Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Let's
Speaker 1: turn our attention now to the State of the Union message.
Speaker 1: I know that a lot of people are waiting for this,
Speaker 1: and Chris Rupki is among them. He is the chief
Speaker 1: financial economist for m u f G Union Bank and
Speaker 1: he joins us here in our studio. Chris Rupki, great
Speaker 1: to have you here. So what kind of economy? What
Speaker 1: kind of economy is? Is the president going to be? Uh?
Speaker 1: What kind of economy do we have? While the president
Speaker 1: speaks no, it was interesting. I remember during the campaign,
Speaker 1: five percent unemployment was phony. He wouldn't be getting people
Speaker 1: into the stadiums if unemployment was really five percent. But
Speaker 1: now the president's crowing about how well the economy is
Speaker 1: doing with unemployment rate at four point one and saying,
Speaker 1: but what do you say, it's good? Yeah, it's it's
Speaker 1: full employment. It's like, why did we do uh, tax
Speaker 1: cuts and Jobs Act? I mean, we've never seen another
Speaker 1: administration in history probably do fiscal stimulus tax cuts unless
Speaker 1: we're in a recession. Why are we getting tax cuts?
Speaker 1: By the way, I haven't seen my time. I think
Speaker 1: it's coming at the end of this week, so I'll
Speaker 1: take a look at it. You should be I'm excited,
Speaker 1: you'd be excited a little bit more in the envelope. Well,
Speaker 1: every time you hear about a company releasing its results,
Speaker 1: they say that there's a little bit more in the envelope.
Speaker 1: Is that not for someone at my level? That's exactly right?
Speaker 1: So can you can you sort of opine about that,
Speaker 1: because you know, you can spend all a talking about
Speaker 1: whether they're going to do a dividend increase or share
Speaker 1: buy back, or maybe they'll pay their workers a little Well,
Speaker 1: we've kind of seen this before, right, What did companies
Speaker 1: do when they get the money? They usually reward their
Speaker 1: shareholders dividends, share buy backs. But yeah, they've been doing
Speaker 1: some good. Pr been giving out some thousand dollar bonuses
Speaker 1: to thousands of their employees, if not the upper levels
Speaker 1: of management. So it's good. I mean, I can't say
Speaker 1: it's it's not good in terms of money wherever it
Speaker 1: comes from. If money circulates in the economy. We're going
Speaker 1: to get some kind of growth. We can't say no.
Speaker 1: It's just that usually Washington with a twenty trillion dollar
Speaker 1: national debt, they would be doing this sort of deficit spending.
Speaker 1: It is deficit spending, right, It's not as if we
Speaker 1: don't have the money. But we're going to print it, right,
Speaker 1: isn't that Well, they're going to issue bonds. That's sort
Speaker 1: of like printing. It's like, why, why now, why are
Speaker 1: we English? I just don't I don't quite get it. Alright,
Speaker 1: So alright, head time I want to jump into we
Speaker 1: get some breaking news. Here's the headline within the press release.
Speaker 1: I love this hungry tape. Hungry Tapeworm was such a
Speaker 1: good band. They'd play Grand Funk Railroad like no one.
Speaker 1: The ballooning costs of healthcare act as a hungry tapeworm
Speaker 1: on the American economy. There's the headline from Amazon, Berkshire,
Speaker 1: haths Away and J See we did that in stereo.
Speaker 1: We do that, Pim and I can do that anyways.
Speaker 1: It's it's a really interesting headline talking about rip up
Speaker 1: the script. Amazon, Berkshire, Hathaway, JP Morgan going to form
Speaker 1: a healthcare company to go after the hungry taper Chris Rupki,
Speaker 1: how much is healthcare is a percent of our jullion
Speaker 1: dollar economy? Is it six or is it actually more? Well,
Speaker 1: I mean more, and I don't have that at my fingertips,
Speaker 1: but it is interesting the FEDS PC inflation core PC inflation.
Speaker 1: A huge weight of that is healthcare. It's like, so
Speaker 1: you mean to tell me financially, yeah, not even psy
Speaker 1: of your budget, of the nation's budget ex. Food and energy.
Speaker 1: After that is healthcare, and then it's ginormous pim Fox
Speaker 1: A key paragraph here with Todd Coombs, Uh, Marvel Selivanberg
Speaker 1: Told and Beth Galletti of Amazon, the three major officers,
Speaker 1: a headquarters location and key operational details will be communicated
Speaker 1: to take on the hungry tapeworm. The hungry tapeworm, Well,
Speaker 1: they say that they're going to provide US employees and
Speaker 1: their families was simplified, high quality, transparent healthcare. The thing
Speaker 1: I would note, though, is that there is no healthcare
Speaker 1: company in this transpriate no no. And Richard Truman mentions
Speaker 1: the United Healthcare Trading Lower Office. To summarize, folks, because
Speaker 1: we went into it a little bit quickly. You're trying
Speaker 1: to get the news to Amazon. Berkshire Hathaway and JP
Speaker 1: Morgan Chase to partner on US employee healthcare. The sub
Speaker 1: beheading is goal is to improve US employee satisfaction while
Speaker 1: reducing costs. I mean, that's the spin. They want their
Speaker 1: employees to be happier with their coverage. But it's a
Speaker 1: it's are we talk about the president and a private
Speaker 1: initiative today? You wonder if you'll mention this in the
Speaker 1: State of the Onion. Very good, Chris Rupki. Uh, this
Speaker 1: kind of announcement, while interesting and perhaps will hurt, will
Speaker 1: help a lot of people. To the point about the
Speaker 1: current healthcare system, Uh, do you see any way to
Speaker 1: rein in the entitlement programs in any way that would
Speaker 1: be meaningful without cutting the quality of the care or
Speaker 1: the quality of the service delivered. It's going to be difficult,
Speaker 1: and I resent your use. Resent your use of the
Speaker 1: word entitlement. When I was a young man in my thirties,
Speaker 1: I could talk about those benefits being entitlements for some people.
Speaker 1: But now as I can see those entitlements or something
Speaker 1: that I will be entitled, so I would say these
Speaker 1: are very important expecture. No, but that goes to the
Speaker 1: absolute societal tension. The late oh they Reinhart at Princeton
Speaker 1: really address this. What's interesting about this Chris to the
Speaker 1: President's speech tonight on infrastructure. Here's private enterprise basically saying enough, yeah,
Speaker 1: but they gotta make money off it. Reducing overall costs
Speaker 1: is called making money to Mr Diamond, I'm not sure that. Yeah,
Speaker 1: it sounds a little suspect, doesn't it. I mean, it's
Speaker 1: a nice idea, but it's kind of like infrastructure spending
Speaker 1: you know that's going to be h have dependent on
Speaker 1: private money? Is It's like, well, what what sort of
Speaker 1: private money is going to come in to do infrastructure?
Speaker 1: How are you? How does the business get paid? How
Speaker 1: do investors get paid? Mr? It's not easy, Mr Bezos
Speaker 1: picking avocados for whole foods. Quote. The health care system
Speaker 1: is complex, and we enter into this challenge open eyed
Speaker 1: about the degree of difficulty. That's not the usual spin.
Speaker 1: Pim Uh, Well, I hope he's got both eyes open,
Speaker 1: because it is a complex system and one that many
Speaker 1: people depend on. Chris to that point, though, about the
Speaker 1: programs and the ability of this society to pay for them, Uh, taxes,
Speaker 1: we cut taxes. That means it's less money to spend
Speaker 1: on these kinds of things. I don't understand the How
Speaker 1: does that not offer a contradiction? Yeah, well there's a
Speaker 1: it is a contradiction. You know, how do how do
Speaker 1: you pay for these moneys? I mean, I mean, how
Speaker 1: do you pay for these programs? Uh? You know. I
Speaker 1: think the current leadership in Washington, you know, has felt
Speaker 1: that we need less Washington, we need less federal government services.
Speaker 1: But I don't know, the next crew that comes in
Speaker 1: might want to do something else. The reason I want
Speaker 1: to focus on healthcare is because of the demographic bulge
Speaker 1: of the baby boom generations could be very expiring and
Speaker 1: so the cost is going to go up. And then
Speaker 1: I recently was at a conference and heard one theory
Speaker 1: about why we have such sluggish growth and low unemployee
Speaker 1: low inflation. It's because as the baby boomers age, right,
Speaker 1: you have an economy is they're pulling out of there. Uh,
Speaker 1: They're they're exiting the job market. Can I can I
Speaker 1: make a surveillance correction? Go ahead? It's so important. I
Speaker 1: M know, Mr Bezos, Mr Diamond, and Mr Buffett go
Speaker 1: to the hungry tapeworm. That is our medical system. Daniel
Speaker 1: Anger to the rescue. It was late. Tape rooms don't
Speaker 1: make you hungry, that's the research. Not that I've ever
Speaker 1: had a tapewroom. You had a tapeworm? M not going
Speaker 1: I've not. I've not had a tapeworm. But they can
Speaker 1: cause a vitamin B twelve deficiency in some patients. But
Speaker 1: they just they don't make you hungry. You just are
Speaker 1: not interested in you know, maybe he would have saved that, Chris.
Speaker 1: You know, Chris ROPI, thank you so much, greatly appreciated
Speaker 1: this morning. Some terrific respective across television in radios. One,
Speaker 1: let's go to healthcare. Why don't you bring in our
Speaker 1: good guest here who's expert on hungry tapework, Max Neeson.
Speaker 1: Let's not go with tape rooms. It's too early in
Speaker 1: the morning everywhere, and some places it's too early for dinner. Um,
Speaker 1: JP Morgan, Berkshire, Hathaway and Amazon say they're going to
Speaker 1: get together and help their employees. They're going to provide better,
Speaker 1: less expensive healthcare. What's your reaction? So my initial reaction
Speaker 1: was this was not the Amazon for a into healthcare
Speaker 1: that that has been expected. You know for about a
Speaker 1: year now, which was something like a more aggressive for
Speaker 1: it into mail order pharmaceuticals from pseudo benefit managers. What
Speaker 1: they're doing is I think even more interesting. UM they're
Speaker 1: potentially going to run along with these two other companies,
Speaker 1: UM their own health plans entirely from plays and since
Speaker 1: they're not just doing this informally, they're creating a company
Speaker 1: that suggests if they figure out how to do this
Speaker 1: well and given the people involved that that's a decent bet,
Speaker 1: um they might try to bring it to other employers.
Speaker 1: Is it Kaiser Permante from forty years ago, where you
Speaker 1: know the heritage out West? They did it different out
Speaker 1: West with Kaiser. I think ultimately, you know, if if
Speaker 1: you they have grand ambitions, and I think if they're
Speaker 1: going to take this kind of step that they probably
Speaker 1: do that's something of the model that they're going to
Speaker 1: look to emulate. UM, you know, doing things starting from
Speaker 1: a different point of view, with a different set of priorities,
Speaker 1: not attempting to to make a profit. UM. As they
Speaker 1: kind of highlighted repeatedly in their press release, UM that
Speaker 1: being the great frustration that so much in American healthcare
Speaker 1: is not geared at bringing cost down, but for um,
Speaker 1: you know, eating out a profit margin for every single
Speaker 1: person along the way ensures PBMs providers. Any chance that
Speaker 1: this is going to present the conflict of interest with
Speaker 1: what their real businesses are, I don't think so, at
Speaker 1: least that at the start, considering that they're you know,
Speaker 1: initially focusing just on their own employees and on other employers. Um,
Speaker 1: you know, at the end of the day, they're they're
Speaker 1: just attempting to to keep costs down from the employees.
Speaker 1: It will be more interesting when they bring it to
Speaker 1: other companies or if they try to get into providers.
Speaker 1: And we know that everybody with Jeff Bezos is cut
Speaker 1: and chiseled. Maybe I can't say that a Mruture half
Speaker 1: away and JP Morgan. But is this the beginning of
Speaker 1: companies saying enough is enough. We're gonna essentially self insures.
Speaker 1: All we're talking about here, they're gonna self ensure where
Speaker 1: you begin to separate healthy employed America away from unhealthy,
Speaker 1: lesser or unemployed America. I mean that that's already a
Speaker 1: reality in our health care system. If you work at
Speaker 1: a large complayer, your your health care is subsidized to
Speaker 1: an extent that that nobody really realizes unless you later
Speaker 1: end up unemployer on the individual market, where um, the
Speaker 1: burden falls much more a question and you pay much
Speaker 1: more out of pocket, You pay higher prices because you
Speaker 1: don't have the benefit of that enormous employer tax exclusion
Speaker 1: for healthcare benefits and the power you know, all of
Speaker 1: that negotiating power aggregated in the form and not just
Speaker 1: your employer, but you know everyone who they participate in
Speaker 1: the PBM or or bigger insure with. What the what
Speaker 1: are some of the competitive challenges to putting together something
Speaker 1: like this, um, I mean, they're gonna have to basically
Speaker 1: learn how to operate, you know, however much they're gonna do.
Speaker 1: You know, they might still contract with an insure man
Speaker 1: for parts of of the business, like self insured companies
Speaker 1: currently do. But every piece that they're going to pick
Speaker 1: up on their own and run on their own, they're
Speaker 1: gonna have to learn how to do from the start,
Speaker 1: and you know, they put the challenge on themselves to
Speaker 1: figure out how to do it better with more technology.
Speaker 1: Max I'm begging Max needs of course, folks. With Bloomberg
Speaker 1: gut Fly, he writes these terrific chart paragraph charts stories.
Speaker 1: Are you go to write about this today? I'm I've
Speaker 1: already started really really looking forward to this already brought
Speaker 1: also brought in his his medicine kit to help you
Speaker 1: get over the plague. So he cares it's a plague.
Speaker 1: It's like a thirteenth century Thix. Seriously. Fortunately you're in
Speaker 1: the surveillance cone of silence, so you're hermetically sealed away
Speaker 1: from me. Is that why I'm hermetically so you see
Speaker 1: the car. I thought Max and I were together. No,
Speaker 1: Max is gonna get the play. But an interesting concept, right,
Speaker 1: It's it's absolutely fascinating up particularly the notion and this
Speaker 1: is probably the thing I'm gonna focus on um that
Speaker 1: this is kind of a pilot among themselves to figure
Speaker 1: out can we make a company out of this for
Speaker 1: other people? Max, Thank you so much. Terry Haynes is
Speaker 1: ever Cores I s E. Senior political strategist. He's the
Speaker 1: head of political analysis and a managing director. He is
Speaker 1: also experienced in the ways of Washington, d C. Former
Speaker 1: Chief Council Staff director of the U. S. House Committee
Speaker 1: on Financial Services and Senior Council on US House Energy
Speaker 1: and Commerce Committee, and a variety of other government positions. Terry,
Speaker 1: good to have you with us here on Bloomberg. What
Speaker 1: are you going to be listening for from the President
Speaker 1: Donald Trump's State of the Union message? Good to be here, Pim,
Speaker 1: and thank you the well I'm going to be you know,
Speaker 1: the President essentially is going to divide this each into
Speaker 1: three parts. Uh, and I think everybody knows what the
Speaker 1: what those three parts will be, so I won't spend
Speaker 1: long on them. First will be the I think the
Speaker 1: first year achievements. You know they uh, we all dip
Speaker 1: into the Trump Show on a daily basis, but this
Speaker 1: is an opportunity to to provide the best of a
Speaker 1: framing device for the president in his first year in office.
Speaker 1: So I think they'll do that. They'll run through a
Speaker 1: bunch of priorities. Infrastructure, of course, is going to get
Speaker 1: hammered in quite a bit. I expect him to talk
Speaker 1: about trade, housing, finance, a bunch of other things, and
Speaker 1: finally a national security focus. The two things I'm going
Speaker 1: to listen to with particularly closely, one I think will
Speaker 1: be housing finance. Uh. I expect Secretary Manution to testify
Speaker 1: this morning on the Hill that he remains interested now
Speaker 1: in finance it's not a secret that he is. But
Speaker 1: at the same time, renewed commitment to trying to get
Speaker 1: something done UH from the administration UH will will be
Speaker 1: important for markets, and I can leave whatever signals on
Speaker 1: trade the President wants to send. I've always said the
Speaker 1: trades one of the three big unknowns UH this year,
Speaker 1: certainly trade policy as the top that. And the question
Speaker 1: really is UH. You know, we got a positive read
Speaker 1: out of NAFTA yesterday out of the end of the
Speaker 1: Montreal round from from U. S. T. R. Lightheiser. UH.
Speaker 1: The question is does the President continue that kind of
Speaker 1: pro pro business, pro market approach that he first talked
Speaker 1: about in Davos last week and was underscored by Lightheiser,
Speaker 1: or does he go back to a more saber rattling
Speaker 1: If I don't like it, I'll get rid of its
Speaker 1: sort of approach where it comes to NAFTA, and that
Speaker 1: will be market moving as well. Terry, based on your
Speaker 1: experience to whom is the President really going to be
Speaker 1: speaking tonight, Well, but my experience is that the President
Speaker 1: uses this speech to speak directly to the American people.
Speaker 1: It's it's the largest audience that the president will have
Speaker 1: all year. Uh, non la, there's some disaster of course
Speaker 1: that that requires. But UH, presidents always look at this
Speaker 1: opportunity as one where they get to actually talk to
Speaker 1: the American people. They get to characterize their own presidency directly, UH,
Speaker 1: and they get to lay out their priorities directly, so
Speaker 1: that they can you know, not only frame you know,
Speaker 1: what it is, how it is uh that they want
Speaker 1: to move forward, but also you know, frankly in political terms, uh,
Speaker 1: put the opposition on the back foot too. Well, That's
Speaker 1: where I was going with this, because of course, this
Speaker 1: the first president that really uses the social media world
Speaker 1: of Twitter and a variety of other mechanisms to speak
Speaker 1: directly to his constituents and indeed to the country in
Speaker 1: the world. Sure, and he gets to use but he
Speaker 1: gets to use the the cameras in the more conventional
Speaker 1: media here to uh to to do something other than
Speaker 1: uh other then kind of you know, the message at
Speaker 1: the moment, and actually gets to frame his own presidency
Speaker 1: and uh and have people to try to understand exactly
Speaker 1: what he's up to as president beyond beyond the Twitter
Speaker 1: of the day and uh. And that's I think that's
Speaker 1: particularly important for this president Frankly, all right, what would
Speaker 1: you like to hear about regarding housing finance? What I'd
Speaker 1: like to I don't have the luxury I'll tell you
Speaker 1: what I'd like to hear. What I think is, uh,
Speaker 1: what I'll be interested in is whether or not that
Speaker 1: makes the speech Frankly, Uh that it has been a
Speaker 1: as I say, by priority of Secretary minutions for some time.
Speaker 1: He first talked about his desire to want to do
Speaker 1: something on housing finance before he was even Treasury secretary,
Speaker 1: after he was nominated. But the end of and every
Speaker 1: time he talks about this, the markets blip in a
Speaker 1: positive way, housing stocks a rise. And I'd like to see, frankly,
Speaker 1: is whether there's a commitment from the President himself to
Speaker 1: invest political capital in this, because if that's the case,
Speaker 1: then you might get something. What what what's your read
Speaker 1: on Fannie Mae and Freddie mac My My read generally
Speaker 1: is that you know, we've got a situation where, uh
Speaker 1: the enterprises have been in conservatorship for a decade. Uh,
Speaker 1: it's uh, it's time to take a serious look at
Speaker 1: whether to get them out or not to the previous
Speaker 1: administration's policy was that we'll get them out one Congress
Speaker 1: tells us to get them out, but not before then.
Speaker 1: And uh. And what needs to happen fundamentally is, UH
Speaker 1: is there needs to be an understanding and some kind
Speaker 1: of coming together in Congress and you know, with the
Speaker 1: President and Secretary Munition as well, UH, to talk about
Speaker 1: what housing finance is going to look like going forward.
Speaker 1: I mean, are we gonna get are we gonna if
Speaker 1: we're gonna get greater participation from financial institutions? What does
Speaker 1: that look like? Uh? There is some policy difference between
Speaker 1: Democrats and Republicans and whether there should be whether the
Speaker 1: g SC structure should still be maintained. Uh, that's compromisable
Speaker 1: in my view. But what you're you know, the fundamental
Speaker 1: issue is going to be whether or not we're going
Speaker 1: to get more capital into the housing market or not.
Speaker 1: And uh, and whether we're gonna get a greater focus
Speaker 1: on housing finance because our view has always been here
Speaker 1: has always been that the current state of affairs has
Speaker 1: been a negative for the housing market and a negative
Speaker 1: for the markets generally. Based on your understanding of Secretary
Speaker 1: Minutions background, what does he bring that special to the
Speaker 1: conversation and debate about housing finance. I think two things. One,
Speaker 1: he's actually he's actually been in the markets. He actually
Speaker 1: understands the markets on the first firsthand the basis, and
Speaker 1: I think that's important. We have not had, Uh, it's
Speaker 1: been a while since we've had a Treasury secretary that
Speaker 1: that that that had that kind of direct knowledge. I mean,
Speaker 1: certainly i'd give I'd give Secretary Geithner and Secretary Paulson
Speaker 1: both both marks for that, but it's been a little while.
Speaker 1: Secretary Louse certainly didn't have that that sort of fundamental background.
Speaker 1: Number one. Number two, he brings a he brings a
Speaker 1: commitment to it and what you need fundamentally on this issue.
Speaker 1: And I think this was proved in the last time
Speaker 1: anybody tried to do something like this. Um, you need
Speaker 1: commitment from the highest levels of the government and the
Speaker 1: executive branch, particularly to try to uh trying to knock
Speaker 1: heads together in the Congress and get something done here,
Speaker 1: and that hasn't existed for a while. And Secretary Munition
Speaker 1: would like to do this. He's been clear about it. Uh.
Speaker 1: And now that now that he's used some political capital
Speaker 1: on tax reform, uh, he appears to be interested in
Speaker 1: doing it again. So we'll see where he goes, and
Speaker 1: we'll see if the President agrees and wants to say
Speaker 1: something about it in the speech. We'll be listening and
Speaker 1: we'll also be looking for your reaction to it as well.
Speaker 1: Thank you very much. Terry Haynes is Evercore i SES
Speaker 1: senior political strategist. He's the head of political analysis and
Speaker 1: a managing director. Our guest is Emily Rowland, head of
Speaker 1: Capital markets research at John Hancock Investments. Joining us from Boston,
Speaker 1: home to Bloomberg one oh six one Boston, Newburyport and
Speaker 1: thirteen thirty in Metro West and the South Shore. Emily,
Speaker 1: thank you very much for being with us. Complacency and volatility.
Speaker 1: I'm wondering if you could describe your thinking about both
Speaker 1: of those as they affect investors. You know, when I
Speaker 1: think about our outlook heading into I would say it
Speaker 1: was probably a bit more optimistic than consensus. We really
Speaker 1: felt that Pact reform and earnings growth were likely under
Speaker 1: appreciated catalysts that would drive markets higher, and really looking
Speaker 1: at the extraordinary returns that we've seen so far this year,
Speaker 1: markets are up seven percent in one of the best
Speaker 1: starts to a year in recent history, and in our view,
Speaker 1: would be pretty difficult to keep up this pace. We
Speaker 1: really think it's it's highly likely that we'll see some
Speaker 1: sort of pull back in the cards, some increased volatility
Speaker 1: as we continue into and we think investors really probably
Speaker 1: aren't prepared for this. Just looking back last year, the
Speaker 1: maximum draw down we saw in the SMP five hundred
Speaker 1: was three percent. That means that even if you chose
Speaker 1: the worst day to invest in, the mostly losses three percent.
Speaker 1: Now that hadn't happened since and the average is about four.
Speaker 1: So we think we're going to get back to those
Speaker 1: averages and investors might be caught off guard when volatility
Speaker 1: really does start to pick up. Here. Well, what should
Speaker 1: investors do in order to heads or prepare for this
Speaker 1: increased volatility that you say we're going to get. Well,
Speaker 1: we think it's important for investors to simply revisit their
Speaker 1: risk tolerances make sure that they're investing in a way
Speaker 1: that aligns with their longer term goals, because if you
Speaker 1: think about it, you know, the investors psychology is sort
Speaker 1: of pointing to this environment where we're kind of moving
Speaker 1: into and maybe not quite yet excessive optimism, but we're
Speaker 1: sort of moving into I would call it sort of
Speaker 1: the excitement phase now, and we're really starting to see
Speaker 1: that evidence with the flow data. If you look at
Speaker 1: the first couple of weeks of from a flow into
Speaker 1: global equity standpoint, we're seeing about four times the flows
Speaker 1: into equities that we saw this time last year. So
Speaker 1: we're seeing investors get excited and potentially the sort of
Speaker 1: the wrong time in the market. So we're suggesting that
Speaker 1: they really kind of take a look at their long
Speaker 1: term plan. Okay, So having sort of said that, is
Speaker 1: there anything specific that you would offer. Is it to
Speaker 1: rebalance the portfolio based on the performance of the constituent parts,
Speaker 1: Is it actually maybe taking a profit? I mean, as
Speaker 1: you mentioned, SMP five has a gain right now of
Speaker 1: almost seven percent for the year, the Nasdaq is up
Speaker 1: more than eight percent. Market timing is not necessarily a
Speaker 1: a shore fire away to financial success. But having said that,
Speaker 1: you don't get you don't go broke taking a profit,
Speaker 1: right you know, So we certainly believe that rebalancing is
Speaker 1: a good thing to you at all times. But don't
Speaker 1: get me wrong, I'm calling for a pullback in the markets,
Speaker 1: But actually our view is quite positive. More broadly, you know,
Speaker 1: thinking about our longer term outlook twelve to eighteen months
Speaker 1: to synchronized global growth story really is a powerful one.
Speaker 1: Earnings growth remains supportive. We're seeing significant upgrades in terms
Speaker 1: of the earnings outlook for next year. You know, when
Speaker 1: I look at the numbers at the beginning of this year,
Speaker 1: is about eleven percent outlook for earnings growth next year
Speaker 1: and that's been bumped up the sixteen percent on the
Speaker 1: back of tax reform and other positive momentum here. So
Speaker 1: as long as we continue to see inflation remains somewhat subdued,
Speaker 1: which which we think is our real base case here,
Speaker 1: we think that this cycle can continue and that there
Speaker 1: are opportunities for risk assets heading into It's just important
Speaker 1: to remember that we are going to experience more normal
Speaker 1: levels of volatility. Okay, having said that, then where do
Speaker 1: you look for this relative value you? Is it outside
Speaker 1: the United States? Is it in specific industry groups or
Speaker 1: specific asset classes? Yeah? Sure, Um, we are positive on
Speaker 1: both US and non US equities today. Um, there is
Speaker 1: a good valuation opportunity looking overseas. Typically, the US trades
Speaker 1: to UH non US equities at about an eight percent premium,
Speaker 1: and that's actually about twenty four percent today, So comparing
Speaker 1: US versus non US from evaluation standpoint, we think that
Speaker 1: there's an opportunity overseas. We also are suggesting that investors
Speaker 1: consider international small cap equities. Not only do they have
Speaker 1: a historical performance advantage over their large cap piers, but
Speaker 1: the earnings outlook for small cap equities overseas is actually
Speaker 1: outpacing the outlook for international small cap equities. And really
Speaker 1: the idea here is that those domestically oriented companies overseas,
Speaker 1: those smaller companies are really going to be the itative
Speaker 1: beneficiaries of this strong synchronized global growth we're seeing particularly
Speaker 1: picking up overseas alright, but international small cap won't that
Speaker 1: be effected if the US dollar continues to weaken. Yeah,
Speaker 1: we're seeing a continued a weakening of the US a
Speaker 1: dollar here, which will be an advantage to US investors
Speaker 1: that are investing overseas. And again, the strengthening euro, if
Speaker 1: you think about investing overseas, will have a put some
Speaker 1: pressure on those large European multinational firms. But again, those
Speaker 1: domestically oriented companies will be more insulated from that dynamic.
Speaker 1: Give you ten seconds to tell us what investment would
Speaker 1: you absolutely positively stay away from Yeah, I mean certainly,
Speaker 1: I think you know, U. S. Treasuries. We're starting to
Speaker 1: see a pretty meaningful backup in yields here. We've been
Speaker 1: negative on you know, corporate a government debt for quite
Speaker 1: some time. Here, there's simply better opportunities in this reflationary
Speaker 1: environment to invest equities over fixed income. Thank you very
Speaker 1: much for being with us. Emily Rowland is the head
Speaker 1: of capital markets Research at John Hancock Investments and joining
Speaker 1: us from Boston. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
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Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.