WEBVTT - Cybersecurity's a Race to Install Microsoft Patches, Coden Says 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg p m L Podcast. I'm Pim 0:00:08.400 --> 0:00:11.440 Fox along with my co host Lisa Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:31.880 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:31.880 --> 0:00:34.080 It's really interesting to hear about what the market response 0:00:34.120 --> 0:00:37.480 has been like too some of these UH malware attacks, 0:00:37.560 --> 0:00:39.400 and indeed we are going to take a closer look. 0:00:39.440 --> 0:00:42.040 It does look like governments and companies around the world 0:00:42.120 --> 0:00:45.599 are getting the upper hand against this wave of an 0:00:45.760 --> 0:00:49.000 unrivaled global cyber attack, but there still are some pretty 0:00:49.040 --> 0:00:52.440 important lessons to be learned up from this outbreak. To 0:00:52.800 --> 0:00:55.560 sort of understand what the implications are, let's bring in 0:00:55.600 --> 0:00:59.080 Michael Coden. He's head of the cybersecurity practice at BCG 0:00:59.320 --> 0:01:03.120 Platina that's part of the Boston Consulting Group. He's also 0:01:03.120 --> 0:01:07.199 associate director of the m I T I see cubed um. Michael, 0:01:07.200 --> 0:01:09.560 thank you so much for joining us. I want to 0:01:09.600 --> 0:01:13.520 just start with why this is happening now and are 0:01:13.520 --> 0:01:16.520 you surprised that an attack like this, which is considered 0:01:16.560 --> 0:01:25.039 to be the biggest one ever, hasn't happened sooner? Good question, Lisa, Um, 0:01:25.040 --> 0:01:30.960 it's I think it's happening now only because people were 0:01:31.040 --> 0:01:36.280 made aware of this latest vulnerability and the attackers see 0:01:36.280 --> 0:01:38.920 it's done on the opportunity knowing that a lot of 0:01:38.959 --> 0:01:41.800 systems have not been patched. They were made aware that 0:01:41.880 --> 0:01:44.360 they were made aware because of the hack into the 0:01:44.480 --> 0:01:48.480 US right into the release of the information of what 0:01:48.480 --> 0:01:53.760 what c IA was doing here. Um, it's possible that 0:01:53.880 --> 0:01:56.480 you could link those two, but not necessary because every 0:01:56.480 --> 0:02:00.840 time Microsoft issues new patches, those patches are the fact 0:02:00.880 --> 0:02:04.440 that the patches out there is exposing the vulnerability. So 0:02:04.800 --> 0:02:07.760 if you you know, the lesson here really for for 0:02:07.800 --> 0:02:10.880 companies is to install the patches as soon as possible 0:02:10.919 --> 0:02:16.160 after Microsoft issues them. Once Microsoft issues at patch, both you, 0:02:16.320 --> 0:02:19.519 the good guys and the bad guys know that there's 0:02:19.520 --> 0:02:21.920 a vulnerability, and it's it's a race. If you can 0:02:21.960 --> 0:02:24.760 patch your system before they can exploit it, that would 0:02:24.760 --> 0:02:29.400 be great. The statistics are not in our favor. Typically, 0:02:29.720 --> 0:02:34.760 once Microsoft issues a patch within seven days, there are malware. 0:02:35.639 --> 0:02:40.440 There's malware available to that that exploits that vulnerability. Typically, 0:02:41.160 --> 0:02:45.080 on the other side, we find that attackers are inside 0:02:45.600 --> 0:02:50.000 our clients systems for up to two days before they're detective. 0:02:50.840 --> 0:02:52.720 You know, I was. I'm sort of surprised because when 0:02:52.760 --> 0:02:55.359 I was looking at the way that this attack unfold 0:02:55.440 --> 0:02:58.880 it's sort of the classic don't open anything suspicious because 0:02:58.919 --> 0:03:02.520 that's how it starts, right correct. So, and then you're 0:03:02.600 --> 0:03:06.040 actually recommending that people do pay the ransom that they 0:03:06.040 --> 0:03:08.040 are forced to pay in order to get their files back, 0:03:08.080 --> 0:03:11.320 because that might be the cheapest way to recover some 0:03:11.400 --> 0:03:16.760 of their data. Correct. Correct. Um, if you don't have backups, um, 0:03:17.200 --> 0:03:21.040 and then you need your data, Uh, is not a 0:03:21.120 --> 0:03:24.160 lot of money. I hate to say it, because I 0:03:24.200 --> 0:03:27.800 don't endorse crime and I hate to reward the criminals. 0:03:28.320 --> 0:03:35.200 But you're you have you're in the conundrum. The lesson here, 0:03:35.280 --> 0:03:38.800 and that's front is make frequent backups of your data. 0:03:39.320 --> 0:03:44.400 Make sure that they're um isolated from your your main 0:03:44.480 --> 0:03:47.880 system so that you can go and easily retrievable so 0:03:47.960 --> 0:03:50.360 you can go and get them in in the event 0:03:50.440 --> 0:03:53.760 of the you know, the next ransomware attack that that 0:03:53.840 --> 0:03:57.040 you do get hit by. So, Michael, your clients, have 0:03:57.120 --> 0:04:00.400 they been materially increasing the amount of money that they're 0:04:00.400 --> 0:04:05.400 putting towards cybersecurity recently. And also do you expect them 0:04:05.400 --> 0:04:08.720 to only accelerate their expenditures in this front going forward. 0:04:10.000 --> 0:04:12.280 I can't talk about our clients, but I can talk 0:04:12.280 --> 0:04:16.880 about general industry trends. UH. The the spending on cybersecurity 0:04:16.960 --> 0:04:21.919 has been increasing substantially, UH, and we do expect to 0:04:21.960 --> 0:04:26.600 see that going forward. The key here is that boards 0:04:26.640 --> 0:04:31.719 of directors are now realizing that cybersecurity is a true 0:04:31.720 --> 0:04:34.480 business risk, and that's every much of risk is credit 0:04:34.560 --> 0:04:37.520 risk is to a bank, or the risk of a 0:04:37.600 --> 0:04:41.320 natural disaster is to a manufacturing facility or an office building, 0:04:41.760 --> 0:04:45.160 and they're beginning to deal with it as a true 0:04:45.160 --> 0:04:47.919 business risk. They've elevated it from oh, just something I 0:04:47.960 --> 0:04:50.680 t should take care of to something that we have 0:04:50.760 --> 0:04:53.880 to worry about as a as a corporation or an organization. 0:04:54.000 --> 0:04:57.400 Are most of them uh, perhaps not your clients, but 0:04:57.600 --> 0:04:59.919 the people that you talk to who might know something 0:05:00.120 --> 0:05:02.800 you can talk about. Do you think that people are 0:05:02.800 --> 0:05:06.800 looking for to to outsource their cybersecurity? Are they looking 0:05:06.839 --> 0:05:11.279 to beef up their in house protection. It's a mixture 0:05:11.360 --> 0:05:15.599 of the two. UM Many or Most organizations would like 0:05:15.640 --> 0:05:18.640 to beef up internally, but that gets expensive and there 0:05:18.680 --> 0:05:21.479 is a huge shortage in the labor force. There's probably 0:05:21.520 --> 0:05:25.919 a million vacant cybersecurity jobs right now. UH. So we 0:05:26.000 --> 0:05:32.359 see a very healthy mixture of UH companies hiring UH 0:05:32.400 --> 0:05:36.960 and training and UH and and then outsourcing those things 0:05:37.000 --> 0:05:42.120 for which they need special expertise. The real key that 0:05:42.200 --> 0:05:46.560 we see is the training. UM. Your your first line 0:05:46.560 --> 0:05:49.960 of defense and cybersecurity are your employees and the kind 0:05:49.960 --> 0:05:52.760 of culture they have. The analogy I always give is 0:05:52.800 --> 0:05:57.240 if you walk into an oil company building, whether it's 0:05:57.279 --> 0:05:59.719 a refinery or an office building, there's a sign over 0:05:59.760 --> 0:06:02.560 the where that says two and thirty seven days since 0:06:02.600 --> 0:06:05.680 the last industrial accident, and nobody wants to be the 0:06:05.680 --> 0:06:08.320 one who sets that counter back to the hero. We 0:06:08.360 --> 0:06:12.159 need the same mentality, the safety mentality, the quality mentality 0:06:12.240 --> 0:06:15.400 that corporations have built into their cultures. They need to 0:06:15.400 --> 0:06:18.960 build in the same cybersecurity mentality. Don't lend your password 0:06:19.000 --> 0:06:21.400 to somebody and you can't even though you trust them. 0:06:21.800 --> 0:06:24.680 Don't click on that email attachment even though you think 0:06:24.720 --> 0:06:27.560 it might be an order from a new customer. Well, 0:06:27.560 --> 0:06:29.120 we're gonna have to leave it there. We could talk 0:06:29.160 --> 0:06:31.440 for a long time. This is fascinating. Michael Coden, head 0:06:31.440 --> 0:06:34.160 of cyber the cybersecurity practice at BCG platini in which 0:06:34.200 --> 0:06:50.040 is part of the Boston Consulting Group. Let us find 0:06:50.080 --> 0:06:53.640 out what is the latest drama brewing in Washington. D C. 0:06:53.800 --> 0:06:56.080 Tolu l Arunaba is following it all for us, our 0:06:56.080 --> 0:06:59.200 White House reporter for Bloomberg News, who comes to us 0:06:59.279 --> 0:07:02.080 from the White House us to lou Gosh, where do 0:07:02.120 --> 0:07:04.479 we even start? I mean, it's like every day more 0:07:04.560 --> 0:07:08.000 build on, but I really want to begin with the 0:07:08.040 --> 0:07:12.360 news of a possible shake up in President Trump's inner circle. 0:07:12.400 --> 0:07:15.360 Can you talk about how realistic these rumors really are 0:07:15.360 --> 0:07:18.120 and what it would mean. Yeah, after the last week 0:07:18.160 --> 0:07:20.960 that the president had, uh, you might not be too 0:07:21.040 --> 0:07:23.360 too surprised to hear that he wasn't happy with how 0:07:23.400 --> 0:07:26.040 the week went, how all of his decisions were covered 0:07:26.120 --> 0:07:29.280 in the news media and on Capitol Hill, with criticism 0:07:29.320 --> 0:07:33.559 coming from Democrats and Republicans and UH. News analysts looking 0:07:33.600 --> 0:07:36.960 at how he fired the director of the FBI and 0:07:37.120 --> 0:07:39.720 all the questions of that race. So the president is 0:07:39.760 --> 0:07:42.600 looking at a potential shake up. We've heard that he's 0:07:42.640 --> 0:07:45.720 you know, considered making some changes. He said publicly that 0:07:45.760 --> 0:07:48.280 he's considered changing the way he the way his his 0:07:48.360 --> 0:07:52.240 operation briefs the press, maybe getting rid of the press briefing. Uh. 0:07:52.280 --> 0:07:54.400 Some people are even saying that a couple of his 0:07:54.480 --> 0:07:57.400 communications staffers could be on their way out the door. 0:07:57.440 --> 0:08:01.080 And hold on, you're sanitizing this to lou. Basically people 0:08:01.120 --> 0:08:03.960 are thinking that Sean Spicer is out. Uh, and we 0:08:04.040 --> 0:08:07.080 have heard we've gotten a tweet from President Trump saying 0:08:07.120 --> 0:08:10.280 that he might issue uh, you know, comments just to 0:08:10.360 --> 0:08:14.120 send out send out comments rather than have press conferences. 0:08:14.200 --> 0:08:16.760 Is that what you mean? Yeah, it's not clear how 0:08:16.960 --> 0:08:20.480 realistic that is, but he basically is taking the taking 0:08:20.520 --> 0:08:22.600 it a bit hard that a lot of the criticism 0:08:22.680 --> 0:08:26.680 for his press officials has come every time they've made 0:08:26.680 --> 0:08:29.600 a statement that's been contradicted by the President himself or 0:08:29.640 --> 0:08:32.240 by the facts. Uh, he's saying that, instead of, you know, 0:08:32.360 --> 0:08:34.840 expecting them to be perfectly accurate, maybe we'll just put 0:08:34.840 --> 0:08:37.600 out a paper statement with all of the facts correct 0:08:37.920 --> 0:08:39.719 and see how the media likes that. I don't know 0:08:39.760 --> 0:08:42.600 if he'll actually will follow through on that, but he 0:08:42.720 --> 0:08:45.240 is looking at some some changes in his communication shop, 0:08:45.520 --> 0:08:47.920 and even higher even his chief of chief of staff 0:08:48.000 --> 0:08:52.600 and chief strategist. Ranks Previous and Steve Bannon are people 0:08:52.600 --> 0:08:55.800 who have been reported reportedly on the chopping block and 0:08:55.800 --> 0:09:00.200 potentially could be UM have their positions changed, or could 0:09:00.240 --> 0:09:01.680 be on their way out the door in the White House. 0:09:01.800 --> 0:09:04.240 Why I mean, I guess I'm trying to understand they 0:09:04.240 --> 0:09:08.000 were not from what I have read, behind the decision 0:09:08.120 --> 0:09:11.120 to fire James Comey as head of director of the 0:09:11.120 --> 0:09:14.920 FBI as Director of the FBI um at least not 0:09:15.040 --> 0:09:18.280 in the past two weeks. So what would be achieved 0:09:18.320 --> 0:09:20.240 by getting rid of them? Yeah, It's hard to know 0:09:20.320 --> 0:09:22.800 what's in the President's head as he as he moles 0:09:22.840 --> 0:09:25.880 over these staffing decisions. But I think one thing that 0:09:25.920 --> 0:09:28.560 we've seen is that the President has been surprised by 0:09:28.600 --> 0:09:30.680 the blowback on a number of different things that he's done, 0:09:30.960 --> 0:09:34.160 everything from the first round of healthcare, which struggled to 0:09:34.160 --> 0:09:37.960 get through the House to UH this issue with Jim Comey. 0:09:38.160 --> 0:09:41.280 The president is a newcomer to Washington, and he's hired 0:09:41.320 --> 0:09:44.440 people like UH, like previous who are supposed to know 0:09:44.520 --> 0:09:47.240 the ins and outs and know how how things might 0:09:47.280 --> 0:09:49.560 be received and I think the fact that he was 0:09:49.600 --> 0:09:51.840 surprised by so many different things. It's one reason that 0:09:51.880 --> 0:09:55.200 he's questioning his chief of staff and his top officials 0:09:55.200 --> 0:09:58.320 about how well they're preparing him for, you know, for 0:09:58.440 --> 0:10:01.000 potential blowback when he makes some of the decisions. And 0:10:01.040 --> 0:10:03.440 he seems to be blindsided by the fact that, you know, 0:10:03.520 --> 0:10:05.600 they're not going to go over too well in Washington. 0:10:05.960 --> 0:10:08.680 So that may be one of the things that he's considering. 0:10:08.720 --> 0:10:10.920 And you have to remember that he's uh as he 0:10:11.080 --> 0:10:13.760 has he's focused so much on loyalty. UH. These are 0:10:13.760 --> 0:10:15.720 people who have come into his orbit in the last 0:10:15.960 --> 0:10:18.280 year or so, whereas he has his daughter and his 0:10:18.320 --> 0:10:20.679 son son in law who have been much closer to 0:10:20.760 --> 0:10:23.720 him for a much longer time since birth. UM. I 0:10:23.760 --> 0:10:26.440 do want to ask you about a comment that former 0:10:26.480 --> 0:10:29.760 Director of National Intelligence Jane Clapper said yesterday in a 0:10:29.800 --> 0:10:33.800 televised interview. He thinks that our quote institutions are under 0:10:33.840 --> 0:10:37.040 assault and quote by both other nations such as Russia 0:10:37.360 --> 0:10:40.480 and by the president. Can you explain what that means 0:10:40.520 --> 0:10:44.160 and if if he is right, what the implications are. Yeah, 0:10:44.200 --> 0:10:46.760 that was quite a statement coming from the former Director 0:10:46.800 --> 0:10:50.480 of National Intelligence. I think he was definitely focusing on 0:10:50.520 --> 0:10:53.240 the fact that President Trump has called into question the 0:10:53.280 --> 0:10:57.000 intelligence agencies. He's called uh news accounts to be fake 0:10:57.040 --> 0:10:59.680 news if he doesn't like them. He's even questioned whether 0:10:59.760 --> 0:11:03.560 RUSSI was a a factor in the election, and that's 0:11:03.559 --> 0:11:07.040 something that all the intelligence agencies have, um have concluded 0:11:07.200 --> 0:11:09.480 was the case. So I think the fact that the 0:11:09.480 --> 0:11:12.560 President is questioning so many of our our institutions, from 0:11:12.600 --> 0:11:16.360 the intelligence agencies to the media, that's caused a number 0:11:16.400 --> 0:11:19.600 of people who uh see the value of these institutions 0:11:19.600 --> 0:11:22.960 to wonder whether or not um some real lasting damages 0:11:23.040 --> 0:11:24.680 being done to them. When you have the you know, 0:11:24.720 --> 0:11:27.560 the highest official in the land, uh questioning, you know, 0:11:27.559 --> 0:11:31.240 whether they have any value and and deciding to sort of, um, 0:11:31.600 --> 0:11:35.120 you know, go against some of these institutions, even institutions 0:11:35.160 --> 0:11:38.360 like the FBI by dismissing the director of the FBI 0:11:38.880 --> 0:11:41.600 in such a sort of embarrassing way that he did, 0:11:41.960 --> 0:11:45.160 uh and which seemed to happen kind of uh like 0:11:45.200 --> 0:11:48.280 a spur of the moment decision. Uh. Those types of things, 0:11:48.280 --> 0:11:51.000 those types of institutions and norms are being thrown out 0:11:51.000 --> 0:11:52.800 the window by the President, and I think that's what 0:11:53.120 --> 0:11:55.760 Clapper was talking about, Can I just ask about the 0:11:56.000 --> 0:11:59.640 tapes that has have been speculated about that President Trump 0:11:59.679 --> 0:12:03.080 may have tape some of his conversations with former FBI 0:12:03.200 --> 0:12:06.880 Director James Comy. Do you really think, from the talks 0:12:06.920 --> 0:12:09.040 that you've had with people who have a better sense 0:12:09.080 --> 0:12:12.520 of the matter, are there really tapes. I would highly 0:12:12.600 --> 0:12:16.120 doubt that there are tapes of these conversations that there 0:12:16.240 --> 0:12:19.160 is a secret taping recording system within the White House. 0:12:19.200 --> 0:12:21.200 I think this is more sort of the President blowing 0:12:21.200 --> 0:12:24.200 off steam and trying to change the news cycle and 0:12:24.240 --> 0:12:26.640 make a veiled threat at the FBI director after some 0:12:26.920 --> 0:12:29.680 stories had come out about what the FBI director was 0:12:29.720 --> 0:12:33.120 thinking and saying. And I think that the White House 0:12:33.160 --> 0:12:35.520 isn't isn't saying much about this. But I don't think 0:12:35.559 --> 0:12:38.560 that the President has installed a taping system within the 0:12:38.559 --> 0:12:40.200 White House. If he has, that would be a major 0:12:40.240 --> 0:12:42.959 scandal and we'll definitely hear more about it. So, Lou, 0:12:43.040 --> 0:12:45.440 thank you so much as always for bringing us this 0:12:45.480 --> 0:12:48.640 news to lose. Alorna but is our White House reporter 0:12:48.840 --> 0:12:51.920 at Bloomberg News and comes to us from the White House. 0:13:00.960 --> 0:13:02.440 We want to take a moment to let you know 0:13:02.520 --> 0:13:05.439 about something new from Bloomberg. Starting right now, you can 0:13:05.520 --> 0:13:08.400 use our io s app or our new Google Chrome 0:13:08.440 --> 0:13:12.040 extension to scan any news story on any website, instantly 0:13:12.080 --> 0:13:14.920 revealing relevant news and market data from Bloomberg and other 0:13:14.920 --> 0:13:17.560 sources related to the companies and people you're reading about. 0:13:17.800 --> 0:13:19.760 So no matter where you're reading the news, you can 0:13:19.800 --> 0:13:22.320 bring the power of Bloomberg's news and data with you. 0:13:22.520 --> 0:13:25.600 It's pretty amazing. Download our Io s app or search 0:13:25.679 --> 0:13:27.840 for the Bloomberg extension on the Chrome Store to try 0:13:27.840 --> 0:13:30.960 it out. Learn more at Bloomberg dot com slash lens. 0:13:37.080 --> 0:13:41.240 We hear a lot about political turmoil in Washington, whether 0:13:41.400 --> 0:13:43.960 it's the firing of James Comee as a head of 0:13:44.000 --> 0:13:48.640 FBI or potential turnover in President Trump's inner circle. At 0:13:48.720 --> 0:13:52.520 what point will some of these developments bleed into the 0:13:52.600 --> 0:13:55.800 market complacency that has led to a kind of melt 0:13:55.960 --> 0:13:59.440 up of stocks and risk your bonds. David Dietz perhaps 0:13:59.440 --> 0:14:02.439 has some answer. David Eats, founder and president and chief 0:14:02.520 --> 0:14:05.880 investment strategist at Point View Wealth Management, which oversees two 0:14:06.440 --> 0:14:09.920 two million dollars in Summit, New Jersey. David, thank you 0:14:10.080 --> 0:14:12.440 so much for joining us. So let's start there. At 0:14:12.480 --> 0:14:16.200 what point does the political issues that are painted with 0:14:16.240 --> 0:14:20.120 such inflamed rhetoric uh in newspapers across the world, At 0:14:20.160 --> 0:14:22.880 what point will that bleed into the market. Yeah, that's 0:14:22.880 --> 0:14:25.560 a great question, Lisa, Thank you so much for having 0:14:25.600 --> 0:14:30.360 me on. Certainly we see that as a critical risk, 0:14:30.760 --> 0:14:34.400 which leads into our fundamental caution on the stocks right now. 0:14:34.800 --> 0:14:40.040 We saw tremendous ramp up in stocks post election as 0:14:40.160 --> 0:14:45.600 investors priced in the pro growth Trump agenda. UM, then, 0:14:45.640 --> 0:14:48.160 of course we saw was the first failure to repeal 0:14:48.240 --> 0:14:52.160 the a C a UM doubt starting to creep into 0:14:52.600 --> 0:14:56.280 Trump's ability to push that agenda forward. Now, of course, 0:14:56.360 --> 0:14:59.840 with the firing of James call Me and other issues, 0:15:00.000 --> 0:15:02.160 you will start to wonder whether there will be so 0:15:02.280 --> 0:15:06.800 much distraction on an Siller issues that the Washington would 0:15:06.920 --> 0:15:09.040 not be able to focus on any of the pro 0:15:09.160 --> 0:15:12.840 growth items that have caused such enthusiasm on the part 0:15:12.840 --> 0:15:16.880 of investors. Having said that, you know clearly it's not 0:15:17.080 --> 0:15:21.200 just enthusiasm over the Trump agenda which is forcing stocks higher, 0:15:21.400 --> 0:15:25.680 ironically enough or not ironically enough. Overseas stocks that actually 0:15:25.760 --> 0:15:29.800 outperformed the United States this year. Hopefully they don't think 0:15:29.800 --> 0:15:33.000 it's all about the Trump agenda. If anything, the Trump 0:15:33.000 --> 0:15:37.680 agenda would have curtailed some UM cross border trade. So 0:15:37.920 --> 0:15:40.440 obviously there are other cross currents. I think we're seeing 0:15:40.480 --> 0:15:43.000 them today. I think the fact that China is taking 0:15:43.040 --> 0:15:46.120 some leadership here in terms of global trade also is 0:15:46.160 --> 0:15:48.680 providing a boost to this market. Well, so let's talk 0:15:48.720 --> 0:15:51.160 about China and the fact that they have come out 0:15:51.200 --> 0:15:54.600 and tried to present themselves as the new global leader, 0:15:54.640 --> 0:15:57.640 replacing the United States. UH in the wake of some 0:15:57.800 --> 0:16:01.680 turmoil and protectionist hype rhetoric in the U. Asked you 0:16:02.200 --> 0:16:06.960 from your fund managing expertise, do you plan on investing 0:16:07.080 --> 0:16:11.400 more in China as a result of this move? UM 0:16:11.760 --> 0:16:17.160 China per se, we think it's actually fully valued UM where, 0:16:17.200 --> 0:16:21.840 but we liked ancillary place based on in effect growth 0:16:21.880 --> 0:16:25.040 initiatives that are put forth by China. UM, the so 0:16:25.120 --> 0:16:29.160 called One Road one Belt would increase trade trade dramatically 0:16:29.200 --> 0:16:32.240 with Europe. UM. So we are investing in Europe and 0:16:32.280 --> 0:16:35.400 tilting in that direction. Why would that be? First of all, 0:16:36.040 --> 0:16:40.440 earnings projections going forward are actually stronger than the United States. UH. 0:16:40.480 --> 0:16:43.840 They are a major trader with Asia, including China. UM 0:16:44.000 --> 0:16:47.640 and also the valuations significantly less. One of the challenges 0:16:47.680 --> 0:16:51.760 to the US market is the near nineteen times forward earnings, 0:16:51.800 --> 0:16:54.840 but in Europe that's closer to fifteen times forward earnings, 0:16:54.840 --> 0:16:58.040 and the davidend yields are better. Um. So the Europe 0:16:58.200 --> 0:17:01.200 is I think, in a way to take advantage of 0:17:01.560 --> 0:17:04.720 a uh, the leadership that China is showing on global trade. 0:17:05.040 --> 0:17:07.720 So uh. One thing that I am thinking about as 0:17:07.720 --> 0:17:11.000 you speak is that last week I believe that mutual 0:17:11.040 --> 0:17:14.840 funds in Europe focused on equities in that region received 0:17:14.880 --> 0:17:17.560 their biggest weekly inflow ever. So it's not as though 0:17:18.119 --> 0:17:21.280 people are ignoring European stocks, and yet you're saying they're 0:17:21.320 --> 0:17:26.040 still not fully valued. Are there particular areas in European 0:17:26.240 --> 0:17:30.720 stocks that you think have greater values than others? Well, Lisa, 0:17:31.000 --> 0:17:34.040 first of all, I would profis my words marked by saying, 0:17:34.080 --> 0:17:38.120 we think industrial sectors, what you're doing is probably more 0:17:38.160 --> 0:17:42.440 important than where you're doing it from. So, for example, um, 0:17:42.480 --> 0:17:45.199 whether you're in the energy business versus the tech business 0:17:45.240 --> 0:17:47.240 is probably more important than whether you're based in Dallas 0:17:47.480 --> 0:17:50.679 or Paris. So what we like to do is overlay 0:17:51.080 --> 0:17:54.840 those sectors that we find most attractive with those geographic reasons. 0:17:54.880 --> 0:18:00.320 For US, it would be three key areas financial, uh, energy, 0:18:00.359 --> 0:18:04.439 in healthcare. So we're actually beating the bushes looking for 0:18:04.480 --> 0:18:07.439 the best opportunities in those areas that are European based. 0:18:08.040 --> 0:18:12.040 So one question that keeps coming up is are we 0:18:12.080 --> 0:18:15.879 just seeing a continuation of the there is no alternative trade? 0:18:16.119 --> 0:18:18.720 In other words, because interest rates are so low and 0:18:18.760 --> 0:18:22.240 continue to be uh and and as central banks continue 0:18:22.320 --> 0:18:26.880 to buy vans around the world, our stocks simply as 0:18:26.960 --> 0:18:29.159 high as they are because of this, And could a 0:18:29.200 --> 0:18:33.120 material increase in benchmark rates in the US disrupt this 0:18:33.200 --> 0:18:36.159 and cause a pretty big sell off in stocks? Do 0:18:36.200 --> 0:18:39.679 you think that's realistic? Well? Is yes, and yes, really, Lisa, 0:18:39.960 --> 0:18:43.800 I mean the reason they continue to be bullish, notwithstanding 0:18:43.880 --> 0:18:48.000 higher the normal valuation is not notwithstanding you know some 0:18:48.040 --> 0:18:50.840 distressing news on the political front is you still got 0:18:50.880 --> 0:18:54.160 that ten year treasury below two point four percent. So 0:18:54.280 --> 0:18:58.840 in Donwin's pensions, individuals trying to finance kids education retirements 0:18:58.840 --> 0:19:02.240 still think that's just not enough. So every time there's 0:19:02.320 --> 0:19:05.399 a perceived opportunity pull back, I think people are going 0:19:05.440 --> 0:19:08.440 to continue to push into stocks. So that's the bullish case, 0:19:08.560 --> 0:19:10.840 and that's why Frankly, it's even more bullish in Europe. 0:19:10.960 --> 0:19:14.639 Is interesstrated that much lower, even though stock valuations have 0:19:14.760 --> 0:19:19.360 higher yields. Um? So could that upset the apple cart 0:19:19.440 --> 0:19:24.479 if interest ratement went significantly higher. Absolutely? Um. There's nothing 0:19:24.520 --> 0:19:27.679 that makes the present value of any type of investment 0:19:28.000 --> 0:19:31.879 more more valuable if there's a trace higher. Uh. The 0:19:32.000 --> 0:19:34.800 one silver lining might be if they're going higher because 0:19:34.840 --> 0:19:38.160 of stronger economic growth, that's probably better than a stagflation 0:19:38.240 --> 0:19:41.000 inflation situation. We're just driving interest rates higher. So I'm 0:19:41.000 --> 0:19:43.399 looking at a ten year treasury yield of two point 0:19:43.560 --> 0:19:46.720 three or four right now. How high does that yield 0:19:46.800 --> 0:19:49.160 have to go before people start taking the money out 0:19:49.160 --> 0:19:52.359 of stocks and going back into government bonds? You know, 0:19:52.480 --> 0:19:55.720 I don't think there's any one tipping point, And of course, 0:19:55.800 --> 0:19:58.679 even to back that up is I challenge anyone to 0:19:58.720 --> 0:20:00.879 figure out exactly we're in strates are going to be 0:20:01.320 --> 0:20:04.600 one year for now, that's a very complicated topic. Assuming 0:20:04.640 --> 0:20:08.240 they go higher, I think at the margin that will 0:20:08.240 --> 0:20:12.879 reduce enthusiasm for the so called Tina trade. But to 0:20:12.920 --> 0:20:15.080 the extent that people are saying, well, that's because everyone's 0:20:15.080 --> 0:20:18.320 going out to buy a new house um. New projects 0:20:18.320 --> 0:20:20.440 are getting off the drawing boards and being built, so 0:20:20.440 --> 0:20:24.040 they're borrowing money that can help offset that gradual drift 0:20:24.080 --> 0:20:26.600 up and interest rates. David Diets, thank you so much 0:20:26.640 --> 0:20:30.040 for joining us. David Diets is a founder, president, and 0:20:30.320 --> 0:20:34.399 chief investment strategist at Point View Wealth Management, which is 0:20:34.400 --> 0:20:39.080 based in Summit, New Jersey. Talking about industrials as well 0:20:39.160 --> 0:20:41.719 as gas companies, some of his stock picks are Chevron, 0:20:41.800 --> 0:20:55.920 Blacks and Smith Klein and a I G. We hear 0:20:55.960 --> 0:20:58.440 a lot about small businesses in the U S. Since 0:20:58.480 --> 0:21:02.240 they do provide such a big part of the growth 0:21:02.320 --> 0:21:05.920 in this country. But just how dire is a situation 0:21:05.960 --> 0:21:07.679 for small businesses? We hear a lot of rudder. I 0:21:07.680 --> 0:21:10.359 can here to put some reality to it. Uh to 0:21:10.520 --> 0:21:13.080 it all is Karen mel Senior Fellow at Harvard Business 0:21:13.080 --> 0:21:16.320 School in Boston. She also was the former Small Business 0:21:16.359 --> 0:21:21.679 Administrator for President Obama from two thousand nineteen. Karen, it's 0:21:21.760 --> 0:21:23.920 terrific to have you in the studio here in Bloomberg 0:21:24.040 --> 0:21:27.159 Bloomberg eleven three oh studios. Let's just start with the 0:21:27.200 --> 0:21:30.880 state of US small businesses today. We hear so much 0:21:30.920 --> 0:21:33.440 about them struggling to gain the same kind of traction 0:21:33.480 --> 0:21:36.080 as larger businesses, and yet it seems like credit is 0:21:36.200 --> 0:21:39.760 fairly free flowing. What's the disconnect here? What is what 0:21:39.880 --> 0:21:42.800 is sort of the health here? Well, it's always important 0:21:42.800 --> 0:21:45.600 to talk about the health of small business because half 0:21:45.680 --> 0:21:48.560 the people who work in this country own a work 0:21:48.600 --> 0:21:50.800 for a small business. So I used to say I 0:21:50.800 --> 0:21:53.160 went to sleep at night worrying about half the jobs. 0:21:53.680 --> 0:21:56.880 So even in a robust economy, which is what we've 0:21:56.920 --> 0:21:59.280 been having, you have to keep your eye on the ball. 0:21:59.359 --> 0:22:02.439 You can't um take your foot off the gas for 0:22:02.520 --> 0:22:05.800 small businesses or you will have a slowdown, and it 0:22:05.880 --> 0:22:09.800 can happen quite quickly. Right now, we're a little worried 0:22:09.800 --> 0:22:13.960 about that slowdown because the recent optimism indexes all showed 0:22:14.000 --> 0:22:18.360 a few sort of glitchy moments, and they don't believe 0:22:18.520 --> 0:22:22.680 small businesses now don't believe that pumped up economy that 0:22:22.880 --> 0:22:27.600 came from the early Trump bump in the fall is 0:22:27.680 --> 0:22:31.160 really going to be maintained and maybe their business will 0:22:31.200 --> 0:22:35.040 go down. Well, and when you talk about the optimism readings, 0:22:35.080 --> 0:22:39.200 what's the practical implication of a decline in optimism among 0:22:39.280 --> 0:22:43.600 small business operators? Well, when small business operators are concerned 0:22:43.640 --> 0:22:46.600 about the future. They don't hire more people, they don't 0:22:46.640 --> 0:22:50.800 invest in their business, they don't expand, and the kinds 0:22:50.800 --> 0:22:54.000 of job creation that you might otherwise see from them 0:22:54.119 --> 0:22:56.720 slows down. And that can actually have a pretty big 0:22:56.760 --> 0:23:00.919 effect because the main street businesses, uh, you know, we 0:23:00.960 --> 0:23:03.440 don't think about them as the innovation drivers of the 0:23:03.520 --> 0:23:06.240 next Google, but they actually create a huge amount of 0:23:06.280 --> 0:23:09.439 the jobs. So what does the current administration need to 0:23:09.640 --> 0:23:15.159 do to bolster optimism among these business owners as well 0:23:15.160 --> 0:23:19.080 as provide a more supportive backdrop for them. Well, if 0:23:19.119 --> 0:23:21.760 I were in Washington day and I saw this, and 0:23:21.800 --> 0:23:24.000 the President was going off on a foreign trip, I 0:23:24.040 --> 0:23:27.280 would get all of the domestic folks in the White 0:23:27.280 --> 0:23:30.880