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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee.

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Speaker 1: We bring you insight from the best in economics, finance,

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Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Were

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Speaker 1: advantage of Queen Victoria Street to have with us Andreas Odderman,

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Speaker 1: Alien's Global Investor's chief executive officer and David Harrow managing

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Speaker 1: a small pot of money at Harris Associates in Chicago

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Speaker 1: as well, and we bring forward the great debate of

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Speaker 1: the last twenty years active and passive investment. Andreas, let

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Speaker 1: me go to you first. Uh Ms Johnson over at

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Speaker 1: Fidelity and others have decided. I guess it's a price

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Speaker 1: war on E T F fees. Does this have critical mass?

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Speaker 1: Are we going to start seeing every shop offering out

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Speaker 1: Vanilla management at a vanilla zero fee. I don't know

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Speaker 1: about vanilla zero fee, but certainly, as you probably remember,

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Speaker 1: we we were very early in terms of launching UM

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Speaker 1: in the UK and also in the US in the

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Speaker 1: term in the context of folkrom fees, very low based

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Speaker 1: fee funds with a performance fee attached and that's something

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Speaker 1: we've been offering an institutional space for many, many years

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Speaker 1: and it's been very successfully taken up by our clients.

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Speaker 1: So you know, it's a it's a it's The reality

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Speaker 1: is that the price of beta in most data streams

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Speaker 1: has come down significantly with the advent of paths of ETFs,

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Speaker 1: and I think the response of active managers that want

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Speaker 1: to survive need to be to to to to acknowledge

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Speaker 1: that and and figure out what that means. And of

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Speaker 1: course it means that we need to earn I'll keep

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Speaker 1: by aligning ourselves with client interests, which is through performance fees. David,

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Speaker 1: how is this going to end up? We've been talking

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Speaker 1: about it for years. You've been a staunch defender of

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Speaker 1: value of buying bank stocks, etcetera. When shares her own sale,

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Speaker 1: you sound like Sir John Templeton at times here? How

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Speaker 1: is this going to end up? This this active and

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Speaker 1: passive debate, Where are we going to be in two

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Speaker 1: thousand twenty five? There will always be this debate, And

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Speaker 1: I think it's actually a strong passive sector is actually

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Speaker 1: a necessary and necessity for active investors because passive investing

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Speaker 1: implies that you're buying things because they're in an index,

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Speaker 1: and the more it goes up, the bigger space that

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Speaker 1: occupies in the indext you buy more. This what is

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Speaker 1: what I would call any efficient pricing of assets. And

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Speaker 1: as an active investor, we need an efficiency to exploit

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Speaker 1: to outperform over the medium and long term. It may

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Speaker 1: hurt us in the short term, but if we want

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Speaker 1: to perform in the medium and long term, we need

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Speaker 1: marketing efficiency. We need misspricing of assets, and if passive

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Speaker 1: investing causes more misspricing of assets, then that's good for us.

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Speaker 1: So the problem is that we keep shrinking and they

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Speaker 1: keep getting larger, which means the opportunity set for the

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Speaker 1: remaining active investors actually increases. So as long as you

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Speaker 1: have the staining power and the discipline to hang in there,

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Speaker 1: I think it will be good for active investors. But

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Speaker 1: you know, and and the relats have slices, the pie

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Speaker 1: between active and passive will keep moving, I imagine, maybe

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Speaker 1: still slowly towards passive. But for me, as an active investor,

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Speaker 1: I'm thankful every morning that there are passive investors out there. Andrew,

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Speaker 1: has it took me a little bit about outflows or

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Speaker 1: we can see more outflows in twenty nineteen. Is there

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Speaker 1: a correlation between volatility and the markets and people actually

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Speaker 1: deciding to get their money out? Not necessarily. I think

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Speaker 1: the outflows that we sold primarily in Q four across

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Speaker 1: the boards were caused by specific market events, and you know,

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Speaker 1: we don't anticipate that continuing in two thousand and nineteen,

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Speaker 1: now that the central banks globally have sort of take

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Speaker 1: in the you know, the foot of the brake a

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Speaker 1: little bit. So I think as the year progresses, and

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Speaker 1: Tom mentioned this earlier, the challenge of and investors with

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Speaker 1: really negative interest rates, they're gonna have to start taking

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Speaker 1: risk again in order to get those returns, and I

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Speaker 1: think that's going to favor a slow, steady return you know,

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Speaker 1: of of fun flows across the board, are you expecting

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Speaker 1: more vlativity in the markets? I know the fourth quarter

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Speaker 1: was a bit rough. What happens for the rest of

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Speaker 1: the year. I mean, the fourth quarter of was extremely strange,

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Speaker 1: and not just because of the price movement, but the outflows.

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Speaker 1: And I would say this location in prices, prices that

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Speaker 1: were completely divorced from reality. Now, of course it will

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Speaker 1: come back at some point, who knows one, But again,

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Speaker 1: even though it's painful as you go through it, it's

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Speaker 1: actually good for an active investor because it enables you.

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Speaker 1: It's basically the raw material which you could position your

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Speaker 1: portfolios when you see emotional trading and price movement that

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Speaker 1: is not reflective of reality. Andrea, I think I'm back,

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Speaker 1: and I'm just brilliant on the mergers and on the

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Speaker 1: combinations that we've seen in asset management. Does that just

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Speaker 1: extend this year as we go into second, third and

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Speaker 1: fourth quarter? Strategic planning is a mating of the industry

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Speaker 1: are going to continue. I think it will continue, and

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Speaker 1: I think it will accelerate. We've seen a world of pain,

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Speaker 1: as I've mentioned before, in terms of in terms of

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Speaker 1: you know, the stresses that many traditional asset managers are

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Speaker 1: facing with their hybrid models. Are quite sure do I

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Speaker 1: focus on a technology lead model? Do I focus on

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Speaker 1: the distribution lead model? Do I do I go active

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Speaker 1: or passive? Um? I think. I think a lot of

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Speaker 1: owners of asset managers are going to have a second

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Speaker 1: look at at their businesses and decide they needed to

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Speaker 1: either sell it or or merge it away. And I

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Speaker 1: think it's going to accelerate in two thousand and nineteen.

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Speaker 1: Just allow me one further comment on the active passive

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Speaker 1: debate that we just had. It just made me sometimes

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Speaker 1: that the passive active debate is some focused on security selection.

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Speaker 1: As we all know, and I'm sure David would agree

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Speaker 1: with that. Many of our clients have concerns beyond that.

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Speaker 1: You know, they want to know when to buy a

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Speaker 1: particular currency exposure, when to hedget. They want to know

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Speaker 1: when to get market exposure or reduce market exposure. They

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Speaker 1: want to know which asset classes to invest in or

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Speaker 1: which regions. Now you can't do that in a passive manner.

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Speaker 1: All of these are active considerations. So I think the

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Speaker 1: active passive debate is unfortunately too focused on security selection,

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Speaker 1: where it's clearly an issue. It's also an issue of pricing.

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Speaker 1: But there's much more to the asset management industry than

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Speaker 1: than just security selection. Do you want to respond to that?

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Speaker 1: I mean it it is. I guess we do focus

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Speaker 1: on kind of on you know, equity analysis, but it

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Speaker 1: is much bigger than that. I mean, it is much

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Speaker 1: bigger than that. Especially if you're retirement plan, you have

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Speaker 1: to have a diversified plan. You have to have assets

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Speaker 1: that can deliver return to fund your liabilities, and so

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Speaker 1: you have to look at it from my perspective. I'm

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Speaker 1: just providing a service to that person who wants, you know,

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Speaker 1: an active value oriented global investor. That's my job. But

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Speaker 1: if I was running a big pool of money, I

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Speaker 1: certainly would take some of me, take some of them,

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Speaker 1: take some of them. You have to be diversified, and

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Speaker 1: you have to protect your ability to fund liabilities first

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Speaker 1: and foremost. All right, thank you both. David Harrod there

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Speaker 1: of Hairs Associates where he's the chief investment officer and

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Speaker 1: injurious Utterman Alliance Global Investors CEO. Right now with us

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Speaker 1: on the political battle. Philippe RNAs who worked with Secretary

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Speaker 1: Clinton and uh was boisterous during the Clinton campaign, where

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Speaker 1: others maybe Finessenal. He was one of the great defenders

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Speaker 1: of Secretary Clinton against this, that and the other thing.

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Speaker 1: Do you expect the same boys this time, Philippe? Are

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Speaker 1: we going to have a hugely verbal and physical campaign

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Speaker 1: or could it even be worse than two thousand six

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Speaker 1: um in the primaries? I you know, I think boisterous

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Speaker 1: is a is not such a terrible thing. We want

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Speaker 1: a lively debate. I think as long there's there's no

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Speaker 1: you know, violence, that's what the primaries are for. And

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Speaker 1: whoever it will be stronger. Well, what's interesting about this

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Speaker 1: a cage match this year? Given how many there are? Yeah,

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Speaker 1: well I'll go with that. But what's fascinating to me

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Speaker 1: as you had the sort of the Clinton era and

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Speaker 1: the Obama era, and I tell those younger that I

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Speaker 1: remember a Democratic party that was normally more fractious across

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Speaker 1: a wide span of history than the Republicans. Do you

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Speaker 1: agree with that? I think so? I think, Um, I do.

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Speaker 1: I think the Republican Party historically has probably been a

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Speaker 1: little bit more monolithic, especially when they were mostly concerned

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Speaker 1: with social issues, whether it was pro life or uh,

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Speaker 1: anti gun control. I think that shifted a little bit

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Speaker 1: as it's become less about social values more about economics. Um.

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Speaker 1: And I think you can see the split within the

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Speaker 1: Republican Party personally. I think the Republican Party at the

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Speaker 1: dead party walk given what has happened since two thousand

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Speaker 1: and ten and particularly well, this is important and let's

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Speaker 1: look at that from you as a democratic perspective. The

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Speaker 1: Republican Party of two thousand twenty or two thousand eighteen

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Speaker 1: in reality how different is it from two thousand and ten.

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Speaker 1: I would suggest it is substantially different in makeup, particularly

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Speaker 1: on Capitol Hill, than it was only six years ago.

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Speaker 1: You're right, it's um, you know, it's a shell of

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Speaker 1: its former self. And I don't know if that's better

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Speaker 1: or worse. But I don't think that they themselves, they

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Speaker 1: being at least the establishment Republicans and the leaders, like

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Speaker 1: you said in Congress, I don't think they've confut grips

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Speaker 1: with that, and I don't think they know where it goes.

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Speaker 1: I think there's a definitely sizeable bunch of them that's

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Speaker 1: delusional and think they just have to ride out the

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Speaker 1: Trump era and things will revert back. That doesn't seem likely. Um,

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Speaker 1: you know, it's the two party system was interesting in twenties. Sixteen,

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Speaker 1: Hillary Clinton ran against someone who had previously been you know, independent,

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Speaker 1: self described socialists, and Donald Trump had switched parties seven times.

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Speaker 1: I mean, you know, you've had presidents who have shifted parties,

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Speaker 1: like even Ronald Great, but not seven times. And he's

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Speaker 1: done it not just Republican Democrat, he's done a reform

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Speaker 1: party independent. So you know, I think twenty years from now,

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Speaker 1: we might be having a conversation where this was a

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Speaker 1: moment in time that the Republican Party certain fractured and

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Speaker 1: maybe the two party system. What about the Democrats? Fully,

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Speaker 1: because there are many people it might think that party

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Speaker 1: is fractured as well and might essentially break two. I

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Speaker 1: don't think so. I mean, I know there's uh, you know,

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Speaker 1: there's an appealing narrative that we like to fight. I

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Speaker 1: think we're kind of the family that uh on Thanksgiving

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Speaker 1: sort of does go at each other, but then hug

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Speaker 1: it out and it's a healthy debate. I think, particularly

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Speaker 1: this year, the Democratic Party will end up incredibly unified

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Speaker 1: with the one goal, which is to now Donald Trump.

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Speaker 1: And I think we saw it last year where even

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Speaker 1: though many of the policy debates we're going on, we

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Speaker 1: took over the House. Well that's the goal. What's the message?

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Speaker 1: Because the policy debate in the midterms was quite a

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Speaker 1: centrist message. The policy debates so far from the Democrats

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Speaker 1: is way out on the left, Philly. Do you expect

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Speaker 1: that to come in and why? I you know, I

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Speaker 1: really don't know. I I think, Um, again, I think

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Speaker 1: the debate is good. I mean, we're starting from a

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Speaker 1: point where you believe everyone should have health care. If

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Speaker 1: you're debating whether or not that's Medicare for all, some

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Speaker 1: version of Obamacare, that's really not plously important. But we're

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Speaker 1: going to end up in the right places. And it's

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Speaker 1: the disparity and the distinction between those beliefs and the

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Speaker 1: Republican Party that people are going to rally around. Um.

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Speaker 1: Phil Philippe rains with us as we talk about politics.

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Speaker 1: You represented Secretary Clinton at the State Department and worked

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Speaker 1: on her campaign as well, Philippe, the Democrats in the middle,

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Speaker 1: did they just wait out this burst of democratic socialism

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Speaker 1: or socialism or whatever you want to call it. Do

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Speaker 1: they wait it out or do they rebut it? In

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Speaker 1: terms of the candidates or canidates. In terms of the candidates,

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Speaker 1: there really might not be a lane to be honest. Um.

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Speaker 1: And i'mm M sure if I'm a lot to say it,

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Speaker 1: but someone like Mayor Bloomberg, who I personally love and

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Speaker 1: voted for as a New Yorker multiple times, it's he's

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Speaker 1: someone who I personally agree with more than most and

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Speaker 1: it's hard to have that kind of message right now.

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Speaker 1: But that's not so different. I mean, typically you have

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Speaker 1: it on both parties where the primary voters are the

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Speaker 1: most energetic in the Democratic Party. Whether it's particularly twoight,

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Speaker 1: it's a very very left excited party. In two thousand

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Speaker 1: and seven and eight, it was Iraq and now it's

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Speaker 1: a variety of things that obviously getting rid of Trump

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Speaker 1: is not just, you know, the only policy, but you

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Speaker 1: have to do that to enact these policies. I don't know,

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Speaker 1: it's it's hard to see. Um. I don't know how

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Speaker 1: much you can veer from the left, from the hard left,

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Speaker 1: but that's not socialism. I mean not to dance on

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Speaker 1: the head of a pin um, but I think there's

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Speaker 1: a difference between general purity tests on every issue. And also, look,

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Speaker 1: it has a secondary effect. You know, Bernie Sanders jumped

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Speaker 1: in yesterday. Reality had tremendous energy in he had an

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Speaker 1: eye popping overnight fundraising. But in it was a binary

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Speaker 1: choice if you want to call Hiller Clinton the centrist

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Speaker 1: or matter. If you didn't like her, you want to Bernie.

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Speaker 1: If you didn't like the Burnie, you went to Hillary.

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Speaker 1: Now you know, if you listen to the Bernie campaign

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Speaker 1: of the Bernie supporters, they are very proud and to

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Speaker 1: pull the party to where they are There's a secondary

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Speaker 1: effect to that in that you don't have to choose

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Speaker 1: Bernie to get those policies. So you have three or

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Speaker 1: four people you can choose that app and still debate

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Speaker 1: between personalities. I mean, it's you've got to play where

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Speaker 1: there are three understudies in every lane, which is good,

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Speaker 1: but it doesn't mean anyone owns the lane. Yeah, we're

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Speaker 1: gonna have to leave it there. Phlipe Brain is thank

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Speaker 1: you so much, greatly, greatly appreciated formally working with Secretary Clinton,

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Speaker 1: And as he mentions Mayor Bloomberg, we should mention that

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Speaker 1: Michael Bloomberg is a principal owner of Bloomberg LP and

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Speaker 1: of course Bloomberg Television and Radio. This is if you're

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Speaker 1: on Global Wall Stands, the conversation it is, this is

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Speaker 1: the interview of the day because this is about this

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Speaker 1: is gonna push aside all of the bologna, the bs

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Speaker 1: about about the hedge fund business. At Credit Suitees, they

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Speaker 1: have a jewel. His name is Mark Connor's Global head

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Speaker 1: of Portfolio and Risk Advisory, which is a fancy name

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Speaker 1: for he writes the smartest letter on hedge funds in

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Speaker 1: the business as well. Wonderful day have you here, we

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Speaker 1: get a huge response when you're on is the concept

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Speaker 1: of two and twenty two percent fee? And what's left

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Speaker 1: over is that concept dead for hedge funds. It's it's

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Speaker 1: it is uh, it's gone away for a fair amount

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Speaker 1: of hedge funds. So there's something that we wrote called

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Speaker 1: the vital few. So there's some folks who can still

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Speaker 1: do it, and maybe their margins are even higher than that.

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Speaker 1: So what's happened is we talked about distributions and you know,

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Speaker 1: I know there's a that jingle word you have you

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Speaker 1: We can't do fancy words on the can on the

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Speaker 1: program once awhile where a bell rings. The jargon the

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Speaker 1: Peretto principle very cool. So people are there's a segmentation

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Speaker 1: where as markets have gotten harder, there are only a

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Speaker 1: few who are making that money and they're doing it.

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Speaker 1: John's got like eight questions. Let me get one more

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Speaker 1: in Here is most of the agony and hedge funds

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Speaker 1: because they're less diversified. Um, I think no. The agony

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Speaker 1: was that there was no alpha um for many people

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Speaker 1: because there's less liquidity and there's what we call untradeable volatility.

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Speaker 1: So people love all they say, where's the vaal, where's

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Speaker 1: that dispersion where there's movement in the market that we

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Speaker 1: can proust you from that we can write monetize Where

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Speaker 1: is it? And what happens is it comes in moments

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Speaker 1: like the swissy Euro, It comes in moments like June eighth,

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Speaker 1: trade talks, and it comes in moments like fed October three,

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Speaker 1: and they can't trade it and all they do is

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Speaker 1: take a mark and there's no liquidity. So they wake

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Speaker 1: up with the two percent gain and then they go

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Speaker 1: to bed with a two percent loss. That's hard. We

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Speaker 1: de risk aggressively in December, trying to try to much

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Speaker 1: we have re risked through the new year from the

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Speaker 1: people you speed to, from the numbers, you see any

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Speaker 1: evidence that we have no So this is this is

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Speaker 1: in our ten years of data, we've never seen a

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Speaker 1: run in the market where the hedge funds have not participated.

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Speaker 1: This is the biggest gap between a when is it

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Speaker 1: a move off the bottom of you know, Christmas Eve

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Speaker 1: bottom and hedge funds are still lying in wait. We

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Speaker 1: are thirty one. I did the math today. We're round

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Speaker 1: trip from the first week of December down and back up. Basically,

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Speaker 1: it's a huge move. So what's holding them back? Um?

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Speaker 1: In speaking to them, they're not really showing their cards

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Speaker 1: to be honest about why. Um. What they're doing is

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Speaker 1: they're renting the market. So hedgephones play with two things.

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Speaker 1: They play with a gross exposure longs and shorts called

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Speaker 1: the footprint, and they make money on both sides. That's

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Speaker 1: their game. Or they can do it with their net

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Speaker 1: that tilts, so their net long and they're renting. They

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Speaker 1: are a low small footprint, but they're covering shorts like

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Speaker 1: you see the semis run and they're getting longer, smaller amounts.

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Speaker 1: So there as we say renting, they're not convicted that

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Speaker 1: this has duration. Does this explains some of the tension

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Speaker 1: we see between the self in debt market, which it

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Speaker 1: has treasury ye, it's rolling go investors clamoring for duration

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Speaker 1: because they don't believe in the global growth story. The

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Speaker 1: tension between that and what we see on risk assets.

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Speaker 1: Does this explain some of that? The sentiment really hasn't

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Speaker 1: recovered yet, and it almost is too tight a narrative

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Speaker 1: to to believe because it fits so well. It's like

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Speaker 1: yields have set the highs and they're coming in because

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Speaker 1: there's a defensive posture. People are not constructive on global

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Speaker 1: growth right now. I want to go back to diversification

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Speaker 1: because you know, you know, we have these major head funds,

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Speaker 1: you know, like six guys get all the ink. I mean,

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Speaker 1: that's basically the way it isn't as you know everything

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Speaker 1: else out there. Is it an underdiversified asset class. Does

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Speaker 1: that mean that every three years, whatever hedge fund you own,

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Speaker 1: you're gonna blow up? By definition? So I would I

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Speaker 1: would say that there's some people who really have a

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Speaker 1: structural advantage there. They're faster there, they have a tight team,

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Speaker 1: they have a through and through model where they can

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Speaker 1: move faster. I think that is the case. So structurally,

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Speaker 1: there's just a better teams out there. There's just that's

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Speaker 1: just a I mean, take a good friend of the

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Speaker 1: show and someone I did wonderful work with John Boglan,

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Speaker 1: Cliff Fastness and a QR. I mean, he's doing a

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Speaker 1: quant kind of thing, a factor based kind of thing,

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Speaker 1: and even he struggled last year with one of his funds.

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Speaker 1: It was a significant double digit loss for someone as

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Speaker 1: bright as Cliff Fastness. For Mark Connor's at Credit Sweeze

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Speaker 1: what does it signal when someone like Mr Aston stumbles

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Speaker 1: um So without speaking about specific clients, you understand you're

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Speaker 1: dead on that some factor investing quote didn't work. And

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Speaker 1: and what we saw, we we called it um um

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Speaker 1: a matter of trust. When things go wrong, you buy

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Speaker 1: sovereign bonds when things go wrong and buy gold. Well

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Speaker 1: in Q four, those things didn't work. There was something amiss,

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Speaker 1: so historical price patterns didn't happen. And back to your point,

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Speaker 1: John's about sovereign debt. We think that that parachute didn't

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Speaker 1: open for a reason. And where I think people are

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Speaker 1: still wondering why. MARCN has always great to catch oup

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Speaker 1: with you again and in the window into the into

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Speaker 1: the world of hedge funds, want to bring you some

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Speaker 1: breaking news just very quickly. At another exit at Tesla,

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Speaker 1: the stock is down by a little more than one

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Speaker 1: percent in the pre market, losing its general council two

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Speaker 1: months after hiring him. Tom the general council is leaving.

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Speaker 1: In a statement, he looks forward to returning to Washington

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Speaker 1: to continue his work with Tesla in an outside council

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Speaker 1: role as in the past. People familiar with the matter

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Speaker 1: said he found that Tesla wasn't the right cultural fit.

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Speaker 1: That's the actual language in the headline that story, just

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Speaker 1: dropping across them like you and me. We mean people

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Speaker 1: understand you and me. There's no the wrong cultural fit.

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Speaker 1: And then this is part of a wider story with

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Speaker 1: a series of high profile exits at the company. Don't

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Speaker 1: delve deep into the round of speculation. But it's the

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Speaker 1: optics of this that I think signals a little bit

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Speaker 1: of negativity. So the stock down by about one point

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Speaker 1: three five pc. I don't think it's necessarily dramatic, just

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Speaker 1: plays into a much wider story about Tesla's semically inability

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Speaker 1: to keep hold of some senior names after they've hired them.

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Speaker 1: So just a couple of months after hiring the general council,

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Speaker 1: he leaves Tom, I'm looking at the Barns and you

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Speaker 1: know you I watched the Barns, should say. This is

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Speaker 1: according to the to the Wall Street Journal. So this

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Speaker 1: is the Wall Street Journals reporting Headlin flow out there.

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Speaker 1: And again the UBS find in France earlier as well,

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Speaker 1: futures at negative three down, futures UH negative thirty three.

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Speaker 1: And again I'm watching that yield. Germany now solid under

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Speaker 1: point one zero point zero nine percent, John, and the

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Speaker 1: Germany tenure yield. I'm looking at it a Blackpletat market,

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Speaker 1: they continues to do well, the hangs staying overnight up

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Speaker 1: by one percent in China, equities a little bit firmly

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Speaker 1: in Japan too. In Europe they're okay stocks. The higher

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Speaker 1: futures here a little saggy. And you just wonder about that,

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Speaker 1: you you you wonder, uh, the way we recovered yesterday,

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Speaker 1: and as you said earlier, it's a grind higher as

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Speaker 1: we drift towards the Federal Reserve minutes to come out

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Speaker 1: at two pm Eastern, a huge Federal Reserve retreat in Ja.

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Speaker 1: And you reformalized in the statement communicated by the chairman

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Speaker 1: in the news conference. And we'll get the color in

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Speaker 1: the minutes a little bit la Mark Connor is the

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Speaker 1: credits were still with us. I mean as you say

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Speaker 1: that the hatch funds have not participated in this lift, right,

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Speaker 1: what will it take for them to participate? Um? I

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Speaker 1: I think that if when we get we we're through earnings,

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Speaker 1: as we start to get a little bit of a

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Speaker 1: window on how this this next quarter of earnings will happen,

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Speaker 1: I think you'll see engagement, so pre announcements, that's going

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Speaker 1: to be the next window. Mark Connors, thank you so much.

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Speaker 1: Thank you, don't be a stranger. I'd like to get

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Speaker 1: back to first principal investment work, and you can do

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Speaker 1: that with Kate Warren uh cf A with Edward Jones

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Speaker 1: at Research and importantly she's been there through a few cycles. Kate,

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Speaker 1: let us start with the GEA of the percentage of

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Speaker 1: people that really don't have a memory back past two

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Speaker 1: thousand seven? Is that overplayed? I mean, in the day

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Speaker 1: to day grind of Edward Jones to a lot of

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Speaker 1: people remember normal markets or is that just gone by

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Speaker 1: the wayside? Well, I think it's a combination. That they

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Speaker 1: remember the two thousand and eight downturn and worry that

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Speaker 1: that will happen again, and they probably don't have much

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Speaker 1: of a memory normal markets before that, So I think

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Speaker 1: you're correct. But I do think that the solid, strong

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Speaker 1: rebound we've seen since the market strategory cover in two

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Speaker 1: thousand nine has, on the other side, made investors of

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Speaker 1: two minds where they're worried about a severe downturn, but

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Speaker 1: they also have very high expectations for returns, and that's

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Speaker 1: an interesting time that's right where I wanted to go,

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Speaker 1: and you've got the mathinists to do this. We talk

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Speaker 1: about a single digit world. What's the actually assumption of

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Speaker 1: our near retirees right now? My answer is it's it's

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Speaker 1: double digit or high single digit, and it ought to

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Speaker 1: be set lower. Am I right? You're absolutely correct, And

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Speaker 1: I think that's because everyone has what's referred to as

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Speaker 1: recency buy. It's or more precisely, if the returns have

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Speaker 1: been double digit over the last few years, then people

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Speaker 1: tend to expect that they will continue highlight that. Now,

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Speaker 1: obviously last year with your decline, but you still go

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Speaker 1: back in your average over the last few years, and

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Speaker 1: the returns are higher than they're likely to be over

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Speaker 1: the next few years. As we get back into an

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Speaker 1: environment where we're more likely to see cycles, and we're

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Speaker 1: interest rates are a bit higher, and some of the

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Speaker 1: things that have helped to propel markets, uh who rise

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Speaker 1: over the last few years aren't quite as strong. So okay,

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Speaker 1: one of the characteristics of the recent markets has been volatility,

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Speaker 1: just you know, getting whips on in December and then

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Speaker 1: rallying back here in early twenty nineteen. What do you

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Speaker 1: think is driving this volatility and is this something that

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Speaker 1: investors just have to get used to. Yes, I think

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Speaker 1: this is sort of a return to more normal volatility.

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Speaker 1: So with Tom's question about investors, remember, no, we also

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Speaker 1: had some very low volatility years, and I think investors

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Speaker 1: sort of forgot how volatile normal markets are. So in

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Speaker 1: answer to your question, yes, I think investors have to

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Speaker 1: get used to more normal volatility. I think we're still

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Speaker 1: in the bull market, but as you get later in

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Speaker 1: the bull market cycle, with rising interest rates and a

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Speaker 1: little less in the way of tail winds, I think

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Speaker 1: we'll see more volatility ahead. At the same time, though

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Speaker 1: the fundamentals are still positive. We've got modest economic growth

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Speaker 1: and modest earnings growth, and the rest of the world

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Speaker 1: actually looks more attractive than the US right now, So

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Speaker 1: I think investors really need to be looking for the

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Speaker 1: opportunities rather than worrying so much about the higher volatility.

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Speaker 1: So that leads me to the next question, the obvious questions,

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Speaker 1: where do you see opportunities in the market these days

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Speaker 1: given a volatilty? Well, right now, we still think U

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Speaker 1: S docs to have more room to rebound. The pullback

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Speaker 1: in December probably gave the bull market more fuel because

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Speaker 1: a lowered valuation and right now presenting stratio and the

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Speaker 1: SMP five hundred is really near it's five year average,

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Speaker 1: So that says stocks aren't as expensive as they were

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Speaker 1: back last fall. But we actually think the opportunities are

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Speaker 1: more outside the US, and the reason is investors have

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Speaker 1: become so hessimistic about growth in the rest of the world.

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Speaker 1: With China providing more stimulus, with Europe looking like it

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Speaker 1: may stabilize, the valuations are more attractive, and we actually

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Speaker 1: think that's the place to be putting money right now

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Speaker 1: to add and improve the diversification of a domestic portfolio.

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Speaker 1: What about emerging markets? Interview after interview the EBB and

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Speaker 1: the flow the challenges of international in two thousand eighteen

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Speaker 1: Octo Weell February of last year. October of last year,

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Speaker 1: December of last year. Do you have the courage to

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Speaker 1: say to somebody at the kitchen table across all of America,

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Speaker 1: e M is the place to be. Well, I wouldn't

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Speaker 1: quite say e UM as the place to be, but

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Speaker 1: I would say Tom that if you're an investor who

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Speaker 1: owns to US DOC, some US fonds and some developed market,

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Speaker 1: you want to be adding emerging markets, and the reason

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Speaker 1: is that, again the pessimism is high related to emergence.

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Speaker 1: With China stabilizing its economy, we do think they have

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Speaker 1: the tools to do that. That's a positive for emerging markets.

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Speaker 1: And in addition, many other countries are also taking stimulative policies.

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Speaker 1: So when you think about it, we've all heard that,

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Speaker 1: you know, basically the Federal Reserve is key to the

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Speaker 1: outlook for this year. In the US, that's true, and

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Speaker 1: the rest of the world we just don't pay quite

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Speaker 1: as much attention to what central thanks you're doing there,

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Speaker 1: And if the dollar doesn't continue to strengthen, that's actually

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Speaker 1: a positive for investments in emerging markets. Very good, Kate Warren,

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Speaker 1: thank you so much. Of every Jones greatly appreciated. Thanks

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Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

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Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

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Speaker 1: you prefer. I'm on Twitter at Tom Keene before the podcast.

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Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio