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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot com, the radio plus mobile last and on your radio,

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Speaker 1: this is a Bloomberg Business flash and I'm Karen Moscow.

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Speaker 1: US stock Indix futures are rising after the SMP five

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Speaker 1: hundred reached a four a month high yesterday. This is

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Speaker 1: investors assess company earnings releases and data showing the labor

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Speaker 1: market is improving while there's a little pick up and inflation.

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Speaker 1: Who check the markets every fifteen minutes throughout the trading day.

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Speaker 1: On Bloomberg, the SMP even A future is up two

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Speaker 1: and a half points, Dowie Mini futures up twenty seven,

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Speaker 1: and NAS DOCUMENTI futures up to that acts in Germany's

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Speaker 1: up seven tenths percent ten Your treasury down seven thirty seconds,

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Speaker 1: the yield one point seven nine percent yield on a

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Speaker 1: two year point seven six percent nom X. Scrude oil

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Speaker 1: a half percent or twenty two cents to forty one

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Speaker 1: ninety of arrel comes Gold is down nine tenths percent

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Speaker 1: or eleven dollars thirty cents to twelve thirty seven twenty announced.

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Speaker 1: The euro at allar twelve seventy seven. The yen one

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Speaker 1: oh nine point one six and that's a Bloomberg visit

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Speaker 1: a s flash. Tom and Mike Karen Moscow, thank you

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Speaker 1: very much. Well, lot going on in the world today.

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Speaker 1: But here's the story Tom that is going to be

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Speaker 1: the number one discussion item on trading floors today. The

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Speaker 1: Tennessee Titans have agreed to trade the number one pick

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Speaker 1: in the National Football League Draft to the Los Angeles Rams. Exchange,

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Speaker 1: the Rams give up to Tennessee the number they the

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Speaker 1: Actually the Rams get the number one pick along with

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Speaker 1: fourth and sixth round picks. Tennessee gets Los Angeles first

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Speaker 1: round pick at number fifteen and two second round picks

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Speaker 1: in a third round pick. They also get the Rams

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Speaker 1: first and third round picks in two thousand seventeen. It's

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Speaker 1: important for these football teams because the Rams need a

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Speaker 1: quarterback and they are moving to Los Angeles. They need

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Speaker 1: a headliner. Picking number one they should be able to

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Speaker 1: get when they could actually get Jared Goff from the

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Speaker 1: University of California. But it's a big deal for you.

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Speaker 1: If you have a fantasy football team, and everybody on

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Speaker 1: training force has a fantasy football team with you, I'm

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Speaker 1: so cool. Big big story in football the Titans trade

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Speaker 1: the number one pick in the draft to the Rams

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Speaker 1: for two number ones and a two seconds and a

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Speaker 1: third round pick. That's a huge, huge haul, very cool.

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Speaker 1: I did not know that. Jack ruse over this with

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Speaker 1: Edward D. Jones for years covering boring foodstocks, which sometimes

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Speaker 1: gets so boring. Jack, even you wrung your hands. Campbell's

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Speaker 1: Soup is an example of a stock that is a cliche,

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Speaker 1: went nowhere forever you live that and then all of

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Speaker 1: a sudden it's a moon shot. And the mystery to clients,

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Speaker 1: to our listeners is their revenue growth is two percent

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Speaker 1: one negative three percent. Their e but dot growth is

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Speaker 1: actually pretty good. Putting on cash, they spent three hundred

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Speaker 1: four a million a year on capex. How did the

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Speaker 1: stock become a moonshot if the if the product, in

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Speaker 1: the performance of management was so mediocre. What he happened

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Speaker 1: with Campbell's soup. But that's a great question, and again

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Speaker 1: you could probably my answer. You could probably give that

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Speaker 1: for a lot of other stocks in the consumer staples space.

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Speaker 1: We're not seeing a lot of sales growth right now.

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Speaker 1: But what these companies have done, and you've got to

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Speaker 1: give them some credit for this, as they cut costs

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Speaker 1: pretty aggressively, and they're getting the benefit from lower input

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Speaker 1: or commodity costs as grains costs or down, and a

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Speaker 1: lot of costs that make their products are lower than

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Speaker 1: they were a couple of years ago. But to your point,

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Speaker 1: given the valuations of where these companies are right, you'd

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Speaker 1: like to see them. I mean, in the old days,

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Speaker 1: and I'm doing this for a long time, you only

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Speaker 1: gave premium valuations of companies that grew sales and earings.

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Speaker 1: Now it almost seems like investors want to own consumer

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Speaker 1: staples so bad that they don't even care are growing

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Speaker 1: sales as long as they're growing early. And I understand that,

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Speaker 1: but at some point, you know, how much more can

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Speaker 1: you really materially cut cost? And then at some point

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Speaker 1: the commodity cost tailwind as we've seen over time, could

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Speaker 1: become ahead to monitor how this how this developers? Denise

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Speaker 1: Morrison comes out of Boston College. She has a great career.

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Speaker 1: She goes up the Campbell soup food change. She eats

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Speaker 1: tomato soup four times a week. I get that the

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Speaker 1: fear of all of us is those dog stocks for

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Speaker 1: decades will go back to being dogs, or is this

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Speaker 1: the key question for Jack Russo, is this a secular

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Speaker 1: forever change in boring blue chips? I think what will happen?

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Speaker 1: I'll give you the the answer that's probably in between

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Speaker 1: the two answers that you gave. I think what we

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Speaker 1: could see is that instead of these stocks going much

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Speaker 1: higher from here going much lower from here, they could

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Speaker 1: go signways from here for a while. They might there.

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Speaker 1: Their team multiples for a lot of these consumer stables

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Speaker 1: names are pretty high, and we might have to see

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Speaker 1: a period where earnings kind of have to grow into

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Speaker 1: the multiple um now unless they can start growing sales

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Speaker 1: and and start boosting the top one and perhaps you know,

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Speaker 1: the group has more uh you know, rim to run upward.

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Speaker 1: But I think we could see as a group kind

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Speaker 1: of trade sideways here for a while, just given how

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Speaker 1: much they've they've come in a short manner of time. Uh.

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Speaker 1: Michael mckethe full surveillance disclosure. I'm basically addicted the Camels

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Speaker 1: tomato juice, just so everybody knows that. And I mean

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Speaker 1: I tried like eight of them, including the the over

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Speaker 1: priced ones with almond milk in them or whatever, gluten

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Speaker 1: free this, and I just keep going back to campus.

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Speaker 1: You're hoping that they falter so the price goes down.

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Speaker 1: And yeah, uh. You also cover the soft drink space

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Speaker 1: with Pepsi and Coke. And these are um iconic brands

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Speaker 1: that any of themselves are good, but people just don't

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Speaker 1: seem to want to drink as much of that stuff

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Speaker 1: anymore health reasons, I guess, So how do they make

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Speaker 1: money going forward? You know, how much confidence can you

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Speaker 1: have in them? Right? Well, that's a that's another good question.

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Speaker 1: Now the two primary companies there, Pepsi and Coke. I mean,

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Speaker 1: Pepsi first is really half a food company with Frio

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Speaker 1: l A and half a beverage company, so they're not

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Speaker 1: nearly as exposed to And what you're referring to is

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Speaker 1: a decline in carbonated soft drinks. Um, we're seeing plenty

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Speaker 1: of growth and teas and juices and bottled waters and

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Speaker 1: sports drinks, you know that sort of thing. So luckily

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Speaker 1: both Coke and Pepsi have those products in their portfolio,

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Speaker 1: but they also have a lot of exposure to carbonated

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Speaker 1: soft drinks. I mean, diet sodas have declined even more

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Speaker 1: so than regular sodas. This is taking place more so

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Speaker 1: in North America, but even we're seeing it somewhere some

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Speaker 1: countries overseas. So it's important, like to be PEPSI to

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Speaker 1: have a portfolio where you have food in there too,

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Speaker 1: and snacks to kind of offset some of the weakness

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Speaker 1: we've seen in carbonated so offerings. Tell me about the

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Speaker 1: dividend growth we we we talked about that just very quickly.

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Speaker 1: Here are these nominal GDP dividend growers or can they

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Speaker 1: actually leverage up and do better? Well, I'd say most

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Speaker 1: of them right now are growing. They're dividend annually somewhere

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Speaker 1: in the five the seven percent on average, and that's

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Speaker 1: excluding you know, the impact from the from the strong dollar,

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Speaker 1: which has kind of held back those numbers. But in

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Speaker 1: normal times it's going to be somewhere from five to seven.

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Speaker 1: Have divid and heels around two and have three. Jack

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Speaker 1: Russo thrilled to have you on here is with Edward D. Jones.

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Speaker 1: There's an update, folks. Soon they'll all be trading at

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Speaker 1: thirty multiples that look like internet stocks. Uh, we're gonna

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Speaker 1: get the markets open. Bloomberg Surveillance. We're coming down to

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Speaker 1: the opening bell, brought to you by the Gee Grand Cherkeie,

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Speaker 1: the most awarded suv ever. The Grand Cherokee continues to

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Speaker 1: raise the bar and it's luxurious interior and legendary four

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Speaker 1: by four capability. Drive one at your local jeep dealer today.

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Speaker 1: This is Bloomberg surveillance. The regulatory rules over the last

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Speaker 1: five years had made it very difficult for any bank

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Speaker 1: to optimize their balance. The story as earnings will unfold

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Speaker 1: is everybody will tell you, well, the companies are doing

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Speaker 1: better than we thought they do every quarter. If you

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Speaker 1: get in oil prices into the fifty to fifty five

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Speaker 1: dollar range, you know we've got fifteen billion barrels of resource.

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Speaker 1: It's economic Bloomberg surveillance. You're linked to the world of economics, finance,

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Speaker 1: and investment. On Bloomberg Radio. Good morning everyone, Michael McKee

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Speaker 1: and Tom Keane Bloomberg Surveillance. We just heard from Dennis Lockhart,

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Speaker 1: wonderful interview with Kathleen Hayes on Atlanta GDP Now and

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Speaker 1: the rest of it. Seriously, an earthquake in the south

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Speaker 1: of Japan, forty nine miles from Nagasaki, Kumamoto and the

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Speaker 1: island of Kushia. That's the island off to the south

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Speaker 1: of big island off to the south. I should say

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Speaker 1: of Japan, I don't want to make too much of

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Speaker 1: its six point zero very different from the six point

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Speaker 1: nine and much worse we've seen in previous earthquakes of

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Speaker 1: ninety three and nineteen ninety five Bloomer surveillance. This morning

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Speaker 1: our FOREX Brief, brought you by Interactive Broker's winner of

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Speaker 1: f X Weeks two thousand fifteen award for the best

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Speaker 1: retail for its training platform visit ib and ib k

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Speaker 1: r dot com slash four x dollar churning stronger all

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Speaker 1: in all yen excuse me one euro one fourteen, one thirteen,

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Speaker 1: one twelve see seventy nine and euro yen five We

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Speaker 1: had a one twenty two handle on end earlier. Before

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Speaker 1: we get to our equity report Bank led by David Wilson,

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Speaker 1: we need you to weigh in on the only debate

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Speaker 1: that matters. It's not Dennis Lockhart at the FED, it's

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Speaker 1: not share yelling, it's not Mark Kearney. Did led Zeppelin

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Speaker 1: steal the opening chops of Stairway to Heaven from Randy

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Speaker 1: Californian Spirit? Well, if you listen to both, and this

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Speaker 1: is all about this instrumental that spirit it did called Tourists.

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Speaker 1: It's the focus of a lawsuit that's being heard right now.

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Speaker 1: If you go back and listen to that instrumental, you

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Speaker 1: can definitely hear the very beginning of like the first

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Speaker 1: line Stairway to Heaven uh in that song. Then again,

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Speaker 1: you know led Zeppelin's piece goes on from there, and

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Speaker 1: there's a lot happening that isn't in this song called Tourists.

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Speaker 1: So it will be interesting, you know, in terms of

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Speaker 1: you know, how much sort of lifting you know? Do

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Speaker 1: you have to acknowledge it was two years ago? So

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Speaker 1: I got a line on you. I got a line

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Speaker 1: on bank earnings. Help you with Bank of America right now? Well,

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Speaker 1: I'll tell you I'm gonna talk more broadly because you know,

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Speaker 1: we've had five financial companies in the standports report this morning.

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Speaker 1: All their shares are lower, big difference from yesterday when

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Speaker 1: JP Morgan's stass numbers came out and the bank stocks rally.

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Speaker 1: We'll start with Bank of America there, shares it down

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Speaker 1: half a percent. Earning is the second biggest US bank

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Speaker 1: trailer Analyst Average Estmate and Blue Works survey the profit

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Speaker 1: shortfall types would drop in trading and underwriting revenue and

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Speaker 1: an increase in energy related bad debt. No doubt will

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Speaker 1: be common themes this earning season. While as Fargo down

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Speaker 1: one percent, while the bank's first quarter earnings and revenue

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Speaker 1: being estimates, returns were lower than projections. Whileas Fargo said

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Speaker 1: aside more money to offset sour loans and also had

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Speaker 1: higher expenses. P and C Financial down two and a

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Speaker 1: half percent. The bank's first quarter adjusted earnings and revenue

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Speaker 1: trail projections PNC starting and drop in stock and bomb

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Speaker 1: related fees along with losses on energy loans. Black Rock

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Speaker 1: down one and a half percent. First quarter profit of

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Speaker 1: the world's largest money manager felt twenty percent, in part

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Speaker 1: because with charge taking the cut jobs. Black Rocks adjusted

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Speaker 1: earnings were below the Irish projection as market volatility hurt

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Speaker 1: revenue and the last of the five financial earnings Progressive,

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Speaker 1: down half a percent. The auto insurers first quarter earnings

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Speaker 1: trailed estimates even after pretaxt gains tolling seventeen point four

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Speaker 1: million dollars, and there was another earning shortfall actually revenue.

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Speaker 1: When it comes to Seagate Technology that this drive maker

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Speaker 1: was out late yesterday for fliminary results revenue and profit

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Speaker 1: margin for the fiscal third quarter failed to meet estimates.

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Speaker 1: Seagate said demand from many of its products felling expectedly,

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Speaker 1: that stock stands well in a half percent. Rival Western

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Speaker 1: Digital lower by five and a half percent. You want

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Speaker 1: good news on earnings, want look at Delta Airlines Carrie's

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Speaker 1: first quarter profit feed Analysts estimates savings from lower fuel

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Speaker 1: costs outweighed softer demand after the Brussels terror attack and

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Speaker 1: weakness and foreign currencies. And you're also seeing gains an

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Speaker 1: American Air, Southwest Air, and United Continent. David, thank you

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Speaker 1: so much. Um, if you have blue chip stocks, this

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Speaker 1: is without question the most important interview of the week.

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Speaker 1: Jack Russo has covered Colgate I think since the invention

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Speaker 1: of toothpaste. It goes back that far for years. And

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Speaker 1: a former colleague of mine a A. G. Edwards own

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Speaker 1: Edward Jones. He is the king of certain cash flow,

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Speaker 1: which Jack, I would suggest has been priced to perfection.

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Speaker 1: Is your world truly price to perfection? Going back twenty

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Speaker 1: thirty and forty years? Well, certainly, consumer stable stocks have

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Speaker 1: have been you know, very popular for investors in the

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Speaker 1: last couple of years. They're seen as a place that

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Speaker 1: is safe. Obviously, the dividend yields are very high, and

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Speaker 1: all investors are searching frank common yield. So I think

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Speaker 1: the combination of just nervous investors, um. I think the

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Speaker 1: dividends these companies provide really led to a big rod

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Speaker 1: investors into into consumer stables. And your right evaluations are

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Speaker 1: historically high. How do you respond to that? I mean,

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Speaker 1: if we go back to the nifty fifty Michael McKee

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Speaker 1: is too young to remember the nift Budweiser, Black and Decker,

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Speaker 1: Eli Lily, a company called Eastman Kodak, you may remember that, folks,

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Speaker 1: Jack Russo, the stee what is it twenty Now, when

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Speaker 1: you see a multiple of twenty two or twenty five

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Speaker 1: in this world, how does a grizzled pro like you

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Speaker 1: respond to that? Yeah, it has taken a little bit

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Speaker 1: of time to get used to that, quite honestly. And

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Speaker 1: really it's all relative because it's where this group is

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Speaker 1: really trading, you know, versus the S and P five

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Speaker 1: hundred and other groups. S and P five multiple seventeen

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Speaker 1: times right now, which is a little bit higher than

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Speaker 1: historical average, not a lot, but you know, I would say, again,

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Speaker 1: it's just ongoing love affair with these stocks, and it's

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Speaker 1: hard to predict when or if that's going to change it. Uh,

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Speaker 1: you certainly have to get participation from other sectors, like energy,

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Speaker 1: like industrials, um materials, you know, those financials. Those sectors

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Speaker 1: are gonna have to perform better if we're gonna see

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Speaker 1: evaluations pulled back and stables at this point, what does

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Speaker 1: it look like for that, I mean, is there a

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Speaker 1: way to read into what may happen? It's such an

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Speaker 1: uncertain time. Well, you're right, and if you look at

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Speaker 1: the rest of this year, the uncertainty may last. And

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Speaker 1: we've got an election year obviously taking place, so who

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Speaker 1: knows what's going to happen to the summer at the

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Speaker 1: Republican convention, You've got concerns about you know, what's going

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Speaker 1: to happen in Europe in terms of the Brexit, and

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Speaker 1: you've got emerging markets still there's uncertainty with China and

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Speaker 1: the growth there or lack of growth. Um. So you know,

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Speaker 1: you've got a lot of question marks and that's why

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Speaker 1: our best guess is that, uh, it's kind of safe

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Speaker 1: places to be, whether it's utilities, telecom, consumer staples, some

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Speaker 1: parts of healthcare that these areas probably will remain in

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Speaker 1: vogue for the rest of this year at least. I

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Speaker 1: would imagine that what you want to look for is

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Speaker 1: our companies in this sector who can get growth in

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Speaker 1: the United States since the rest of the world seems

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Speaker 1: to be um in a funk. Although most of the

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Speaker 1: companies that you cover have heavy exposure overseas well. It's

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Speaker 1: kind of it's a really interesting question you ask because

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Speaker 1: if you go back, you know, probably seven or eight

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Speaker 1: years ago, the the consumer stables companies that only had

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Speaker 1: business in North America or the US were kind of

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Speaker 1: the ones you've you've put to the side. You wanted

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Speaker 1: to invest in staples companies that had this great exposure overseas.

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Speaker 1: And then, as you pointed out, in the last year

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Speaker 1: or two, that's really changed where we've seen this, you

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Speaker 1: know again, money pouring into the companies now, investors wanting

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Speaker 1: to just own domestic only names. And now that's changed

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Speaker 1: a little bit in the last few months because the

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Speaker 1: dollar has weakened instead of gotten stronger. But who knows,

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Speaker 1: I mean that will depend a lot of all what

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Speaker 1: that said does and where rates go from here. But

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Speaker 1: it is interesting that dynamic. It's kind of changed a

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Speaker 1: little bit. I still think it's long term. It's you know,

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Speaker 1: preferable that you find staples companies that have exposure, you know,

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Speaker 1: in these markets where you're going to see a lot

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Speaker 1: of population growth and growth. Tenneco was the was the

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Speaker 1: poster trial for responsible use of balance sheet and the

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Speaker 1: cyclical movements of the market. If I pick on Colgate

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Speaker 1: again with nine point nine debt equity dirt cheap debt

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Speaker 1: money obviously with a rating their weighted cost the capital

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Speaker 1: has come in almost two hundred basis points over five years.

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Speaker 1: Money is cheap. How will they respond when the gift

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Speaker 1: goes away? Did they just did they retire debt? What

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Speaker 1: is the do for these blue chips when the party's

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Speaker 1: over and the punch bowls emptied? Well, I mean your

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Speaker 1: points are good ones, but remember that these companies sell

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Speaker 1: products that people use in good times. Are bad coal

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Speaker 1: gates one of those and uh and actually you know,

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Speaker 1: oral care consumption even an emerging markets the last couple

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Speaker 1: of years has been on the rise despite you know

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Speaker 1: a lot of economic problems in some of these countries

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Speaker 1: like Brazil um. So these companies I think can have

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Speaker 1: a little bit more debt on their bouncy just because

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Speaker 1: again the cash flows really predict a bowl. The sales

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Speaker 1: and earning streams are pretty predictable too, So I wouldn't

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Speaker 1: get too concerned about their debt levels. They can pay

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Speaker 1: that down very easily and again a very consistent and

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Speaker 1: sales and earnings stream for these companies. Okay, over there, Mike, Yes,

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Speaker 1: I thought you were following up. No I am. I Well,

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Speaker 1: Jack Russo, I can do that. I mean, yes you can. Jack.

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Speaker 1: You've got a seven percent dividend growth for Colgate. That's

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Speaker 1: two hundred beeps. The question for him to think about, Yeah,

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Speaker 1: we gotta come back. We're gonna come back with Jack

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Speaker 1: Russo and talk about the fact Tom Keen is a

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Speaker 1: yield hog. John Tucker is a yield hog. Michael McKee

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Speaker 1: is a yield that I'm polite about. Jack Russo goes

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Speaker 1: bass fishing at Edward D. Jones in his boat is

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Speaker 1: called yield hog. We'll come back, well, Jack Russo of

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Speaker 1: Edward D. Jones and look at the blue chips of

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Speaker 1: the consumer world. Of course, So we're gonna check out

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Speaker 1: with Michael r and get the latest world in national headlines. Mike, Tom,

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Speaker 1: thank you very much Tonight, Hillary Clinton and Bernie Sanders

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Speaker 1: will be debating for the first time and more than

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Speaker 1: a month. They will face off in Brooklyn ahead of

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Speaker 1: next Tuesday's New York primaries. Bloomberg Radio boat carry the

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Speaker 1: Democratic debate live starting at nine pm Wall Street Time.

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Speaker 1: A powerful earthquake with a preliminary magnitude of six point

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Speaker 1: four has struck Southern Japan. Authorities say there's no danger

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Speaker 1: of a tsunami. The US will start joint patrols with

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Speaker 1: the Philippines and the South China Sea. The US Defense

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Speaker 1: Secretary Ash Carter says the allies are seeking to stop

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Speaker 1: China's assertiveness in the busy shipping lane. The Golden State

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Speaker 1: Warriors have sent an NBA record winning seventy three games

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Speaker 1: in the season, and while that was going on, Kobe

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Speaker 1: Bryant scored sixty points in his farewell NBA game. Global

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Speaker 1: News twenty four hours a day, powered by our journalists.

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Speaker 1: I'm Michael Barr, Mike Top and Michael Thanks so much.

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Speaker 1: A little green on the screen, up to features up

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Speaker 1: to the Vix closing yesterday, A lofty and diminished The

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Speaker 1: Vix thirteen point eight four with Jack Russo of Everarde

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Speaker 1: Jones Bloomberg Surveillance Market drivers brought you by Mercedes Ben's

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