1 00:00:02,560 --> 00:00:05,920 Speaker 1: Global business news twenty four hours a day at Bloomberg 2 00:00:05,960 --> 00:00:09,040 Speaker 1: dot com, the Radio plus mobile last, and on your radio, 3 00:00:09,320 --> 00:00:13,480 Speaker 1: This is a Bloomberg Business Flash and I'm Karin Moscow. 4 00:00:13,560 --> 00:00:16,560 Speaker 1: US stocks are slipping after the SNP five hundred's biggest 5 00:00:16,600 --> 00:00:19,200 Speaker 1: one day gain in two months, as sentiment continues to 6 00:00:19,239 --> 00:00:23,000 Speaker 1: waiver amid corporate results and fluctuations in oil prices. We 7 00:00:23,079 --> 00:00:26,160 Speaker 1: check the markets every fifteen minutes throughout the trading day. 8 00:00:26,200 --> 00:00:29,200 Speaker 1: On Bloomberg. SNP five hundred down three tens per cent 9 00:00:29,320 --> 00:00:32,400 Speaker 1: or six points at twenty seventy seven down. Jones Industrial 10 00:00:32,400 --> 00:00:34,600 Speaker 1: Average down four tens per cent or seventy eight points 11 00:00:34,640 --> 00:00:37,800 Speaker 1: to seventeen thousand, eight hundred forty nine. Nasdacs down three 12 00:00:37,800 --> 00:00:40,360 Speaker 1: tens per cent or thirteen points to forty seven ninety 13 00:00:40,440 --> 00:00:43,160 Speaker 1: six ten. Your treasury up one thirty second the yield 14 00:00:43,240 --> 00:00:45,879 Speaker 1: one point seven five percent yield on the two year 15 00:00:45,920 --> 00:00:49,080 Speaker 1: point seven three percent. Nimax screwed oil down four ten 16 00:00:49,200 --> 00:00:51,680 Speaker 1: percent or nineteen cents to forty four or forty seven 17 00:00:51,680 --> 00:00:54,440 Speaker 1: of aarrol Comax. Gold is up one per cent or 18 00:00:54,480 --> 00:00:57,200 Speaker 1: fourteen dollars seventy cents at twelve seventy nine fifty and 19 00:00:57,280 --> 00:01:00,160 Speaker 1: ounce the euro at other fourteen twenty the end one 20 00:01:00,160 --> 00:01:04,000 Speaker 1: oh eight point five five. Macy's, the largest US department 21 00:01:04,000 --> 00:01:07,120 Speaker 1: store company, cutting its profit forecast for the year and 22 00:01:07,520 --> 00:01:10,520 Speaker 1: posting at first quarter revenue that missed analysts estimates as 23 00:01:10,520 --> 00:01:13,960 Speaker 1: slow small traffic hurt sales. It shares her down more 24 00:01:14,000 --> 00:01:17,760 Speaker 1: than ten percent this morning. Staples is down eighteen and 25 00:01:17,800 --> 00:01:21,640 Speaker 1: a half percent, and Office Depot is dropping thirty seven 26 00:01:21,680 --> 00:01:24,720 Speaker 1: percent after a federal judgeable lock the combination of the 27 00:01:24,720 --> 00:01:28,440 Speaker 1: two largest office suppliers, saying he would create an unrivaled giant, 28 00:01:28,480 --> 00:01:31,880 Speaker 1: and that's a Bloomberg business flash. Tom and Mike Karon Moscow, 29 00:01:31,959 --> 00:01:33,760 Speaker 1: thank you very much. I had a couple of notes 30 00:01:33,840 --> 00:01:36,080 Speaker 1: yesterday late afternoon after You're a big gain in the 31 00:01:36,120 --> 00:01:40,000 Speaker 1: stock market, wondering how come stocks are going up even 32 00:01:40,000 --> 00:01:44,600 Speaker 1: though bond yields are not moving meets left. Mataka is 33 00:01:44,640 --> 00:01:48,480 Speaker 1: an equity strategist at JP Morgan cousin Ovan. He says, so, 34 00:01:48,600 --> 00:01:59,920 Speaker 1: maybe that it's because yield are staying low, not despite yields. Hi, Hi, 35 00:02:00,120 --> 00:02:05,040 Speaker 1: hello there, So I think this is an important distinction 36 00:02:05,080 --> 00:02:09,160 Speaker 1: over here. Um as many have been saying for a while, Look, 37 00:02:09,800 --> 00:02:12,400 Speaker 1: equities are the only story in town. Where else are 38 00:02:12,400 --> 00:02:16,440 Speaker 1: you going to be? Nothing else is giving you any return. 39 00:02:17,160 --> 00:02:20,320 Speaker 1: My point over here, though, is that this has been 40 00:02:20,320 --> 00:02:23,639 Speaker 1: the story, and the dividends so to speak, from low 41 00:02:23,720 --> 00:02:29,440 Speaker 1: bond yields has been already absorbed. Now we are coming 42 00:02:29,480 --> 00:02:33,280 Speaker 1: to the realization that the business cycle might be rolling 43 00:02:33,320 --> 00:02:38,840 Speaker 1: over and you're starting potentially the next slowdown with multiples 44 00:02:38,840 --> 00:02:42,519 Speaker 1: which are very high. We are seventeen eight, nineteen times 45 00:02:42,720 --> 00:02:45,280 Speaker 1: SEMPF a hundred on depending on which as you look 46 00:02:45,320 --> 00:02:49,800 Speaker 1: at and um at a point where the monetary policy 47 00:02:50,040 --> 00:02:53,200 Speaker 1: war chest, so to speak, is a little bit exhausted. 48 00:02:53,639 --> 00:02:56,280 Speaker 1: And that's why to me, the risk reworld overall is 49 00:02:56,280 --> 00:03:02,640 Speaker 1: not that good. So uh if if yields uh stay low, 50 00:03:02,800 --> 00:03:08,640 Speaker 1: we'll start sput them. I think that yield at the 51 00:03:08,680 --> 00:03:12,119 Speaker 1: end of the day will will be determined by by 52 00:03:12,200 --> 00:03:16,240 Speaker 1: by the growth outlook. And if you look at within 53 00:03:16,360 --> 00:03:20,760 Speaker 1: the equity market, we already had the significant rerating of 54 00:03:20,919 --> 00:03:24,279 Speaker 1: the yield place. This is what we are still advocating. 55 00:03:24,360 --> 00:03:27,760 Speaker 1: My top picks for global and US portfolio this year 56 00:03:27,880 --> 00:03:32,040 Speaker 1: has been utilities, real estate, and telecoms. I still think 57 00:03:32,120 --> 00:03:35,520 Speaker 1: you just have to stay with yield. There is no 58 00:03:35,640 --> 00:03:38,560 Speaker 1: point to play operating leverage. There's no point to play 59 00:03:38,880 --> 00:03:42,080 Speaker 1: the cycle. I mean, yes, if you do get this 60 00:03:42,520 --> 00:03:45,040 Speaker 1: rebound in the US growth into the second half and 61 00:03:45,240 --> 00:03:48,120 Speaker 1: some higher inflation than yes, bondios could go up. But 62 00:03:48,160 --> 00:03:50,920 Speaker 1: I would just say that this is a consensus view 63 00:03:50,920 --> 00:03:54,240 Speaker 1: on the street. Everybody is projecting second half grip in 64 00:03:54,280 --> 00:03:57,280 Speaker 1: numbers to be much better than first half. And let's see. Yeah, 65 00:03:57,280 --> 00:04:00,200 Speaker 1: and it's not get a careful readio note and is 66 00:04:00,240 --> 00:04:04,680 Speaker 1: one word missing throughout the entire note Within the value 67 00:04:04,720 --> 00:04:08,960 Speaker 1: groups you look at, retail is invisible. I find it 68 00:04:09,040 --> 00:04:12,880 Speaker 1: interesting to still for us the retail angst in Europe, 69 00:04:13,280 --> 00:04:16,080 Speaker 1: which you can compare with your US team as they 70 00:04:16,160 --> 00:04:21,320 Speaker 1: struggle with a shock of Macy's this morning. So when 71 00:04:21,320 --> 00:04:27,200 Speaker 1: we when we look at value and growth styles, UM, 72 00:04:27,320 --> 00:04:30,600 Speaker 1: a lot of people are you know, pushing value style 73 00:04:31,440 --> 00:04:36,599 Speaker 1: uh this year. My view is a little bit different here. 74 00:04:36,680 --> 00:04:38,960 Speaker 1: I think you you you want to be in free 75 00:04:38,960 --> 00:04:43,599 Speaker 1: cash flow biback slow bit defensive. Now what is the 76 00:04:43,760 --> 00:04:48,440 Speaker 1: value value do I think about? It falls into kind 77 00:04:48,440 --> 00:04:53,839 Speaker 1: of free buckets. One is the financials um, the other 78 00:04:53,880 --> 00:04:58,920 Speaker 1: one is the commodities, and then the third one UM 79 00:04:59,320 --> 00:05:02,680 Speaker 1: is very collect tickets. A lot of these kind of sectors. Um, 80 00:05:02,760 --> 00:05:06,400 Speaker 1: let's say in Europe, utilities, telecoms sectors which have been 81 00:05:06,400 --> 00:05:10,640 Speaker 1: structurally challenged and impaired for a while. Potentially retail because 82 00:05:10,640 --> 00:05:14,240 Speaker 1: of the change in business models comes in there. So 83 00:05:14,240 --> 00:05:17,760 Speaker 1: so I'm broadly neutral between value and growth. I think 84 00:05:17,760 --> 00:05:20,160 Speaker 1: if the dollar continues to go down, and then of 85 00:05:20,160 --> 00:05:25,080 Speaker 1: course commodities um um have um you know, are looking 86 00:05:25,120 --> 00:05:29,240 Speaker 1: more interesting. Bond you're staying law is not good for financials, 87 00:05:29,320 --> 00:05:31,760 Speaker 1: and then you know, do you play retail do you 88 00:05:31,760 --> 00:05:36,880 Speaker 1: play others? My biggest problem with playing retail is my 89 00:05:37,000 --> 00:05:41,520 Speaker 1: leading indicator of everything is profits, and profits drive the 90 00:05:41,640 --> 00:05:45,120 Speaker 1: labor market and capital spending. If profits in the economy 91 00:05:45,160 --> 00:05:47,520 Speaker 1: are slowing down, and they have been in the last 92 00:05:47,880 --> 00:05:51,839 Speaker 1: six to twelve months, across the board, macro will be weaker, 93 00:05:51,920 --> 00:05:57,920 Speaker 1: and you don't want to play consumer technicality. Then if 94 00:05:58,000 --> 00:06:03,160 Speaker 1: if macro is weaker than who else besides the consumer cyclicals, 95 00:06:03,640 --> 00:06:06,800 Speaker 1: it gets hurt. I mean, is this is this a 96 00:06:06,880 --> 00:06:09,240 Speaker 1: time when you want to look at a defensive across 97 00:06:09,279 --> 00:06:13,520 Speaker 1: the board? You know, go to utilities again? Definitely. I 98 00:06:13,520 --> 00:06:16,200 Speaker 1: mean we have double upgraded utilities at the start of 99 00:06:16,240 --> 00:06:18,760 Speaker 1: the year from underweight to Overwait we have been underweighted 100 00:06:18,839 --> 00:06:23,000 Speaker 1: toil this for quite a while before that. Um. But 101 00:06:23,200 --> 00:06:26,840 Speaker 1: to me, Um, you know people have been last year 102 00:06:26,880 --> 00:06:30,120 Speaker 1: actively shorten utilities because the view was fair is going 103 00:06:30,160 --> 00:06:32,200 Speaker 1: to be hiking once a quarter and now we are 104 00:06:32,240 --> 00:06:35,280 Speaker 1: having escape velocity. Uh. To me, I don't know if 105 00:06:35,279 --> 00:06:38,000 Speaker 1: you go across the board into defenses because some of 106 00:06:38,080 --> 00:06:42,360 Speaker 1: the defenses as said before our price we already had 107 00:06:42,400 --> 00:06:47,000 Speaker 1: a huge rerating of growth and quality. But where I 108 00:06:47,000 --> 00:06:51,040 Speaker 1: think definitely you should not be is in the operating 109 00:06:51,120 --> 00:06:57,040 Speaker 1: leverage and the activity sensitive areas. Take consumer et cetera. 110 00:06:57,360 --> 00:06:59,880 Speaker 1: Before we let you go. You have a beautiful segment 111 00:07:00,200 --> 00:07:03,520 Speaker 1: and something we've talked a lot about folks. William Freest 112 00:07:03,520 --> 00:07:06,800 Speaker 1: has been our key guest on this free cash flow yield? 113 00:07:07,160 --> 00:07:09,960 Speaker 1: What is free cash flow yield and why is it 114 00:07:10,040 --> 00:07:16,400 Speaker 1: winning now? So to me Um, in the world of 115 00:07:17,160 --> 00:07:20,840 Speaker 1: of basically no growth and in the wolver central banks 116 00:07:20,840 --> 00:07:23,640 Speaker 1: are going to be more and more aggressive, and you 117 00:07:23,640 --> 00:07:26,280 Speaker 1: see what's happening with ECB in Europe and with Bank 118 00:07:26,320 --> 00:07:29,240 Speaker 1: of Japan, Bank of Japan going to negative rates, ECB 119 00:07:29,800 --> 00:07:35,160 Speaker 1: now buying outright corporate that you are going to have 120 00:07:35,560 --> 00:07:39,960 Speaker 1: even more pushed into the search for yield. And the 121 00:07:40,000 --> 00:07:48,280 Speaker 1: stocks which which which can generate cash flow beyond you know, 122 00:07:48,320 --> 00:07:50,560 Speaker 1: having to pay all of that for the for the 123 00:07:50,600 --> 00:07:54,320 Speaker 1: copex so which are generating a free cash flow are 124 00:07:54,360 --> 00:07:57,680 Speaker 1: going to be looking more and more interesting because they 125 00:07:57,680 --> 00:07:59,600 Speaker 1: are going to be able to leverage up their balance 126 00:07:59,600 --> 00:08:04,360 Speaker 1: sheets further and um and and they're spreads will be 127 00:08:04,440 --> 00:08:07,600 Speaker 1: actually keep coming down even though they're leveraging up. So 128 00:08:07,720 --> 00:08:11,240 Speaker 1: to me, free cash flow as investment style, it has 129 00:08:11,280 --> 00:08:13,800 Speaker 1: been working for a while, but but this year it 130 00:08:13,600 --> 00:08:17,200 Speaker 1: is it is especially working UH in the US and 131 00:08:17,240 --> 00:08:20,880 Speaker 1: in Europe. I think that buybacks and reads a real 132 00:08:21,000 --> 00:08:23,360 Speaker 1: estate to those have to be the key corner stones 133 00:08:23,440 --> 00:08:25,960 Speaker 1: of your portfolio. Miss Love. Thank you so much, Miss Love, 134 00:08:26,040 --> 00:08:30,960 Speaker 1: and check out with JP Morgan Cousino in London. Mike, 135 00:08:31,280 --> 00:08:35,040 Speaker 1: you know, it's been a three great days of just thinking, 136 00:08:35,520 --> 00:08:38,760 Speaker 1: trying to get away from the hysteria of what I 137 00:08:38,800 --> 00:08:41,320 Speaker 1: saw over the weekend and in the last week on 138 00:08:42,400 --> 00:08:45,040 Speaker 1: UH the equity markets. I don't mean that in a 139 00:08:45,080 --> 00:08:47,600 Speaker 1: negative way, right or wrong. I don't have an opinion 140 00:08:48,080 --> 00:08:51,560 Speaker 1: seth masters today I thought was just brilliant on the 141 00:08:51,720 --> 00:08:55,000 Speaker 1: idea that there's so much gloom out there at least 142 00:08:55,000 --> 00:09:00,320 Speaker 1: short term. You wonder about by optimism in winter, I 143 00:09:00,360 --> 00:09:02,200 Speaker 1: mean the idea and we're off a hundred right now 144 00:09:02,640 --> 00:09:07,840 Speaker 1: after a big day yesterday. It's just it's fascinating. What's 145 00:09:07,920 --> 00:09:11,400 Speaker 1: may you know. It's also it's the Fed. I mean, 146 00:09:11,440 --> 00:09:14,400 Speaker 1: we got to get the June What matters to the 147 00:09:14,440 --> 00:09:18,720 Speaker 1: Fed for June. Uh, They're gonna look at the uneployment rate, 148 00:09:18,720 --> 00:09:22,600 Speaker 1: They're gonna look at at growth, and and they're going 149 00:09:22,640 --> 00:09:26,640 Speaker 1: to look at inflation. Um, they're probably not going to 150 00:09:26,679 --> 00:09:30,680 Speaker 1: look as much at the stock market. Interesting piece out 151 00:09:30,679 --> 00:09:34,800 Speaker 1: by a Dallas Fed researcher yesterday saying the the SMP 152 00:09:34,880 --> 00:09:38,640 Speaker 1: five hundred is an extremely poor predictor of macro economic 153 00:09:38,720 --> 00:09:42,880 Speaker 1: performance because it no longer reflects the US economy. More 154 00:09:42,920 --> 00:09:47,000 Speaker 1: than half of the stocks in the SNP five are manufacturing, 155 00:09:47,080 --> 00:09:50,680 Speaker 1: and the economy is two thirds services these days. I'll 156 00:09:50,679 --> 00:09:53,319 Speaker 1: go with that. And also the idea of the percentage 157 00:09:53,320 --> 00:09:57,920 Speaker 1: of SMP that's multinational, I mean, completely removed from any 158 00:09:57,960 --> 00:10:01,680 Speaker 1: service sector structure. It's the whole thing about the stock 159 00:10:01,720 --> 00:10:04,640 Speaker 1: market predicting. You know, nine of the last two recessions 160 00:10:04,880 --> 00:10:07,160 Speaker 1: chart of the day three M was again with seth 161 00:10:07,200 --> 00:10:10,760 Speaker 1: masters Um. You know they had a malaise there of 162 00:10:10,840 --> 00:10:13,559 Speaker 1: ten years and then it has been a moon shot 163 00:10:14,480 --> 00:10:18,760 Speaker 1: within this bullmarket Minnesota Mining, and I would point out 164 00:10:19,440 --> 00:10:21,520 Speaker 1: I believe I can get this up. Talk about US 165 00:10:21,600 --> 00:10:25,000 Speaker 1: of cash five year net growth fourteen point five percent 166 00:10:25,080 --> 00:10:28,920 Speaker 1: per year in dividend growth, that's amazing, fourteen point five 167 00:10:28,960 --> 00:10:32,480 Speaker 1: percent per year. We think all of our guests, particularly 168 00:10:32,480 --> 00:10:36,960 Speaker 1: Senator Hagel of Nebraska for his efforts he's working with 169 00:10:36,960 --> 00:10:41,160 Speaker 1: Pete Peterson on fiscal linkage of fiscal policy to our 170 00:10:41,280 --> 00:10:45,960 Speaker 1: national security. We think Senator Hagel uh particularly for his 171 00:10:46,040 --> 00:10:49,040 Speaker 1: appearance today. As I said, negative one under the dab 172 00:10:49,200 --> 00:10:52,520 Speaker 1: SP down eight points two thousand seventy six. The VIX 173 00:10:52,880 --> 00:10:55,480 Speaker 1: remarkable will be down a hundred, of the vics thirteen 174 00:10:56,040 --> 00:10:58,120 Speaker 1: point eight five. You think it would be higher. But 175 00:10:58,240 --> 00:11:02,800 Speaker 1: it has been a good right for equities. Michael McKee 176 00:11:02,840 --> 00:11:07,959 Speaker 1: and Tom Key. Tomorrow we will continue the discussion on economics, finance, investment, 177 00:11:08,280 --> 00:11:11,040 Speaker 1: and international relations. It's Bloomberg surveillance