous amount 0:12:42.000 --> 0:12:44.680 of bad news. There have been some real shock Certainly 0:12:44.800 --> 0:12:48.800 the Mexico tariff adjudgment you know, certainly qualifies as a shock. 0:12:48.880 --> 0:12:52.840 But nonetheless markets have been resilient and they bounced back strongly. 0:12:52.920 --> 0:12:56.320 I think there's a lot of strength there. Okay, So 0:12:56.520 --> 0:12:58.560 at this point, given the fact that we didn't see 0:12:58.600 --> 0:13:00.640 that much of a pullback, at this fact of not 0:13:00.720 --> 0:13:03.880 getting a China US trade deal, where are the opportunities. 0:13:04.840 --> 0:13:07.480 I think the opportunities are in growth sectors. I would 0:13:07.480 --> 0:13:12.160 probably stay away from internationally exposed equities. You know, certainly 0:13:12.200 --> 0:13:14.960 there's still risk there when you look at the United States, 0:13:15.000 --> 0:13:18.480 there's a lot of fear about consumers spending, There's a 0:13:18.480 --> 0:13:20.920 lot of fear about how fast the economy is going 0:13:20.960 --> 0:13:24.000 to grow. In fact, we're seeing wage growth holding steady 0:13:24.040 --> 0:13:26.920 at over three percent. We're seeing job growth despite the 0:13:27.000 --> 0:13:29.920 last despite the disappointing number the other day, you know, 0:13:30.000 --> 0:13:32.960 hold at strong levels, and we're seeing confidence high. I 0:13:33.000 --> 0:13:36.240 think the consumer has been oversold, so Brad. One of 0:13:36.280 --> 0:13:38.920 the areas that has u tends to lead the market 0:13:38.960 --> 0:13:41.199 both up and down, as we saw in the fourth quarter, 0:13:41.440 --> 0:13:44.320 is big tech. And I think maybe what's changed a 0:13:44.360 --> 0:13:47.280 little bit in the analysis is and the big technology 0:13:47.559 --> 0:13:50.040 stocks that have driven the market has been maybe there's 0:13:50.040 --> 0:13:53.320 a new regulatory risk fact that it needs to be 0:13:53.360 --> 0:13:56.680 waited for these names as US regulators start taking a 0:13:56.679 --> 0:13:58.240 look at big tech. How do you factor that in. 0:13:59.160 --> 0:14:01.720 I think right now the assumption has been that growth 0:14:01.760 --> 0:14:04.000 is infinite, no one will ever touch them. But remember 0:14:04.040 --> 0:14:07.360 tech has weathered this before. We went through a phase 0:14:07.400 --> 0:14:10.160 where there was no taxes on the internet and if 0:14:10.160 --> 0:14:12.760 we impose taxes, it was going to destroy everything, and 0:14:12.800 --> 0:14:15.800 of course it didn't. Tech has a wonderful ability to 0:14:15.880 --> 0:14:20.840 kind of negotiate around government restrictions. Microsoft another good example. 0:14:20.880 --> 0:14:22.400 It was going to be broken up, it was going 0:14:22.440 --> 0:14:25.440 to be taken down. Now it's worth over a trillion dollars. 0:14:25.880 --> 0:14:28.120 Companies can respond to these things. I think it's a 0:14:28.160 --> 0:14:31.280 real concern, but you have to factor in company's ability 0:14:31.320 --> 0:14:34.320 to stay ahead of the regulators, which thus far they've 0:14:34.360 --> 0:14:36.880 got a good record. So Brett, I'm struck by the 0:14:36.920 --> 0:14:40.320 optimistic tone that you're taking in this idea that growth 0:14:40.360 --> 0:14:42.600 stocks of more room to run the consumer has been 0:14:42.680 --> 0:14:46.200 over sold, impairing that with the idea that traders are 0:14:46.200 --> 0:14:49.040 currently pricing in two and a half rate cuts by 0:14:49.040 --> 0:14:52.520 the end of this year, basically indicating a slowing in 0:14:52.560 --> 0:14:55.240 the economy and a capitulation by the Federal Reserve that 0:14:55.280 --> 0:14:57.880 their policies are just too tight at this point. How 0:14:57.920 --> 0:15:01.680 do you reconcile these two sort of fact features of 0:15:01.720 --> 0:15:04.240 the market right now. Well, first of all, they call 0:15:04.280 --> 0:15:06.120 me or here at the office, So I'm not a 0:15:06.200 --> 0:15:09.920 natural optimist, okay, but when you look at what's going on, 0:15:10.200 --> 0:15:12.600 when you look at we've never had a recession with 0:15:12.760 --> 0:15:14.800 job growth as strong as it is, We've never had 0:15:14.800 --> 0:15:18.280 a recession with consumer confidence where it is puto business 0:15:18.280 --> 0:15:21.960 confidence and even the yolkerb Yes, it's recently inverted, but 0:15:22.040 --> 0:15:24.800 typically that gives us at least twelve months, so we've 0:15:24.840 --> 0:15:27.000 got at least a couple of quarters ahead of us. 0:15:27.320 --> 0:15:29.240 And I think right now all of the bad news 0:15:29.400 --> 0:15:32.800 is kind of pushed expectations down undoing. Yes, there's a 0:15:32.880 --> 0:15:34.960 storm coming, but I don't think it's showing up any 0:15:34.960 --> 0:15:37.920 time soon. But I think the FED actually gets that 0:15:38.200 --> 0:15:41.680 they're being cautious, they're being responsible, but I don't see 0:15:41.680 --> 0:15:45.200 anybody pushing the panic button just yet. So but I think, um, 0:15:45.240 --> 0:15:47.280 if we if I were just to summarize kind of 0:15:47.320 --> 0:15:49.720 the guests that we've heard that people on this show 0:15:49.720 --> 0:15:52.320 over the last several weeks, in terms of gauging a 0:15:52.400 --> 0:15:55.120 recession call, it seems to be the most people are 0:15:55.160 --> 0:15:59.800 thinking about something in timing mid is that something that 0:16:00.240 --> 0:16:04.120 is consistent with your thinking. I think that's the best bet. 0:16:04.200 --> 0:16:06.600 Right now, we've seen the EO curve invert. If that 0:16:06.640 --> 0:16:09.200 takes us out twelve months, that would be right in 0:16:09.240 --> 0:16:11.800 the middle of the sweet spot. If we see consumer 0:16:11.840 --> 0:16:14.560 confidence decay, that would also put us in the same spot. 0:16:14.880 --> 0:16:16.800 And there are other things that say that's the place. 0:16:17.120 --> 0:16:19.040 So the real question is not are we going to 0:16:19.080 --> 0:16:21.880 have a recession? We are at some point, but will 0:16:21.920 --> 0:16:24.720 it be in And I think that's reasonable. Okay, So 0:16:24.760 --> 0:16:27.640 we're speaking with Brad McMillan, chief investment officer at Commonwealth 0:16:27.680 --> 0:16:31.480 Financial Network overseeing a hundred and sixty one billion dollars. 0:16:31.560 --> 0:16:34.600 You talk with a lot of advisors, Brad, a lot 0:16:34.640 --> 0:16:37.960 of investors, and I'm just wondering, you know, if you 0:16:38.040 --> 0:16:41.000 tell them this, what happens If they say to you, okay, 0:16:41.040 --> 0:16:43.600 there might be a couple quarters left. When do I 0:16:43.680 --> 0:16:46.320 get out ahead of a recession? Sort of when is 0:16:46.360 --> 0:16:49.960 the sort of escape hatch open. Well. One of the 0:16:49.960 --> 0:16:52.080 good ways to look at it is, and I actually 0:16:52.080 --> 0:16:54.600 wrote a book about this, is it can make sense 0:16:54.640 --> 0:16:57.920 to de risk when the market moves into moves below 0:16:57.960 --> 0:17:01.680 it's two day moving average that historically is indicated a 0:17:01.800 --> 0:17:04.400 time to worry, and in fact, right now we were 0:17:04.560 --> 0:17:07.160 just below the two day moving average. So you could 0:17:07.240 --> 0:17:09.359 argue you should be worried. But when you look at 0:17:09.359 --> 0:17:13.000 the other fundamentals, we don't see sustained pullbacks without a recession. 0:17:13.320 --> 0:17:15.160 So I'm going to look at a recession. I'm going 0:17:15.240 --> 0:17:18.239 to see where consumer confidence is. I'm going to be 0:17:18.240 --> 0:17:21.919 mostly looking at a recession. So, Brad, one of the 0:17:21.920 --> 0:17:24.640 things you know that's been powering obviously powers the US 0:17:24.680 --> 0:17:27.600 economy and is um is the consumer, and we've seen 0:17:27.760 --> 0:17:31.960 generally a very strong consumer. We did have that surprisingly 0:17:32.040 --> 0:17:35.639 weak jobs data on Friday. What is your view of 0:17:35.640 --> 0:17:39.320 the consumer. I think the consumer still feels good. I 0:17:39.359 --> 0:17:41.560 think the what's interesting when you look at that weak 0:17:41.640 --> 0:17:44.880 jobs report. First of all, we've had week jobs reports 0:17:44.920 --> 0:17:48.119 before and they've rebounded. We seem to be in nineteen 0:17:48.160 --> 0:17:50.680 at a lower level of growth given that we've had 0:17:50.680 --> 0:17:53.920 two week reports, but it's still a healthy level on average. 0:17:54.520 --> 0:17:56.960 Second of all, you've seen wage growth hold up. There 0:17:57.040 --> 0:17:59.720 was some talk about how wage growth pulled back, but 0:17:59.800 --> 0:18:02.840 in fact, for the average working person, the production workers. 0:18:03.080 --> 0:18:06.639 Wage growth is held up much better. So for most people, 0:18:06.680 --> 0:18:10.679 they're spending ability is being enhanced because they're making more money. 0:18:10.880 --> 0:18:14.160 There's more people working, and in fact, with lower interest rates, 0:18:14.320 --> 0:18:16.479 they're going to be more able to buy things like 0:18:16.600 --> 0:18:20.040 cars and houses. That can only be helpful. So in 0:18:20.080 --> 0:18:22.919 the meantime, we do have this trade battle that seems 0:18:22.920 --> 0:18:25.399 to be reaching in the background. The U. S And 0:18:25.480 --> 0:18:28.800 China seemed to be hardening their lines depending on the day, 0:18:28.840 --> 0:18:32.640 and I'm just wondering how you factor this into your assessment. Well, 0:18:32.680 --> 0:18:34.679 there are two things going on here. First is a 0:18:34.760 --> 0:18:36.879 direct damage and even there, when you look at it, 0:18:36.880 --> 0:18:39.600 it's about thirty billion dollars right now in a twenty 0:18:39.640 --> 0:18:43.480 trillion dollar economy. It's meaningful, but it's certainly not going 0:18:43.520 --> 0:18:46.399 to break the bank. The indirect effects are going to 0:18:46.440 --> 0:18:48.560 be the most meaningful, and there you're starting to see 0:18:48.600 --> 0:18:51.760 reduced confidence. It will start to see more impact on 0:18:51.840 --> 0:18:56.000 consumers pocketbooks over the next couple of months if tariffs 0:18:56.040 --> 0:18:59.080 go up. So it's a headwind, but it's a headwind 0:18:59.119 --> 0:19:02.439 that's only gonna raw I slowly, and it's it's not 0:19:02.440 --> 0:19:04.800 going to be an earthquake. It's going to be a slow, 0:19:05.000 --> 0:19:08.280 slow slope to slow the economy down a little bit. So, bro, 0:19:08.400 --> 0:19:11.080 let's take if we get a bad headline, I mean 0:19:11.119 --> 0:19:12.919 a bad headline out of China, because I think the 0:19:12.920 --> 0:19:15.320 expectations are, oh, some deal will get done. But if 0:19:15.359 --> 0:19:17.200 we get some bad news out of China, what do 0:19:17.200 --> 0:19:19.000 you think the risk of the you the market is. 0:19:21.080 --> 0:19:24.359 I honestly don't think China drives much of the market. 0:19:24.400 --> 0:19:27.080 When you get Chinese headlines, you go back and you 0:19:27.160 --> 0:19:31.880 compare the you compare how the US market does. We're 0:19:31.960 --> 0:19:36.240 still a very closed economy relatively speaking, only about an 0:19:36.280 --> 0:19:39.680 eighth of our economy is exposed outside the US. Now 0:19:39.720 --> 0:19:43.679 there's more exposure to earnings, corporate earnings, but at the 0:19:43.680 --> 0:19:46.120 same time, much of that damage has already been done 0:19:46.440 --> 0:19:49.320 and you've seen diminishing effects as we get more and 0:19:49.359 --> 0:19:52.480 more headlines. So right now, I think the market's expectations 0:19:52.480 --> 0:19:54.680 are pretty well. I think there's more chance to beat 0:19:54.720 --> 0:19:58.720 it than underwhelment. Just real quick indexes or stock selection. 0:19:58.920 --> 0:20:02.080 What's your preference right now? Right now, I think it's 0:20:02.080 --> 0:20:08.520 still that indexes, you have individual stocks. Um, there's certainly 0:20:08.560 --> 0:20:10.960 some opportunities out there, but for the average investor, of 0:20:11.000 --> 0:20:13.800 the index remains the way to go. Brad mcbellan, chief 0:20:13.840 --> 0:20:17.280 investment officer at coming to WET the Financial Network overseeing 0:20:17.320 --> 0:20:33.959 a hundred and sixty one billion dollars. Well, I've been 0:20:33.960 --> 0:20:37.400 told that this Sunday is Father's Day, So in case 0:20:37.440 --> 0:20:39.919 anyone out there is thinking about a gift, UM, I 0:20:40.000 --> 0:20:44.919 have enough. Um, I don't know, socks, ties, I've I 0:20:44.920 --> 0:20:46.960 think I've got all that kind of stuff. So what 0:20:47.000 --> 0:20:48.760 do you want? I'm just saying, well, I'll tell you 0:20:48.800 --> 0:20:51.200 what I think our next guest, I'll have some cool ideas. 0:20:51.280 --> 0:20:55.280 Joseph Aboud, chief creative director for Men's Warehouse. He joins 0:20:55.359 --> 0:20:58.040 us in our Bloomberg eleven three oh studios. Joseph, thanks 0:20:58.040 --> 0:20:59.679 so much for joining us. It's really great to have 0:20:59.760 --> 0:21:02.000 you year. So, first of all, we were just talking 0:21:02.040 --> 0:21:04.720