WEBVTT - China Clampdown Could Reverse Global Real Estate Prices, Orlik Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.720 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well 0:00:31.760 --> 0:00:35.640 news crossing today that on Bang Insurance Group is getting 0:00:35.680 --> 0:00:39.600 pressured to stop buying so many assets overseas and possibly 0:00:39.720 --> 0:00:43.600 sell the iconic Waldorf Astoria hotel in New York, which 0:00:43.600 --> 0:00:47.680 it bought for almost two billion dollars. In with us 0:00:47.680 --> 0:00:49.800 to talk about this is Tom or Like, chief Asia 0:00:49.800 --> 0:00:54.040 economist for Bloomberg Intelligence, normally based in Beijing, but he 0:00:54.200 --> 0:00:56.720 is in New York today in our eleven three oh studios. Tom, 0:00:56.760 --> 0:00:58.440 thank you so much for joining us. I want to 0:00:58.440 --> 0:01:02.520 start with what's behind your request by China to a 0:01:02.760 --> 0:01:06.720 Bang and others to reduce overseas investments and to sort of, 0:01:06.760 --> 0:01:09.480 you know, like what exactly triggered this. I think the 0:01:09.840 --> 0:01:11.959 lens through we have through which we have to see 0:01:11.959 --> 0:01:16.840 this is a broader attempt by China's policymakers to crack 0:01:16.920 --> 0:01:20.760 down on financial risk and to crack down on capitalite 0:01:20.800 --> 0:01:24.399 flows and and bank ticks both of those boxes. On 0:01:24.520 --> 0:01:29.160 financial risk, they're issuing short term, high interest rate investment 0:01:29.160 --> 0:01:33.560 products to finance a liquid long term assets. That's a 0:01:33.600 --> 0:01:38.759 massive asset liability mismatch. On capital outflows, well, they're making 0:01:38.760 --> 0:01:41.880 a bunch of purchases overseas, so it's trying to crack 0:01:42.000 --> 0:01:45.160 down on these two areas and banging other firms are 0:01:45.200 --> 0:01:48.920 coming very clearly into the regulators crosshairs. Tom, Can you 0:01:48.960 --> 0:01:52.560 put this into the context of government policy in China 0:01:52.680 --> 0:01:55.320 and their Silk Road initiative, And because they seem to 0:01:55.360 --> 0:01:57.880 be putting a lot of money in overseas development, they 0:01:57.960 --> 0:02:00.360 just wanted in a certain way and under a certain control. 0:02:01.200 --> 0:02:04.280 I think China's policymakers are firm believers in their own 0:02:04.320 --> 0:02:08.120 ability to walk and chew gum at the same time um, 0:02:08.200 --> 0:02:11.240 and that means that they think they can pursue an 0:02:11.240 --> 0:02:15.440 aggressive outbound investment strategy on the Belt and road building 0:02:15.480 --> 0:02:19.960 infrastructure in Southeast Asia into Central Asia at the same 0:02:20.000 --> 0:02:23.480 time as cracking down on what they see as the 0:02:23.560 --> 0:02:26.800 riskier aspects of capitalite flows, as it was the case 0:02:26.800 --> 0:02:30.680 with Ambang. So to me, this is this is really compelling. 0:02:31.080 --> 0:02:34.880 If Unbang does sell the Waldorf Storia, which have bought 0:02:34.919 --> 0:02:38.160 just three years ago, what other assets could it sell 0:02:38.440 --> 0:02:42.799 And could we see a mass sale among other assets 0:02:42.800 --> 0:02:46.320 by other companies that are engaging in similar practices. So 0:02:46.400 --> 0:02:48.280 I think we're still a little bit in the realm 0:02:48.280 --> 0:02:52.320 of speculation here. We have a well sourced story on 0:02:52.360 --> 0:02:54.880 the Bloomberg terminal. On this, we so far do not 0:02:55.000 --> 0:02:59.600 have confirmation from China's policymakers, and A Bang are certainly 0:02:59.600 --> 0:03:04.200 not affirming that they've been required to sell their overseas assets. Um. 0:03:04.240 --> 0:03:06.959 If it does come to that, um, then I think 0:03:07.040 --> 0:03:10.280 we're going to see some reversal in that excitement about 0:03:10.400 --> 0:03:12.520 real estate prices. Well, I mean, that's sort of what 0:03:12.560 --> 0:03:14.400 I'm getting at, even if it's let's say, even if 0:03:14.440 --> 0:03:15.960 they're not going to confirm it, or even if they 0:03:16.000 --> 0:03:19.440 don't sell the idea that Chinese companies may avoid some 0:03:19.520 --> 0:03:23.600 of the big purchases I'm thinking in particular property purchases 0:03:24.120 --> 0:03:27.040 in the in the New York area, for example, or 0:03:27.080 --> 0:03:31.600 in London. That changes the dynamic for those markets. Now, yeah, 0:03:31.639 --> 0:03:33.600 I think that's right. I think one of the underlying 0:03:33.680 --> 0:03:37.040 positives for global real estate markets in the last few 0:03:37.160 --> 0:03:40.120 years has been this idea that the big Chinese buyer 0:03:40.480 --> 0:03:44.160 in the case of the prestige project like Waldorf, or 0:03:44.240 --> 0:03:46.760 the just the middle income Chinese buyer in the case 0:03:46.800 --> 0:03:49.400 of run of the mill residential property is going to 0:03:49.480 --> 0:03:52.600 be there with a wad of cash willing to drive 0:03:52.680 --> 0:03:55.840 up prices. If that story starts to change, clearly there 0:03:55.840 --> 0:03:59.640 are some important implications. Tom. Before you came in, you 0:03:59.680 --> 0:04:01.520 mentioned that you know you've been in China for about 0:04:01.560 --> 0:04:04.680 a decade, perhaps even longer. What are some of the 0:04:04.720 --> 0:04:08.600 biggest misconceptions that you try to dispel from people who 0:04:08.640 --> 0:04:11.119 just read the headlines or news but actually don't live 0:04:11.160 --> 0:04:15.040 there and spend time there. I think what people underestimate 0:04:15.240 --> 0:04:19.960 is the capacity which China's policymakers have to pull policy 0:04:20.040 --> 0:04:24.200 levers to change the dynamic in the short term. UM 0:04:24.320 --> 0:04:28.000 So we underestimate the power of the Chinese government. I 0:04:28.040 --> 0:04:31.600 think people are right that China's government and China's economy 0:04:31.600 --> 0:04:36.120 faces some really serious problems in the long term, particularly 0:04:36.360 --> 0:04:39.280 on the over extension of the banking sess system and 0:04:39.320 --> 0:04:43.800 the overborrowing by the corporate sector. UM what people underestimate 0:04:44.120 --> 0:04:47.880 is the capacity of China's policymakers to move things around 0:04:48.120 --> 0:04:50.880 in a way which delays any kind of day of reckoning. 0:04:51.640 --> 0:04:54.760 Are we seeing any sales of assets overseas on the 0:04:54.800 --> 0:04:58.400 part of bigger Chinese companies yet? I haven't seen any 0:04:58.440 --> 0:05:00.440 of that so far. So so far, there's been absolutely 0:05:00.440 --> 0:05:02.600 no evidence that this is going on in any way. 0:05:02.839 --> 0:05:04.479 I think this is the beginning of the story, not 0:05:04.520 --> 0:05:07.240 the end, got it? And so what about wealthy individuals? 0:05:07.279 --> 0:05:10.560 Are they still moving money overseas or is that slowing 0:05:10.600 --> 0:05:13.039 down a bit? So if we look at the bigger 0:05:13.080 --> 0:05:17.320 picture on China's capital outflows, the government has really been extraordinarily, 0:05:17.680 --> 0:05:21.760 extraordinarily successful in stemming the outflow. If you go back 0:05:21.800 --> 0:05:24.480 to the end of two thousand and sixteen, capital light 0:05:24.560 --> 0:05:27.360 flows were picking up again. The big fear was that 0:05:27.520 --> 0:05:29.800 we were going to see a flood of outflows at 0:05:29.839 --> 0:05:32.159 the start of two thousand and seventeen and we'd be 0:05:32.200 --> 0:05:35.719 back to panic mode on China's economy. That hasn't happened. 0:05:36.279 --> 0:05:38.440 At the end of last year, we saw the beginnings 0:05:38.480 --> 0:05:42.600 of a crackdown on corporate and household outflows. These latest 0:05:42.880 --> 0:05:46.560 stories on and bang h Na Dally and Wander show 0:05:46.600 --> 0:05:49.080 an extension of that policy. And if we look at 0:05:49.120 --> 0:05:52.440 the numbers, China's capital light flows have come right down 0:05:52.520 --> 0:05:54.880 from fifty sixty billion dollars a month at the end 0:05:54.880 --> 0:05:58.880 of last year, too close to imbalance in the latest data. 0:05:59.520 --> 0:06:01.279 One of thank you very much for coming in and 0:06:01.320 --> 0:06:04.359 spending time with us. Tom Orlick is our chief Asia 0:06:04.400 --> 0:06:19.839 economist for Bloomberg Intelligence. We hear a lot about the 0:06:20.040 --> 0:06:24.640 souring US Russia relations, and really underpinning it is the 0:06:24.720 --> 0:06:28.680 ongoing investigation into President Trump. And here to give us 0:06:28.680 --> 0:06:31.560 a little bit more color from the Russian perspective and 0:06:31.600 --> 0:06:35.600 from a deeply knowledgeable and informed place, is Richard Khan, 0:06:35.680 --> 0:06:39.000 managing partner at Eurasia Advisors, based in New York City, 0:06:39.120 --> 0:06:43.200 also has offices in Moscow. And Richard, you have a 0:06:43.279 --> 0:06:47.320 deep background with Russia, with financial dealings of all sorts 0:06:47.320 --> 0:06:50.000 between Russia and the US, and I just want to 0:06:50.040 --> 0:06:52.840 start with you know, how serious do you think that 0:06:52.880 --> 0:06:57.120 this is being overblown, the Russia investigation into President Trump? 0:06:57.200 --> 0:06:59.520 And do you think that it's not fair to say 0:06:59.520 --> 0:07:02.360 that this is really at the heart of the ongoing 0:07:02.440 --> 0:07:06.120 conflict between the US and Russia. I do not think 0:07:06.120 --> 0:07:10.080 it's being overblown, Lisa. From the first time I spoke 0:07:10.120 --> 0:07:13.800 with you, roughly a year ago, I highlighted some red flags, 0:07:14.520 --> 0:07:18.000 mentioning people's names such as, you know, Paul Maniford and 0:07:18.080 --> 0:07:22.440 Carter Page, folks who I felt or indicative of efforts 0:07:22.440 --> 0:07:25.720 by the FSB to place people around Trump. And since, 0:07:25.800 --> 0:07:28.400 and I've of course been cautious about stating what I 0:07:28.440 --> 0:07:31.280 really think may happen in that context, but I think 0:07:31.320 --> 0:07:34.760 we now have a pretty good picture of what's going on, 0:07:34.800 --> 0:07:36.640 and those of us who spend time in Russia and 0:07:36.640 --> 0:07:40.080 are familiar with the FSB tactics really have I think 0:07:40.200 --> 0:07:43.640 very little doubt that there's a tremendous amount of fire here. 0:07:43.800 --> 0:07:48.080 And there are a variety of criminal UH statutes that 0:07:48.200 --> 0:07:50.400 may well have been violated that I'm sure Mueller is 0:07:50.440 --> 0:07:54.040 looking at right what UH. I would give several examples. 0:07:55.280 --> 0:08:00.600 One would be cyber intrusion, another, campaign finance laws, false 0:08:00.600 --> 0:08:05.600 statements to federal agents, foreign ancient registration, f c p A, RICO, 0:08:05.920 --> 0:08:11.080 money laundering, espionage, possible obstruction of justice. Of course, all 0:08:11.120 --> 0:08:13.280 of these things I can give examples of in terms 0:08:13.280 --> 0:08:14.880 of how I think they may play out, But one 0:08:14.920 --> 0:08:18.960 simple one would be well, first, let me just say 0:08:19.400 --> 0:08:21.840 during the time period when when we do not know 0:08:22.000 --> 0:08:25.680 all of the facts, if there is a fire, let's 0:08:25.680 --> 0:08:28.960 say regarding money laundering, the Russians are aware of that, 0:08:29.320 --> 0:08:32.320 just as they were aware of the meeting in Trump Tower, 0:08:32.440 --> 0:08:35.640 but did not disclose that during those time periods when 0:08:35.679 --> 0:08:38.880 they know it but we do not. That's what's called compremat. 0:08:39.120 --> 0:08:41.720 That puts the Russians in a position of having information 0:08:41.760 --> 0:08:45.079 that's embarrassing to the President and his team and allows 0:08:45.160 --> 0:08:47.920 them great leverage. But in the money laundering context, as 0:08:47.920 --> 0:08:51.280 an example, I'm sure that Mueller is looking at a 0:08:51.400 --> 0:08:54.680 very classic technique used in the high levels of Russian government, 0:08:55.480 --> 0:08:58.440 which is the movement of capital to real estate markets 0:08:58.760 --> 0:09:02.280 to clean money by basically by paying high prices for 0:09:02.440 --> 0:09:07.040 real estate and eventually having the ability to sell those 0:09:07.160 --> 0:09:09.959 assets and have the money at that point be utilized. 0:09:10.000 --> 0:09:13.680 In Schedule three countries meeting countries which are on the screen, Well, 0:09:13.960 --> 0:09:17.280 this all ties to two very recent developments. Because it's 0:09:17.320 --> 0:09:20.240 clear that Congress doesn't fully trust President Trump in his 0:09:20.440 --> 0:09:23.319 dealings with Russia. That could be an interpretation of popular 0:09:23.360 --> 0:09:28.760 one from the sanctions that were by passing a bipartisan 0:09:28.960 --> 0:09:34.079 fashion through Congress UH that resulted in Russia's retaliation by 0:09:34.080 --> 0:09:38.360 ejecting the more than seven hundred diplomats that are in Russia. 0:09:38.440 --> 0:09:41.920 And then of course there's this escalating concern about Russia's 0:09:41.960 --> 0:09:45.679 interactions with North Korea, with Venezuela. I mean, this is 0:09:45.720 --> 0:09:49.080 getting very complicated with Trump. I mean, how much leverage 0:09:49.120 --> 0:09:52.160 does he have within the US even to deal with Russia, 0:09:52.200 --> 0:09:55.720 even if Russia does have compromont on him. Well, the 0:09:55.760 --> 0:09:58.480 way I think of it, and I look going first 0:09:58.520 --> 0:10:01.680 say we eurased advisors. We want to see good relations 0:10:01.679 --> 0:10:04.480 with Russia. That's what we're really about is trying to 0:10:04.480 --> 0:10:07.480 build bridges, trying to see business move ahead, resolve problems. 0:10:07.840 --> 0:10:10.440 But that has to start in a situation where the 0:10:10.520 --> 0:10:13.400 United States is being represented by people who are trustworthy 0:10:13.440 --> 0:10:16.360 and both in terms of not having complet model them, 0:10:16.679 --> 0:10:18.559 not having been paid as some of the people around 0:10:18.559 --> 0:10:21.640 Trump have been, and in addition being in a position 0:10:21.679 --> 0:10:24.240 to have the confidence of the population behind you in 0:10:24.320 --> 0:10:27.760 order to make deals. I actually view Trump right now 0:10:28.000 --> 0:10:32.160 as the major impediment to better relations with Russia. And 0:10:32.280 --> 0:10:34.439 I say it that way because I don't think it's 0:10:34.480 --> 0:10:38.600 possible having Trump in power given all that we already 0:10:38.640 --> 0:10:40.440 know about him, and I believe there will be a 0:10:40.480 --> 0:10:43.000 great deal more that comes out. I don't think he's 0:10:43.040 --> 0:10:44.840 going to ever going to be in a position where 0:10:44.840 --> 0:10:47.800 people in the United States, whether they're in Congress or 0:10:47.840 --> 0:10:50.760 just a population generally, are going to have a confidence 0:10:50.800 --> 0:10:53.839 that he's actually acting exclusively in the best interests of 0:10:53.880 --> 0:10:57.800 the United States, without any concern for information that people 0:10:57.880 --> 0:11:00.760 may have on him or for his own business dealings. 0:11:00.800 --> 0:11:03.080 And as you were just saying, Lisa, the tentacles of 0:11:03.120 --> 0:11:07.319 this go far beyond Russia. This this comes into play 0:11:07.400 --> 0:11:11.040 when you're dealing with relations with China, with Turkey, with Greece. 0:11:11.320 --> 0:11:14.640 It comes into play when it comes to the undermining 0:11:15.080 --> 0:11:17.920 of our civil society in the United States, whether in 0:11:17.920 --> 0:11:21.280 other words, attacking anyone who is going to be part 0:11:21.360 --> 0:11:25.600 of the accusations against him, anyone who is essentially playing 0:11:25.600 --> 0:11:29.280 a prosecutorial role, whether that's the court system, whether it's 0:11:29.320 --> 0:11:33.400 the media, whether it's an individuals such as Mueller. I 0:11:33.440 --> 0:11:36.000 think he has made the decision from a fairly early 0:11:36.080 --> 0:11:38.680 stage because he knew what was out there, that he 0:11:38.720 --> 0:11:42.520 had to undermine these sources of attack on him, and 0:11:42.559 --> 0:11:44.960 I think he's done that in a very broad manner 0:11:45.000 --> 0:11:47.320 and it's extremely harmful. So it's a matter that I 0:11:47.320 --> 0:11:49.760 think that affects all of us as he tries to 0:11:49.800 --> 0:11:52.040 deal with these allegations, although a lot of people would 0:11:52.080 --> 0:11:54.560 say that they have been overblown, that there has been 0:11:54.559 --> 0:11:58.200 no proof that you know, he is generally moving forward 0:11:58.280 --> 0:12:00.920 with the consensus of a pretty big corps of people 0:12:01.520 --> 0:12:03.920 who think that he's still doing a good job despite 0:12:03.960 --> 0:12:06.800 you know, some of the less popular polls, and they 0:12:06.840 --> 0:12:10.360 have come out, and you know, he's basically put some 0:12:10.400 --> 0:12:13.400 pretty respected people in right below him, and they certainly 0:12:13.800 --> 0:12:17.480 like McMaster, who is absolutely respected broadly, so you could 0:12:17.520 --> 0:12:20.400 say that, you know, they could act and negotiate to 0:12:20.480 --> 0:12:24.600 a decent level. Well, Look, I have respect for many 0:12:24.640 --> 0:12:27.840 people whom he's hired. I know Rex to Learsten somewhat 0:12:27.880 --> 0:12:29.840 from having served on a board with him years ago. 0:12:30.040 --> 0:12:33.400 And I think many people and I would assume he's 0:12:33.400 --> 0:12:36.200 in this category trying to be helpful in the situation, 0:12:36.280 --> 0:12:39.640 recognize that there are serious problems with Trump and many 0:12:39.679 --> 0:12:43.400 and his team and want to be responsible and our 0:12:43.440 --> 0:12:46.480 patriots trying to do the right thing. I'm not sure 0:12:46.559 --> 0:12:48.480 that's going to be successful for them. And I also 0:12:48.520 --> 0:12:50.880 don't think that at the end of the day that 0:12:50.880 --> 0:12:52.680 that is going to be enough to over in any 0:12:52.679 --> 0:12:57.480 way overcome the uh the undercurrents that we are now 0:12:57.520 --> 0:13:02.920 seeing coming out in terms of actual links between Russia 0:13:03.320 --> 0:13:05.080 and the Trump team. And as I said, I think 0:13:05.120 --> 0:13:07.199 there's gonna be a great deal more of that. What 0:13:07.400 --> 0:13:09.959 we look forward to your commentary and your thoughts. Richard 0:13:10.040 --> 0:13:14.040 Kahn is the managing partner at Eurasia Advisors, speaking about 0:13:14.200 --> 0:13:30.000 US Russia relations. All right, here to tell us what 0:13:30.080 --> 0:13:32.719 to do with your money is Phil Orlando. He is 0:13:32.760 --> 0:13:36.160 the chief Equity market Strategist, group head of Macro Balanced 0:13:36.200 --> 0:13:40.040 and Growth and Income Teams at Federated Investors, and he 0:13:40.120 --> 0:13:42.720 joins us here in our eleven trio studio. Phil, thanks 0:13:42.800 --> 0:13:44.600 very much for being o. Hey, Pim, thanks for very 0:13:44.679 --> 0:13:47.080 much for hearing me. So let's let's try to just 0:13:47.200 --> 0:13:50.040 understand exactly where we are in the market right now. 0:13:50.240 --> 0:13:53.520 And you know, we've heard these calls that equities are overvalued, 0:13:53.679 --> 0:13:57.080 bonds don't return a lot. What are you suggesting to 0:13:57.120 --> 0:13:59.760 your customers right now, Well, we don't think that stocks 0:13:59.760 --> 0:14:02.960 are revalued per se. We're sitting here at about nineteen 0:14:03.080 --> 0:14:07.199 times this year's estimated earnings of a hundred and thirty dollars. 0:14:07.240 --> 0:14:09.120 But I gotta tell you that the earnings are just 0:14:09.200 --> 0:14:11.600 coming in beautifully. You know. The first quarter is a 0:14:11.679 --> 0:14:14.880 fifteen percent year every year, best quarter in five years. 0:14:14.920 --> 0:14:18.760 Second quarter we're about sixty done. We're up about ten 0:14:18.800 --> 0:14:22.400 eleven percent, another solid quarter. Journal this morning made a 0:14:22.440 --> 0:14:25.360 comment that this is the best six month period we've 0:14:25.400 --> 0:14:29.840 seen in corporate earnings since um and but how much 0:14:29.880 --> 0:14:32.640 does that due to the weaker dollar? Well, currency is 0:14:32.640 --> 0:14:36.400 absolutely headwind. But but you know, why do we Why 0:14:36.400 --> 0:14:39.920 are we gonna penalize companies because the dollars weeken? They're 0:14:40.000 --> 0:14:42.920 the large cap companies are selling more stuff overseas. That's 0:14:42.960 --> 0:14:45.120 the environment in which they're dealing with. And if the 0:14:45.160 --> 0:14:49.320 earnings were terrible now because of the strong dollar, uh 0:14:49.400 --> 0:14:51.880 and and I would say, well, we've got to compensate 0:14:51.960 --> 0:14:54.920 for the strength of the US dollar being a headwin 0:14:55.000 --> 0:14:57.680 as opposed to tailwin, you'd say, and just just treat 0:14:57.720 --> 0:15:00.680 the earnings as they are. That's true. We wouldn't say that. 0:15:01.200 --> 0:15:03.520 I have to say, when you came in here and 0:15:03.560 --> 0:15:06.200 we were gonna we were talking ahead of the segment 0:15:06.240 --> 0:15:08.440 you were talking about, you're expecting a three to five 0:15:08.440 --> 0:15:11.320 percent pullback. How do you think about that and how 0:15:11.320 --> 0:15:13.640 do you sort of see that being triggered given the 0:15:13.640 --> 0:15:16.600 fact that earnings are coming in fantastically and that there 0:15:17.320 --> 0:15:20.640 isn't really anything that seems to shake confidence of investors. 0:15:20.680 --> 0:15:22.480 So you're in great shape right now with the earnings 0:15:22.520 --> 0:15:26.000 valuation at nineteen times is not that excessive. But earning 0:15:26.040 --> 0:15:28.280 season to end in a couple of weeks and then 0:15:28.680 --> 0:15:32.000 you know, seasonally, we've got this August September period, which, 0:15:32.520 --> 0:15:35.880 you know, the duldrums of the summer tend to lead 0:15:35.920 --> 0:15:39.800 to corrections. You've had a twenty move in the market since, uh, 0:15:39.840 --> 0:15:43.160 since the election. Uh, Washington can't seem to get out 0:15:43.160 --> 0:15:47.320 of its own way, for reasons that I still don't understand. 0:15:47.360 --> 0:15:50.240 They keep they keep trying to pound this you know, 0:15:50.480 --> 0:15:53.640 round peg of of healthcare into a square hole here, 0:15:54.560 --> 0:15:58.000 as opposed to pivoting over to something that actually matters, 0:15:58.320 --> 0:16:02.320 which is to focus on corporate tax reform and infrastructure 0:16:02.480 --> 0:16:05.640 and repatriation, the things that will move the needle. So 0:16:05.680 --> 0:16:07.840 at some point, maybe the market just says, you know what, 0:16:08.240 --> 0:16:11.840 we're just frustrated as hell with the fact that this 0:16:11.920 --> 0:16:15.840 administration can't can't shoot straight and and maybe that is 0:16:15.880 --> 0:16:18.480 what you know, triggers a little bit of an air pocket. Well, 0:16:18.480 --> 0:16:20.920 they might be frustrated, but if you're invested in the 0:16:21.000 --> 0:16:23.400 SMP five hundreds, you're up more than ten percent so 0:16:23.440 --> 0:16:26.720 far this year correct on the basis of earnings that 0:16:26.760 --> 0:16:29.840 there's no Trump. You know. But let's say, as an investor, 0:16:29.880 --> 0:16:32.080 you don't do you really care why it goes up. 0:16:32.120 --> 0:16:35.160 If you're long you just are happy that you're you know, 0:16:35.240 --> 0:16:37.880 your trade played out or your investments. Well, all right, 0:16:37.920 --> 0:16:40.600 so at Federated investors were long term investors. And the 0:16:40.640 --> 0:16:43.160 way we see this cycle playing out is we think 0:16:43.200 --> 0:16:48.160 the SMP, you know, at two thousand or so last election, 0:16:48.600 --> 0:16:51.120 we thought we had a nice clean run to three 0:16:51.120 --> 0:16:54.440 thous and looking out into the spring of so as 0:16:54.520 --> 0:16:57.240 as as we see that fifty percent move, we have 0:16:57.280 --> 0:16:59.840 no problems with what's playing out. But we're not the 0:17:00.000 --> 0:17:03.360 average investor. The average investor is looking at day to day, 0:17:03.360 --> 0:17:05.800 week to week stuff. The hedgees are not looking out 0:17:05.840 --> 0:17:07.320 to it for a year. Let me just challenging them, 0:17:07.320 --> 0:17:10.440 because when you say average investor, let's just I understand 0:17:10.440 --> 0:17:12.280 what you're saying. You know, it's like at the margin, 0:17:12.440 --> 0:17:15.199 they may set the price on any given day. But 0:17:15.320 --> 0:17:17.520 as you just described, if you're a long term investor, 0:17:17.560 --> 0:17:19.960 if you're looking to make an investment now for three 0:17:19.960 --> 0:17:22.720 to five years down the road, couldn't you be considered 0:17:22.720 --> 0:17:26.040 to be like an actual investor as opposed to a speculator. 0:17:26.080 --> 0:17:27.919 And if we were to get a three, five or 0:17:27.920 --> 0:17:31.080 seven percent declined, what would you be buying? Oh, we 0:17:31.119 --> 0:17:34.439 would absolutely be buyers. And the areas that we have 0:17:35.200 --> 0:17:38.560 shifted our focus to post election were those areas that 0:17:38.600 --> 0:17:41.959 are economically sensitive that we think will will benefit from 0:17:42.000 --> 0:17:47.399 the improved economy. So technology, financial services, energy, materials, industrials, 0:17:47.240 --> 0:17:49.960 the areas that you know will do better than the 0:17:50.720 --> 0:17:53.200 big stable dividend pairs. So I want to go back 0:17:53.240 --> 0:17:55.240 fil to what you were saying about the three to 0:17:55.359 --> 0:17:58.280 five percent correction, that we're entering the dull drums period 0:17:58.359 --> 0:18:00.520 of the year, and that typically that's a good time 0:18:00.560 --> 0:18:03.280 for a sell off. Of course, um, that is not 0:18:03.520 --> 0:18:06.800 enough of a catalyst that people are bored to to 0:18:06.840 --> 0:18:08.960 trigger a sell off, because otherwise they would have sold 0:18:08.960 --> 0:18:12.080 off a long time ago. But you know, I think 0:18:12.119 --> 0:18:14.160 a Rist cost Rich of Black Rock was on Bloomberg 0:18:14.160 --> 0:18:16.600 Television earlier today and he was talking about the build 0:18:16.680 --> 0:18:20.919 up of leverage at hedge funds and other investors in 0:18:20.960 --> 0:18:23.919 particular to buy stocks. And I have to wonder what 0:18:24.040 --> 0:18:27.040 that means for short term interest rates. If they rise, 0:18:27.240 --> 0:18:30.359 that leverage becomes much more expensive. Perhaps you get margin 0:18:30.440 --> 0:18:34.320 calls or having to post a more collateral and all 0:18:34.320 --> 0:18:37.919 of a sudden that could trigger a sell off. Do 0:18:38.000 --> 0:18:40.040 you see that as a potential catalyst. If not, what 0:18:40.080 --> 0:18:42.480 are some of the other potential catalysts. So Russ is 0:18:42.480 --> 0:18:45.800 a smart guy and and looking at the leverage of 0:18:45.880 --> 0:18:49.119 head funds, hedge funds is certainly an issue as we 0:18:49.200 --> 0:18:52.560 look at the potential for rising interest rates. Uh. We 0:18:52.560 --> 0:18:55.480 we know on the calendar that that we've got the 0:18:55.840 --> 0:18:59.240 FED Dr Yellen giving a key speech at at Jackson 0:18:59.280 --> 0:19:02.040 Hole in UH. I guess in about a month or less, 0:19:02.080 --> 0:19:04.480 little less than a month's time, where we think she's 0:19:04.480 --> 0:19:08.280 gonna lay out, you know, UH, a firmer plan in 0:19:08.440 --> 0:19:11.520 terms of the Feds unwind of uh, you know, the 0:19:11.560 --> 0:19:13.400 early stage of shrinking that four and a half trillion 0:19:13.440 --> 0:19:16.640 dollar balance sheet. We think the Fed kicks off with that, uh, 0:19:16.680 --> 0:19:20.320 definitively at their fo MC meeting in mid September. So 0:19:20.320 --> 0:19:24.719 so perhaps somewhere in there the market has the reality 0:19:24.800 --> 0:19:26.720 of the shrinking of the balance sheet, which is another 0:19:26.760 --> 0:19:29.560 way of saying that the Fed will continue to to 0:19:29.680 --> 0:19:32.399 withdraw accommodation from the market. Maybe maybe that is a 0:19:32.400 --> 0:19:36.520 trigger that that that gets investors starting to take some 0:19:36.600 --> 0:19:39.200 chips off the table. So it's really hard to sit 0:19:39.280 --> 0:19:42.200 here and say definitively that this is the issue that's 0:19:42.200 --> 0:19:44.320 going to trigger it. Uh, there may be three or 0:19:44.320 --> 0:19:46.919 four things that the markets nervous about. And given the 0:19:46.920 --> 0:19:50.400 fact that that you're you're entering sort of a typically 0:19:50.440 --> 0:19:53.560 perilous time with the stock market having done phenomenally well. 0:19:54.040 --> 0:19:56.760 Uh and and maybe we're just gonna, you know, nitpick 0:19:56.800 --> 0:20:00.560 our way to a small correction. Fel gonna be nit 0:20:00.680 --> 0:20:02.720 pick our way to that small correction. We're gonna be 0:20:02.760 --> 0:20:04.800 doing it with a lot fewer stocks. Do you have 0:20:04.800 --> 0:20:08.280 any thoughts on this idea that inn we had about 0:20:08.400 --> 0:20:12.040 seventy five hundred publicly traded companies that wasn't like the 0:20:12.040 --> 0:20:15.520 Wilshire five thousand. Right now we have about thirty five 0:20:15.640 --> 0:20:18.840 hundred that's at the kind of fifty percent. That's just 0:20:19.119 --> 0:20:23.320 fewer stocks to invest this maybe even growing amount of money. Uh. 0:20:23.760 --> 0:20:28.119 That's an issue. I would think that with a stronger economy, uh, 0:20:28.160 --> 0:20:33.000 with more business friendly fiscal policies, uh, we would start 0:20:33.080 --> 0:20:34.840 to see a wave of I p O s that 0:20:34.880 --> 0:20:38.159 would bring more, you know, fresh companies into the market. 0:20:38.359 --> 0:20:41.720 Another concern to your point, Pim, and we were discussing 0:20:41.720 --> 0:20:44.359 this at our morning meeting this morning, is that in 0:20:44.400 --> 0:20:46.960 the past, you know, you'll remember this, you're an old 0:20:46.960 --> 0:20:50.240 guy like me. Uh, companies when the stock price gets 0:20:50.240 --> 0:20:52.920 to a certain level, would split the stock two four 0:20:53.080 --> 0:20:55.760 three four. Don't they don't do that right now? Not are? 0:20:55.880 --> 0:20:59.159 Are are? One of our Dan Paris, the head of 0:20:59.160 --> 0:21:03.640 our strategic Vale You franchise, was bemoaning the fact that that, uh, 0:21:03.720 --> 0:21:06.359 you know that that McDonald's is trading it. I don't know, 0:21:06.480 --> 0:21:08.399 it's north of a hundred bucks. Was a hundred fifty 0:21:08.400 --> 0:21:11.560 bucks right now? In the old days, you know, Uh, 0:21:11.800 --> 0:21:13.920 companies would say, okay, we want to keep that stock 0:21:13.960 --> 0:21:16.000 somewhere between thirty and fifty dollars a share, and you 0:21:16.040 --> 0:21:18.760 would periodically get these two for one three for one splits. 0:21:18.880 --> 0:21:22.359 Now everybody's working up towards a thousand dollars, you know, 0:21:22.560 --> 0:21:24.560 Warren Buffett saying, we don't need to split the stock. 0:21:24.680 --> 0:21:27.479 Let's just keep you know, keep Berkshire Hathaway up at 0:21:28.040 --> 0:21:31.439 you know, these stratospheric levels. So that that also creates 0:21:31.440 --> 0:21:35.000 an issue because the retail investor, per se, doesn't really 0:21:35.000 --> 0:21:36.840 have the ability to buy a Hunter and hundred fifty 0:21:36.840 --> 0:21:40.520 dollar stock. They like to buy stocks that are of share, 0:21:40.920 --> 0:21:42.560 so they go to index funds where they can buy 0:21:42.560 --> 0:21:45.040 them all. Phil Orlando, thank you so much for joining us. 0:21:45.040 --> 0:21:47.080 It's always a pleasure to speaking. Thank you so much. 0:21:47.160 --> 0:21:49.720 Enjoy the rest of your summer. Thank you too, Phill Orlando. 0:21:49.800 --> 0:21:54.040 Chieffectuty Equity Market Strategistic Federated in Investors, joining us here 0:21:54.080 --> 0:22:09.600 in our Bloomberg eleven three oh studios. Well he's real, 0:22:09.720 --> 0:22:11.960 he's here with us today. Paul Sweeney US director of 0:22:12.000 --> 0:22:15.840 Research and senior Media Internet Analysts for Bloomberg Intelligence. He 0:22:15.880 --> 0:22:19.520 can be followed on Twitter at pt Sweeney r I 0:22:19.600 --> 0:22:23.919 P T. Sweeney tell us about this combination Scripts, Networks 0:22:24.160 --> 0:22:27.119 and Discovery. Why are they getting together? You know, I 0:22:27.119 --> 0:22:29.840