1 00:00:03,320 --> 00:00:06,720 Speaker 1: This is Bloomberg Surveillance. I'm not sure that I agree 2 00:00:06,760 --> 00:00:09,160 Speaker 1: that there are signs in Europe of economic strength. There 3 00:00:09,160 --> 00:00:12,600 Speaker 1: are signs in the United States. Perhaps there's no freelance 4 00:00:12,800 --> 00:00:17,400 Speaker 1: iconic higher wages and maintain profit margins and keep low inflation. 5 00:00:17,520 --> 00:00:20,959 Speaker 1: The economy has up and very evenly distributed. Then the 6 00:00:21,120 --> 00:00:24,520 Speaker 1: people left behind have been really more or less the 7 00:00:24,560 --> 00:00:28,880 Speaker 1: middle class and lower middle class people. Bloomberg Surveillance your 8 00:00:28,920 --> 00:00:32,559 Speaker 1: link to the world of economics, finance, and investment on 9 00:00:32,640 --> 00:00:36,040 Speaker 1: Bloomberg Radio. Good morning everyone, Bloomberg Savannahs who welcome you 10 00:00:36,520 --> 00:00:41,440 Speaker 1: worldwide on economics, finance, investment, on international relations, and moments 11 00:00:41,520 --> 00:00:44,360 Speaker 1: on the international investment. David Harrow, one of our most 12 00:00:44,360 --> 00:00:47,839 Speaker 1: popular guests, will join us Michael McKee and Tom Keane 13 00:00:48,080 --> 00:00:52,320 Speaker 1: in Europe. Bloomberg Radio plus Bloomberg dot Com Worldwide, Bloomberg 14 00:00:52,320 --> 00:00:56,200 Speaker 1: twelve hundred, Boston FM, Washington, Mike, did they get snow 15 00:00:56,200 --> 00:01:02,320 Speaker 1: in Washington? I don't think so, Washington. It's Austin. We 16 00:01:02,320 --> 00:01:04,360 Speaker 1: don't have a reminder of what they didn't have this year, 17 00:01:04,360 --> 00:01:07,200 Speaker 1: and then there should be very glad about that. Last 18 00:01:07,280 --> 00:01:09,520 Speaker 1: year we got us. I'd say it dusting, but it 19 00:01:09,600 --> 00:01:15,560 Speaker 1: was more like a slushiness. We saw some flakes. Um 20 00:01:15,640 --> 00:01:18,000 Speaker 1: as well. We say, good morning Course six the Bay 21 00:01:18,000 --> 00:01:20,960 Speaker 1: area where they don't have these discussions. Um as well. 22 00:01:21,000 --> 00:01:25,400 Speaker 1: Bloomberg Surveillance has always brought you by Cone Resnik Accounting, 23 00:01:25,440 --> 00:01:28,840 Speaker 1: Tax Advisory. Cone Resnick will provide your business with the 24 00:01:28,880 --> 00:01:33,399 Speaker 1: industry insight it needs to succeed in the dynamic economy. 25 00:01:33,480 --> 00:01:36,280 Speaker 1: Sign up for insights and find out how at cone 26 00:01:36,319 --> 00:01:39,040 Speaker 1: Resnick dot com. C O h n R e z 27 00:01:39,560 --> 00:01:45,400 Speaker 1: n I c K cone Resneck uh dot com. So 28 00:01:45,440 --> 00:01:48,200 Speaker 1: we begin a week. It's a very quietly the markets 29 00:01:48,240 --> 00:01:51,320 Speaker 1: out there, but it's a four day, four day work week. Mike, 30 00:01:51,360 --> 00:01:56,840 Speaker 1: let's line up the economic calendar, um as well. We've 31 00:01:56,840 --> 00:02:00,360 Speaker 1: got existing home sales today. Okay, well look at the 32 00:02:00,360 --> 00:02:03,160 Speaker 1: economic data. Uh there right now, let's go to David 33 00:02:03,280 --> 00:02:06,960 Speaker 1: Harrow of Oakmark David, good morning, Good morning Tom. And 34 00:02:07,000 --> 00:02:09,720 Speaker 1: everyone saw that big badger one last night. We saw 35 00:02:09,840 --> 00:02:17,040 Speaker 1: that hard By Bracket just killed Xavier done. Uh David, Um, 36 00:02:17,120 --> 00:02:21,239 Speaker 1: you have a sterling track record, and you know every 37 00:02:21,520 --> 00:02:25,200 Speaker 1: X number of years everything goes wrong. You've had that 38 00:02:25,280 --> 00:02:31,440 Speaker 1: from November into February when you're down on Oakmark International, 39 00:02:31,520 --> 00:02:34,720 Speaker 1: which is you know bad, but you've been through this before. 40 00:02:35,680 --> 00:02:38,560 Speaker 1: Is it the mother of all buying opportunities for you 41 00:02:38,720 --> 00:02:41,000 Speaker 1: right now or do you sort of collect it and 42 00:02:41,080 --> 00:02:45,960 Speaker 1: wait for some recovery. No, it certainly becomes a buying opportunity. 43 00:02:46,000 --> 00:02:49,640 Speaker 1: I mean, we really have this abrupt down draft in 44 00:02:50,040 --> 00:02:53,760 Speaker 1: global share prices from that time period you you mentioned, 45 00:02:53,760 --> 00:02:56,480 Speaker 1: and of course everyone gets panicky and I think the 46 00:02:56,520 --> 00:02:59,360 Speaker 1: world's coming to an end, and we'll really when we 47 00:02:59,480 --> 00:03:02,160 Speaker 1: see is the world isn't coming to an end? I mean, 48 00:03:02,200 --> 00:03:06,560 Speaker 1: you have corporate company still reporting acceptable earnings, you have 49 00:03:07,080 --> 00:03:11,519 Speaker 1: the strong the consumer is very strong globally. In the 50 00:03:11,600 --> 00:03:14,880 Speaker 1: United States, they have money in the bank, they have 51 00:03:15,000 --> 00:03:17,919 Speaker 1: low energy costs, they have low interest rates. Were to 52 00:03:18,000 --> 00:03:21,000 Speaker 1: close the full employment. Same thing with Germany, same thing 53 00:03:21,040 --> 00:03:24,600 Speaker 1: with the United Kingdom, same thing with Japan. There are problems, 54 00:03:25,120 --> 00:03:27,880 Speaker 1: there are macroeconomic issues, but the world isn't going to 55 00:03:27,919 --> 00:03:31,000 Speaker 1: hell in a handbasket. And what we saw in those 56 00:03:31,080 --> 00:03:36,120 Speaker 1: share markets is people's uncertainty in fear. We're manifesting themselves 57 00:03:36,200 --> 00:03:38,600 Speaker 1: in lower share prices. And you can see since that 58 00:03:38,680 --> 00:03:42,360 Speaker 1: February low, you know, a lot of these markets bounced. 59 00:03:42,440 --> 00:03:45,280 Speaker 1: We bounced quite strongly. Um but what you do is 60 00:03:45,280 --> 00:03:49,920 Speaker 1: you try to take advantage of people's insecurity, people's inability 61 00:03:50,000 --> 00:03:54,520 Speaker 1: to read through fundamentals and actual emotion, and that's something sadly, 62 00:03:54,560 --> 00:03:59,640 Speaker 1: we could take advantage of. Long term investors. Are we 63 00:04:00,160 --> 00:04:02,480 Speaker 1: confident that this will last though, that you can take 64 00:04:02,520 --> 00:04:04,720 Speaker 1: advantage of it, or is the world still such an 65 00:04:04,760 --> 00:04:09,760 Speaker 1: uncertain place that the fear could come back at any moment? Michael, 66 00:04:09,840 --> 00:04:13,040 Speaker 1: the world is always uncertain and the fear is always 67 00:04:13,040 --> 00:04:15,040 Speaker 1: going to come back. But what we have to hang 68 00:04:15,080 --> 00:04:18,000 Speaker 1: our head on as valuation, and you look at what 69 00:04:18,080 --> 00:04:21,080 Speaker 1: you're buying. You're buying a stream of cash flow that 70 00:04:21,279 --> 00:04:25,159 Speaker 1: a company generates and earns, turns and generates, and as 71 00:04:25,200 --> 00:04:28,719 Speaker 1: long as we're able to pay a reasonable or low 72 00:04:28,800 --> 00:04:32,440 Speaker 1: price from that stream of cash flow, I feel good. 73 00:04:32,560 --> 00:04:35,159 Speaker 1: If I'm forced to pay high prices, if you have 74 00:04:35,400 --> 00:04:40,719 Speaker 1: upic markets and unreasonable prices, that is actually as a 75 00:04:40,720 --> 00:04:44,240 Speaker 1: long term value investor, that's what upsets me. When you 76 00:04:44,279 --> 00:04:48,120 Speaker 1: have the opposite, when you have fear and unreasonable low prices. 77 00:04:48,520 --> 00:04:51,920 Speaker 1: As a value investor, I feel pretty good, even though 78 00:04:52,040 --> 00:04:55,400 Speaker 1: the environment that caused the prices to be low is 79 00:04:55,440 --> 00:05:00,200 Speaker 1: one that is unsettling and distasteful for many. David, you've 80 00:05:00,200 --> 00:05:04,039 Speaker 1: been visible in the ownership of European banking shares for 81 00:05:04,160 --> 00:05:06,680 Speaker 1: I'm going to say, an excess of a decade. Can 82 00:05:06,760 --> 00:05:12,240 Speaker 1: you reaffirm your enthusiasm that they'll finally get their act together. Yeah, 83 00:05:12,240 --> 00:05:14,640 Speaker 1: you're right, Tom on and off and we really started 84 00:05:14,680 --> 00:05:17,320 Speaker 1: the overweight during the financial crisis, and then they did 85 00:05:17,400 --> 00:05:19,360 Speaker 1: quite well, so we trimmed back and we're probably a 86 00:05:19,400 --> 00:05:22,800 Speaker 1: little underweight. And then came to the Greek crisis when 87 00:05:22,839 --> 00:05:27,320 Speaker 1: the shares collapse literally because of their holdings a sovereign 88 00:05:27,320 --> 00:05:30,320 Speaker 1: debt and the fear by many that Spain and Portugal 89 00:05:30,360 --> 00:05:33,040 Speaker 1: and Italy would default. Well, of course that didn't happen 90 00:05:33,040 --> 00:05:37,240 Speaker 1: in so then then, um, that actually worked out quite well. 91 00:05:37,320 --> 00:05:39,480 Speaker 1: And now here we go again in the beginning of 92 00:05:39,520 --> 00:05:43,000 Speaker 1: this year, in particular, with a low to negative interest 93 00:05:43,120 --> 00:05:46,800 Speaker 1: rates and the narrowing spreads, people believe that you should 94 00:05:46,800 --> 00:05:49,200 Speaker 1: not be in European banks, and we feel the exact 95 00:05:49,240 --> 00:05:53,480 Speaker 1: composite that these banks are selling, that many of them 96 00:05:53,480 --> 00:05:57,640 Speaker 1: are selling that. Okay, but I'm gonna cut you off, David, 97 00:05:57,640 --> 00:05:59,320 Speaker 1: I'm gonna cut you off. I never asked you about 98 00:05:59,320 --> 00:06:01,800 Speaker 1: individual cup You forget about it break the rule. It's 99 00:06:01,839 --> 00:06:04,680 Speaker 1: like the packers winning. Can you buy Deutsche Bank here? 100 00:06:06,320 --> 00:06:10,280 Speaker 1: I can, but I have a better quality banks at 101 00:06:10,320 --> 00:06:13,719 Speaker 1: lower prices than notably BENB Perry BA thank you. If 102 00:06:13,760 --> 00:06:17,640 Speaker 1: you're looking at European Commercial Bank, they are extremely well run, 103 00:06:17,839 --> 00:06:22,880 Speaker 1: extremely well capitalized. They had the bananappeal with the US fine, 104 00:06:23,680 --> 00:06:27,719 Speaker 1: but they really are a solid drawing European bank and 105 00:06:28,000 --> 00:06:31,400 Speaker 1: with a good capital Rather. Did you see how rude 106 00:06:31,440 --> 00:06:35,080 Speaker 1: I was there, Mike, Yeah, It's like, it's all right, Tom, 107 00:06:35,080 --> 00:06:38,159 Speaker 1: It's all right, It's it's Tom. It's Tom's lousy bracket 108 00:06:38,200 --> 00:06:44,840 Speaker 1: Monday routes Badgers. I'm curious though about what you said 109 00:06:44,960 --> 00:06:48,120 Speaker 1: about Deutsche Bank. Um, when you mentioned it, you could, 110 00:06:48,600 --> 00:06:51,320 Speaker 1: but would you given what they have been through and 111 00:06:51,320 --> 00:06:55,800 Speaker 1: a lot of people questioning the value in Deutsche right now, Well, 112 00:06:56,040 --> 00:06:58,280 Speaker 1: you know, Deutsche Bank is just you know to me 113 00:06:58,520 --> 00:07:00,960 Speaker 1: that it doesn't have a strong cap goal position. That's 114 00:07:00,960 --> 00:07:03,839 Speaker 1: say I'm gonna we also own intest to sell Apollo 115 00:07:03,960 --> 00:07:07,440 Speaker 1: and Lloyd's Bank, and these are commercial banks that have 116 00:07:07,600 --> 00:07:13,240 Speaker 1: good business models, good positions, and it's strong visible capital positions. 117 00:07:13,680 --> 00:07:15,960 Speaker 1: Deutsche Bank may have that, but it's harder for us 118 00:07:16,000 --> 00:07:19,160 Speaker 1: to ascertain, So why go for something it's so harder 119 00:07:19,160 --> 00:07:22,240 Speaker 1: to ascertain when I could have a higher degree of 120 00:07:22,320 --> 00:07:25,680 Speaker 1: certainty with some of these other European financials that are 121 00:07:25,680 --> 00:07:30,160 Speaker 1: selling out well below tangible book value. Who else? Uh, 122 00:07:30,560 --> 00:07:33,600 Speaker 1: that's song for talking European banks. Who else is doing well? 123 00:07:33,680 --> 00:07:39,120 Speaker 1: And is there anybody U to avoid? Well? I mean 124 00:07:40,280 --> 00:07:42,720 Speaker 1: I would say avoid you are the ones we don't know? 125 00:07:43,640 --> 00:07:46,320 Speaker 1: Maybe not because you know we're overweight banks. I wouldn't 126 00:07:46,320 --> 00:07:48,800 Speaker 1: add another bank here. We're probably you know, one or 127 00:07:48,840 --> 00:07:52,040 Speaker 1: two points overweight banks. We have enough, we have exposure. 128 00:07:52,320 --> 00:07:55,520 Speaker 1: We're overweight because we think we could find good quality 129 00:07:55,840 --> 00:07:59,640 Speaker 1: financial institutions selling at low prices. And you know, we've 130 00:07:59,680 --> 00:08:02,920 Speaker 1: owned credit suites for a long time. It has not worked. 131 00:08:03,160 --> 00:08:06,200 Speaker 1: It's been a greg on our numbers. But they're going 132 00:08:06,240 --> 00:08:10,880 Speaker 1: through this transition plan. They are now well capitalized, they 133 00:08:10,880 --> 00:08:13,760 Speaker 1: have a good plan to sell after Universal Bank, they're 134 00:08:13,760 --> 00:08:16,520 Speaker 1: going to focus on wealth management. So you know, these 135 00:08:16,680 --> 00:08:19,800 Speaker 1: some of these things really take a long time to work, 136 00:08:19,840 --> 00:08:22,800 Speaker 1: and hopefully, and I do believe it will, but you know, 137 00:08:22,840 --> 00:08:25,280 Speaker 1: we've certainly been wrong. On the other hand, some of 138 00:08:25,320 --> 00:08:29,080 Speaker 1: these banks I mentioned in TESSAs al Paulo when we 139 00:08:29,160 --> 00:08:32,520 Speaker 1: bought heavily in the first crisis. It's it's probably up 140 00:08:32,600 --> 00:08:35,320 Speaker 1: one and a half times. One of these missing in 141 00:08:35,400 --> 00:08:38,160 Speaker 1: the hero wisdom and correct me if I'm wrong, is 142 00:08:38,760 --> 00:08:42,120 Speaker 1: consumer stocks that with their ample cash flows. I mean 143 00:08:42,320 --> 00:08:45,720 Speaker 1: Lspar taken up by Sherwin Williams over the weekend. And 144 00:08:46,120 --> 00:08:49,560 Speaker 1: there's Colgate, pamalav and Nessley. Maybe in your world, David, 145 00:08:49,880 --> 00:08:53,040 Speaker 1: are they just so overpriced you can't own the consumer 146 00:08:53,120 --> 00:08:57,600 Speaker 1: cash flows. What's happened in these periods of economic and 147 00:08:57,640 --> 00:09:02,679 Speaker 1: global political fright is people fly to those consumer discretionary stocks, 148 00:09:02,720 --> 00:09:05,880 Speaker 1: like in Nestily, like some of the drinks companies Perno 149 00:09:06,120 --> 00:09:09,600 Speaker 1: di Agio, you know, Leaver. And as a result of this, 150 00:09:09,720 --> 00:09:13,040 Speaker 1: you paint too much an our view for insurance. We 151 00:09:13,160 --> 00:09:15,520 Speaker 1: have a little bit of Nestlee. It's a good company, 152 00:09:15,800 --> 00:09:18,280 Speaker 1: but it just doesn't have that big upside. It's not 153 00:09:18,400 --> 00:09:22,760 Speaker 1: selling at a depressed evaluation. Now some of the consumer 154 00:09:23,760 --> 00:09:27,040 Speaker 1: um discretionary I meant to say consumer staples earlier, some 155 00:09:27,080 --> 00:09:31,600 Speaker 1: of the consumer discretionary stocks, some luxury good stocks like 156 00:09:31,679 --> 00:09:36,600 Speaker 1: a Caring, like a Richmond, like a Dame lawer Um. 157 00:09:36,640 --> 00:09:40,800 Speaker 1: Now these stocks have actually been hit pretty hard and 158 00:09:41,000 --> 00:09:44,280 Speaker 1: are selling that attractive valuation. So I think those are 159 00:09:44,400 --> 00:09:47,320 Speaker 1: the stocks and the consumer sector to keep an eye 160 00:09:47,360 --> 00:09:50,960 Speaker 1: on the ones that are selling at attractive valuations. Remember, 161 00:09:51,000 --> 00:09:56,120 Speaker 1: the global consumer isn't good shape. The global consumer is 162 00:09:56,559 --> 00:09:59,839 Speaker 1: we have low unemployment rates lower I think the you 163 00:10:00,080 --> 00:10:02,240 Speaker 1: k I just saw it was at a tenure low. 164 00:10:02,440 --> 00:10:06,920 Speaker 1: The Germany rates at a low since reunification. Um, you know, 165 00:10:07,000 --> 00:10:10,520 Speaker 1: the consumer isn't bad, especially with these low energy prices 166 00:10:10,520 --> 00:10:13,520 Speaker 1: and low interest rates. Have you gotten over the Broncos 167 00:10:13,559 --> 00:10:18,800 Speaker 1: beating the Packers nine to ten? I've gotten over that fan. 168 00:10:19,080 --> 00:10:22,360 Speaker 1: You have learned, you have learned long and hard to 169 00:10:22,480 --> 00:10:27,280 Speaker 1: pick these lumps. There's really disappointing. Was the play of 170 00:10:27,280 --> 00:10:29,840 Speaker 1: the quarterback. I mean, who knows what was going on? 171 00:10:29,920 --> 00:10:33,320 Speaker 1: Now there was a receiver problem, but still the ancient 172 00:10:33,559 --> 00:10:36,880 Speaker 1: ancient history with David Harry, Broncos went on to have 173 00:10:37,000 --> 00:10:39,440 Speaker 1: no case season as I had to bring that up 174 00:10:39,480 --> 00:10:41,960 Speaker 1: just to get him going. David Harrow, whether the oakmark 175 00:10:42,000 --> 00:10:47,080 Speaker 1: will continue this discussion an important discussion on American investment 176 00:10:47,240 --> 00:10:53,160 Speaker 1: futures up to all right, let's take it with Michael 177 00:10:53,160 --> 00:10:55,640 Speaker 1: Byer and got the latest world in national headlines. Michael 178 00:10:55,720 --> 00:10:58,319 Speaker 1: Mike Time thank you very much. President Barack Obama is 179 00:10:58,360 --> 00:11:00,720 Speaker 1: in Evan out where today he will sit down with 180 00:11:00,800 --> 00:11:04,319 Speaker 1: President Raoul Castro. President Obama is the first U S 181 00:11:04,360 --> 00:11:08,760 Speaker 1: president to visit Cuba in nearly ninety years. Tomorrow his 182 00:11:08,880 --> 00:11:11,280 Speaker 1: visit continues with the major speech, and after that the 183 00:11:11,280 --> 00:11:15,920 Speaker 1: President will leave for Argentina. Democratic presidential candidate Hillary Clinton 184 00:11:15,960 --> 00:11:20,000 Speaker 1: will address the American Israel Public Affairs Committee today. They 185 00:11:20,000 --> 00:11:22,719 Speaker 1: will meet in Washington tonight. The conference here is from 186 00:11:22,760 --> 00:11:26,760 Speaker 1: Republican candidate Donald Trump about forty rabbi's say they planned 187 00:11:26,760 --> 00:11:32,200 Speaker 1: to boycott Trump's appearance with APAX, saying it's poses political, moral, 188 00:11:32,320 --> 00:11:35,920 Speaker 1: and even spiritual quantries. The head of Australia's main stock 189 00:11:35,920 --> 00:11:39,400 Speaker 1: exchange has resigned, and then an investigation and allegations that 190 00:11:39,440 --> 00:11:42,480 Speaker 1: a gaming firm he once ran made a bribery payment 191 00:11:42,600 --> 00:11:45,640 Speaker 1: several years ago to the family of Cambodia's Prime minister. 192 00:11:46,120 --> 00:11:49,120 Speaker 1: Global News twenty four hours a day, powered by our 193 00:11:49,480 --> 00:11:52,079 Speaker 1: journalists and more than one d fifty news bureaus from 194 00:11:52,080 --> 00:11:54,800 Speaker 1: around the world. I'm Michael Barr, Mike Tom and Michael. 195 00:11:54,800 --> 00:11:59,600 Speaker 1: Thanks so much, West Texas. Donald twenty cents we are 196 00:11:59,600 --> 00:12:06,360 Speaker 1: with day. Been a harrow of Oakmark Bloomberg Surveillance. Bloomberg 197 00:12:06,400 --> 00:12:09,040 Speaker 1: Surveillance brought to you by S. S and C. They 198 00:12:09,040 --> 00:12:11,440 Speaker 1: are the future of fund administration.