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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa A. Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com.

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Speaker 1: We are broadcasting live from the Commonwealth Financial Networks Annual

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Speaker 1: National Conference of Advisors from the Marriotte in Austin, Texas.

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Speaker 1: We are so pleased to say we are joined now

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Speaker 1: by Brad McMillan, Managing Principal and Chief Investment Officer at

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Speaker 1: Commonwealth Financial Network And Brad, given the fact that you

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Speaker 1: look after assets of more than one and a half

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Speaker 1: billion dollars, I'm just wondering from your d and fifty

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Speaker 1: six billion dollars. Excuse me, I'm just wondering from your perspective,

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Speaker 1: whether the October route in stock markets reduced the froth

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Speaker 1: enough to make a buying opportunity at this point. Well,

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Speaker 1: when you look at valuations, and I think that's really

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Speaker 1: the only way we can look at it. What October

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Speaker 1: told us was there is a lot of excess confidence

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Speaker 1: in there. So on the one hand, we're down at

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Speaker 1: the lower level of valuations we've seen for the past

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Speaker 1: five years. You can make a good case that, yeah,

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Speaker 1: the froughth is out of the system. I'm not convinced

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Speaker 1: to that, though, because I think the underlying reality is

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Speaker 1: we're starting to see interest rates move back into something

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Speaker 1: closer to a normal level, and I think that ultimately

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Speaker 1: that's going to apply value imply the valuations dropped to

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Speaker 1: something like a normal level. So I think this is

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Speaker 1: just the opening round. I don't think it's gonna happen soon,

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Speaker 1: but we can definitely see the time or clicking. Brad.

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Speaker 1: Can I just push a little bit and say normal

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Speaker 1: for whom because there's of us who are old enough

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Speaker 1: to remember interest rates? Yes, I agree with you, but

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Speaker 1: there are people who have come of age during a

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Speaker 1: time when money was relatively inexpensive. That's a great question, Tim,

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Speaker 1: and it's really kind of what we struggle with because

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Speaker 1: I have some younger folks on my team, and for them,

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Speaker 1: normal is to you know, that is what they've grown.

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Speaker 1: You tell them that it used to be ten percent,

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Speaker 1: fifteen percent, and that the world didn't end. I get

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Speaker 1: the look you used to give your dad and I

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Speaker 1: used to give my dad when you talked about walking

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Speaker 1: uphill to school both ways, So they don't really believe it.

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Speaker 1: But nonetheless, you can already see right now. We saw

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Speaker 1: interest rates dropped significantly in two thousand and eight, and

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Speaker 1: they stayed in a fairly narrow range until eleven, and

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Speaker 1: then the Greek crisis took rates down to a new low. Well,

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Speaker 1: guess what, We've just moved back into the O eight

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Speaker 1: oh eleven range. So we're above where we were, and

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Speaker 1: it's looking like it's gonna stick. So well, and I

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Speaker 1: guess what I'm trying to I want to go back

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Speaker 1: something you were saying, which is this is sort of

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Speaker 1: the opening south of what we saw in October, that

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Speaker 1: they're more declines and risk your assets to come as

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Speaker 1: And I'm assuming, as you talk, part of this is

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Speaker 1: predicated on the idea that interest rates are normalizing, so

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Speaker 1: some of the froth is going to have to dissipate

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Speaker 1: in the froth still is there, right, So I'm wondering,

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Speaker 1: I mean, how do you advise investors or investment advisors

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Speaker 1: to sort of plan with that in mind, given the

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Speaker 1: fact that it might not be imminent, and given the

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Speaker 1: fact that there still might be gains in some of

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Speaker 1: these risk assets, well, it's a question of what you

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Speaker 1: want to optimize around. And this is something I've been

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Speaker 1: writing about. Do you want to optimize around reducing your

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Speaker 1: risk or do you want to optimize around maximizing your returns?

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Speaker 1: And that's a decision we haven't We've been able to

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Speaker 1: have both over the past decade. And now you've got

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Speaker 1: really got to start thinking about, you know, what are

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Speaker 1: you trying to do, and if you're trying to protect

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Speaker 1: those gains, if you're trying to minimize the downside, and

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Speaker 1: by the way, is people get older, that's becoming more

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Speaker 1: and more important, then you need to start taking in

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Speaker 1: more defensive stance, have more in cash, modify your return

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Speaker 1: expectations much. It depends on the situation. Um, it depends

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Speaker 1: on how defensive you want to be. I mean, I

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Speaker 1: just finished a book we're handing it out of the

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Speaker 1: conference here. As a matter of fact, that suggests that

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Speaker 1: when things get bad, you really we should move substantial

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Speaker 1: portions of your portfolio to cash. So I mean, I

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Speaker 1: think cash is an underappreciated asset class and the only reason,

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Speaker 1: we don't appreciate it. So we've gotten used to things

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Speaker 1: going up for ten years in a row. Well, that

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Speaker 1: may go on forever. I have my doubts, am, I'm

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Speaker 1: more worried about return of capital or return on capital.

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Speaker 1: It's the old Will Rogers line. Do you know people

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Speaker 1: who have six months worth of what it takes for

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Speaker 1: them to live in cash? And I don't mean in

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Speaker 1: a brokerage account, I mean in a bank. Yes, are

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Speaker 1: there more or less of them today than there were,

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Speaker 1: let's say in two thousand and eight. There are in

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Speaker 1: two thousand and eight before the crisis, or afore the crisis,

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Speaker 1: before the crisis, because after the crisis it gets a

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Speaker 1: little harder. Well, I think they're probably about the same

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Speaker 1: number now because we're hitting the peak of the economic cycle.

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Speaker 1: You look at consumer confidence, it's actually higher than it

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Speaker 1: was in oh seven. You know, we're at levels we've

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Speaker 1: only seen at the peak of the dot com boom.

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Speaker 1: You look at there are a lot of numbers you

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Speaker 1: go out there and the highest we've ever seen except

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Speaker 1: for two thousand. That comes up more and more. So

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Speaker 1: we're getting to the point where things are about as

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Speaker 1: good as they can get and now is the time

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Speaker 1: to start thinking about being defensive. So would you say

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Speaker 1: that right now greed is driving most people in the market. Absolutely. Okay,

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Speaker 1: So you think that we're getting to that point where

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Speaker 1: it is getting a little bit of animal spirits E. Well,

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Speaker 1: when you absolutely, when you're starting to see you're starting

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Speaker 1: to see the merger boom take off, that's typically what

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Speaker 1: happens at the peak of the cycle. You're starting to

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Speaker 1: see people continuing to feel good. That's what happens at

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Speaker 1: the peak of the cycle. You're starting to see the

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Speaker 1: big up and down moves. This may sound familiar after

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Speaker 1: the past couple of weeks. That's typically what happens at

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Speaker 1: the peak of the cycle. I don't think we're quite

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Speaker 1: there yet. You know, they're still gains to be had.

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Speaker 1: I think there probably are through year end. But what

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Speaker 1: happens when we hit a recession. That's typically when things

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Speaker 1: blow up. And that's what I'm watching for personally. Is

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Speaker 1: your thought that people ought to wait in cash versus

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Speaker 1: fixed income. Well, the thing about fixed income is over

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Speaker 1: the past thirty years, we've had we've had two sources

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Speaker 1: of returns. We've had coupons which have been higher and

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Speaker 1: are now hour, and we've had capital appreciation going forward.

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Speaker 1: If rates even just stay the same, you're just gonna

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Speaker 1: have coupon. If rates go up, then all you're gonna

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Speaker 1: have is coupon minus capital depreciated. Right, But if your

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Speaker 1: scenario plays out that where as good as it gets,

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Speaker 1: consumer confidences as high as it's gonna get, and you're

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Speaker 1: worried about the next recession, wouldn't that mean that investors

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Speaker 1: will go to safety, And that means they're gonna go

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Speaker 1: and look to buy US treasuries. They're gonna look to

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Speaker 1: buy bonds, and as a result, the price of those

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Speaker 1: bonds is going to go up. And historically that's absolutely

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Speaker 1: been true. But now we have the supply of US

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Speaker 1: bonds going up as the Treasury issues more and more.

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Speaker 1: We have the buying power going down, as China and

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Speaker 1: Japan start to back off. In other words, it's no

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Speaker 1: longer as clear cut as it was. You're absolutely right

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Speaker 1: based on history, but the underwing dynamics are changing, and

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Speaker 1: I don't think we can rely on that. So you've

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Speaker 1: got to watch your duration. You've got to manage your expectations.

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Speaker 1: You can be in fixed income you're getting paid for

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Speaker 1: the risk and the shorter durations now, but going out

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Speaker 1: you're still making a pretty big bet. Is there any

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Speaker 1: area that you've advised investment managers reduced entirely from their portfolio.

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Speaker 1: It depends if you look at, for example, US stocks,

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Speaker 1: if you look at on a monthly basis, we drop

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Speaker 1: below the two day moving average, you can make a

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Speaker 1: case for getting out there. You would have been out,

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Speaker 1: you would be back in now. So that's not always

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Speaker 1: a good signal, but it is a good time to

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Speaker 1: pay attention. I would be reducing risk right now. I

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Speaker 1: wouldn't necessarily be taking it off the table, but I

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Speaker 1: would be saying, okay, if I'm gonna be reducing exposure

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Speaker 1: anyway for tax reasons, now is a good time to

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Speaker 1: be thinking about that. Just quickly, give you twenty seconds

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Speaker 1: to people a lot of themselves about how much risk

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Speaker 1: they're able to take. People tell themselves the absolute truth,

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Speaker 1: and then they change change their mind when the risk

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Speaker 1: actually shows up. Well done, Thanks very much, thanks for

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Speaker 1: showing it up. Brad McMillan is the Chief Investment Officer

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Speaker 1: for Commonwealth Financial Network, helping to manage more than a

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Speaker 1: hundred and fifty five billion dollars of Customer Assets based

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Speaker 1: in Waltham, Massachusetts, and we appreciate you being here and

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Speaker 1: hosting us at the Commonwealth Financial Networks Annual National Conference

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Speaker 1: of Advisors here in Austin, Texas. Coming up on Bloomberg Markets,

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Speaker 1: we're gonna talk about new chairman of Tesla, although Elon

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Speaker 1: Musk is still going to be the chief executive. You're

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Speaker 1: listening to Bloomberg Market sign Pim Fox along with Lisa Abramwitz.

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Speaker 1: I want to bring you some breaking news just crossing

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Speaker 1: of the Bloomberg terminal. The probe into a Malaysian high

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Speaker 1: profile corruption probe has widened, and a Lloyd Blank find

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Speaker 1: the former chief executive of Goldman Sachs was the unidentified

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Speaker 1: high ranking Goldman SAX executive referenced in US Cork documents

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Speaker 1: who attended a two thousand nine meeting that helped forge

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Speaker 1: some of the ties with the Malaysian leader UH and

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Speaker 1: its new sovereign wealth fund that led to the bank

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Speaker 1: helping it raise six and a half billion dollars that

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Speaker 1: has sparked investigations across many nations. We will bring you

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Speaker 1: more about this UH in the hours ahead. Pimp. Yes,

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Speaker 1: we'll be following that story. That is a Bloomberg exclusive.

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Speaker 1: We are broadcasting from the Commonwealth Financial Networks Annual National

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Speaker 1: Conference of Advisers in Austin, Texas. Our guest is Christina Hooper,

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Speaker 1: chief market strategist for Investco. Christina, thank you very much

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Speaker 1: for being with us. Following the results of the mid

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Speaker 1: term elections. Do you believe that there is an investment

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Speaker 1: thesis that infrastructure spending can drive the price of selective

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Speaker 1: stocks higher. I think there's definitely an investment thesis for that.

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Speaker 1: UM Now having said that, an infrastructure bill is far

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Speaker 1: from a done deal, but I do believe that the

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Speaker 1: press send it would like to see infrastructure spending, how

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Speaker 1: Democrats would like to see infrastructure spending, and we might

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Speaker 1: see enough senators on the Republican side of the aisle

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Speaker 1: also support it, especially if we see some kind of

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Speaker 1: dip in economic growth in two thousand nineteen. So there

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Speaker 1: are a lot of good reasons, and in particular, if

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Speaker 1: we want to think about how the US is trying

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Speaker 1: to be competitive with China, UM an important way to

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Speaker 1: do that is to invest in infrastructure, because clearly, uh

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Speaker 1: China's infrastructure, it's more robust, it's newer, it's in better condition,

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Speaker 1: and that's one way we can compete. So there are

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Speaker 1: a variety of reasons for supporting infrastructure, and I think

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Speaker 1: we could see a deal in So if somebody wanted

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Speaker 1: to get ahead of that and make investments, where would

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Speaker 1: they Where would they go? Right now? Well, I think

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Speaker 1: you need to be selective, but many material stocks would

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Speaker 1: be poised to benefit from an infrastructure spending bill. Now

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Speaker 1: we need to know exactly what would be spent on

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Speaker 1: in the infrastructure bill, because keep an mind, it could

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Speaker 1: be a telecom heavy infrastructure spending bill. But my guess

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Speaker 1: is that because we have so much in the way

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Speaker 1: of traditional infrastructure that needs repair or replacement, that that's

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Speaker 1: likely where we would see the greatest benefit. So, for example,

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Speaker 1: cement companies, I mean, the most basic of materials would

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Speaker 1: really benefit from a traditional infrastructure spending bill. Then why

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Speaker 1: do we see, for example, industrial metals such as copper

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Speaker 1: continue to make new loads. Well, copper is a unique

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Speaker 1: phenomenon and I know that it is widely viewed as

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Speaker 1: a great indicator for economic growth. What we've seen is

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Speaker 1: demand in China has been strong for copper, but in

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Speaker 1: fact the traders have impacted where copper prices have gone.

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Speaker 1: So I don't look at copper as any kind of

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Speaker 1: indication anymore of demand in general, because there are other

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Speaker 1: forces at work there. It's a great question. I just

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Speaker 1: think that that, um, there are better gauges of demand,

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Speaker 1: and of course we won't even see demand really increase

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Speaker 1: until we get some kind of infrastructure spending bill. If

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Speaker 1: there really is going to be some kind of infrastructure

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Speaker 1: spending plan, what does that mean for the US deficit?

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Speaker 1: And frankly, whether or not people should own longer term

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Speaker 1: US treasuries, Well, it means that all else being equal,

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Speaker 1: the deficit is going to continue to grow. This is

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Speaker 1: not a new concept though. Um, we're already seeing the

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Speaker 1: deficit increase. And I and I think for Republicans it

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Speaker 1: will be the same question they asked themselves when they

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Speaker 1: came to support the tax reform bill, which was, if

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Speaker 1: we get enough economic growth, do we believe that that

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Speaker 1: will ultimately make up in tax revenues what we may

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Speaker 1: lose in terms of budgets. On a second, I mean

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Speaker 1: that's been debunked at this point. It's not that. I mean,

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Speaker 1: maybe it sort of took the edge off some of

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Speaker 1: the increase in the deficit, but for all intents and purposes,

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Speaker 1: almost nobody is saying that it's going to completely pay itself,

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Speaker 1: pay for itself at this point and ut realize it

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Speaker 1: for the longer term. So I guess I'm just trying

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Speaker 1: to figure out at what point does that mean much

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Speaker 1: higher borrowing costs for the US or do you think

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Speaker 1: that what we've seen over the past few months is

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Speaker 1: that there are sufficient demand UH domestically in the United

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Speaker 1: States to suck up and soak up some of the

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Speaker 1: UH sort of higher treasury bond auction sizes. It's a

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Speaker 1: huge question. I don't know if we're going to see

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Speaker 1: sufficient demand. Thus far, we've seen it, but quite frankly,

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Speaker 1: we're flooding the market with treasuries because it's not just

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Speaker 1: issuance as a result of deficit spending, but we also

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Speaker 1: have balance sheet normalization going on, and that's accelerating every quarter. UM.

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Speaker 1: So that is a very significant question that I think

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Speaker 1: will be answered over time. But um from the perspective

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Speaker 1: of whether or not we will see legislators supporting this,

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Speaker 1: members of Congress supporting this, I think they may fall

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Speaker 1: back on that argument that they need to stimulate growth

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Speaker 1: and they will see it come back in tax revenue.

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Speaker 1: Tell us a little bit about technology, because there seems

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Speaker 1: to be from both the President and the Democrats an

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Speaker 1: idea about greater regulation and greater taxation of technology companies. Well,

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Speaker 1: that's clearly been a theme that we've heard from both

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Speaker 1: the Democrats as well as the President. And so the

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Speaker 1: question is will the Senate stand in its way? And Uh.

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Speaker 1: While I think the Senate would stand in the way

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Speaker 1: of the President and House Democrats who want to control

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Speaker 1: drug pricing, I don't believe they will be as much

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Speaker 1: of an obstacle in terms of greater regulation of technology

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Speaker 1: as well as greater taxation of technology. And quite frankly,

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Speaker 1: when you're running larger deficits, you're always looking for great

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Speaker 1: sources um of taxation, and tech seems front and center

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Speaker 1: on that list. Christina, I'd love to get your opinion

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Speaker 1: on the route that we saw in US equities in October.

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Speaker 1: Do you think that it sufficiently took the froth out

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Speaker 1: of the market to be buying opportunity or do you

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Speaker 1: think that it was assigned that there's more to come.

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Speaker 1: Yes and no. So we certainly saw some of the

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Speaker 1: froth taken out of the market. Do I believe all

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Speaker 1: the froth has come out of the market. No. UM,

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Speaker 1: All we need to do is go back to November

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Speaker 1: nine of two thousand and sixteen, when this extraordinary rally began.

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Speaker 1: At that time, I worried that UM, while many of

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Speaker 1: the Administration's agenda items are pro growth, not all of

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Speaker 1: them are, and in fact, to really UM run counter

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Speaker 1: to growth. UM, and I mean specifically protectionism and very

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Speaker 1: strict immigration policies. And so the market was reacting as

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Speaker 1: though it was an entirely pro growth agenda. And UM,

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Speaker 1: quite frankly, the kind of give up we saw in February,

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Speaker 1: and we've made such a quick recovery, the kind of

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Speaker 1: give up we saw in October, to me, doesn't take

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Speaker 1: all that froth out of the market. Just quickly give

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Speaker 1: you twenty seconds. Federal minimum wage increase. Do you see

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Speaker 1: that coming? I think that Senate Republicans would stand in

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Speaker 1: the way of a minimum wage increase. UM. That's my view.

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Speaker 1: I think it's much more likely that we get greater

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Speaker 1: tech regulation and taxation. I think that they would stand

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Speaker 1: where they would on drug pricing, which is, we don't

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Speaker 1: want to see an increase in minimum wage I could

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Speaker 1: be wrong, though, um, and certainly I think so much

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Speaker 1: of this will be dependent on the polls because legislators

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Speaker 1: are going to care what people are thinking. That's right,

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Speaker 1: especially heading in Christina Hooper, thank you so much for

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Speaker 1: being with us here at Commonwealth Conference here in Austin, Texas.

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Speaker 1: Christina Hooper is chief Global market Strategist at Investco, helping

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Speaker 1: to oversee nearly a trillion dollars. Based in New York.

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Speaker 1: But you know, we're all here to enjoy the weather

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Speaker 1: or the music or the barbecue in Austin, Texas. And

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Speaker 1: we're gonna be here tomorrow too. I can't wait. We're

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Speaker 1: gonna go get some barbecue and Lisa Ron went along

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Speaker 1: with my co hosting colleague Pim Fox Bluebric Politics, Policy,

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Speaker 1: power and Law. Up next, we're broadcasting live from the

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Speaker 1: Commonwealth Financial Networks Annual National Conference of Advisors in the

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Speaker 1: Mariott Hotel in Austin, Texas. I'm Pim Fox along with

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Speaker 1: my co host Lisa brahma Witz. Joining us now from

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Speaker 1: our Interactive Broker's studio is Larry Liebert, our national security editor. Larry,

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Speaker 1: You're normally based in Washington, d C. Where there were

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Speaker 1: a lot of tearful goodbyes for former Attorney General Jeff

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Speaker 1: Sessions yesterday. Can you tell us what the change at

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Speaker 1: the top of the Department of Justice will mean for

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Speaker 1: Robert Mueller's investigation? Well, I can't entirely, because it depends

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Speaker 1: on which course his acting successor, Matthew Whittaker takes. Whittaker

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Speaker 1: has been openly critical as a commentator previously of Mueller

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Speaker 1: perhaps going too far and it suggested constraining this investigation.

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Speaker 1: But does he mean he would fire Muller, which he

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Speaker 1: could could have the power to do, or does he

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Speaker 1: mean he will quietly, behind the scenes try to limit

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Speaker 1: his avenues of investigation. And that's a real possibility. And

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Speaker 1: then the question is will the rest of us know it,

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Speaker 1: either through leaks or Mueller quitting or will it remain

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Speaker 1: a very secret course. Well, Larry, I'm just looking at

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Speaker 1: a CNN report that says that Robert Mueller is actually

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Speaker 1: finishing up the final report that he has been working on.

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Speaker 1: If that is true, what could matt Whittaker do as

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Speaker 1: the acting a g to alter that at this point?

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Speaker 1: I mean, in other words, is it too far along? Well,

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Speaker 1: the Bloomberg has reported that he is close. Muller is

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Speaker 1: to uh some key findings. Whether it's the final final report,

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Speaker 1: I'm not sure, but we've already said he's close to

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Speaker 1: some key findings. One of the things that his new boss, Whittaker,

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Speaker 1: can decide is what happens with those findings. He has

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Speaker 1: the power to decide whether they made public, sent to

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Speaker 1: congressional committees, where they're short leak, are are kept private. Uh.

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Speaker 1: There's no rules beyond uh beyond his oversight. So when

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Speaker 1: we hear about Mueller's report being issued, I always try

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Speaker 1: to change that, uh that wording in our stories to

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Speaker 1: say his findings are being completed. Uh, they may not

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Speaker 1: be issued in the public sense. And that's one of

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Speaker 1: the powers that Whittaker may have. Larry Liebert, how long

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Speaker 1: can Matthew Whittaker remain as the acting Attorney General? Well,

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Speaker 1: there's a period of months, but that can be extended

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Speaker 1: if the President has trouble uh with whoever he nominates

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Speaker 1: to be the permanent attorney Generally, since he's going to

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Speaker 1: make that nomination, it clearly won't be acted on until

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Speaker 1: uh the new uh Congress UH takes uh as seat

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Speaker 1: in January. If anything, approval of a new Attorney General

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Speaker 1: is more likely since the Republicans gained a couple at

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Speaker 1: least a couple of seats in the Senate. Uh. But

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Speaker 1: if you say one nominee fails, as I understand that

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Speaker 1: there could be extensions, uh, while a new one is proposed.

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Speaker 1: So it's going to be at least a matter of

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Speaker 1: some months. Larry, I'm struggling to understand what check there

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Speaker 1: is or is not by the House, which has flipped

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Speaker 1: to the Democratic or by the existing Democrats. Are people

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Speaker 1: who are opposed to crimping Muller's investigation? I mean, is

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Speaker 1: there any way that Matt Whittaker could be sort of

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Speaker 1: forced to comply with uh, certain parameters enforced by Congress. Well,

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Speaker 1: there's a number of things. They gain the power of

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Speaker 1: investigation and oversight that the Republicans have had before, and

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Speaker 1: that means they can issue subpoenas, they can demand testimony,

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Speaker 1: they can demand, as they're already doing while not having

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Speaker 1: the dominant power, the preservation of all documents, so they

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Speaker 1: can pursue this. The ultimate power, of course, would be

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Speaker 1: the power of impeachment. And UH, while there are grassroots

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Speaker 1: Democrats already demanding that democratically they won't go Larry, before

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Speaker 1: jumping to that level, right, I mean, I'm just wondering,

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Speaker 1: with respect to uh sort of oversight of Matt Whittaker,

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Speaker 1: is there any real way to do that in the

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Speaker 1: near term or now? Well, what I was saying is

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Speaker 1: I was saying Democrats won't go there to impeachment. They

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Speaker 1: are going to demand testimony, presumably including by him. They're

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Speaker 1: demanding documents that can issue subpoenas, but they can't do

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Speaker 1: any of that except by pleading until January. So if

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Speaker 1: he moves quickly, if Muller is UH in his last

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Speaker 1: stages of preparing his reports, that it may all be

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Speaker 1: moved by then. So there's only so much they can

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Speaker 1: do until they take over, and then it depends on

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Speaker 1: how severa constitutional crisis they they believe has taken place

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Speaker 1: just quickly. And Larry, you mentioned the evidence that Mr

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Speaker 1: Mueller has assembled in order to prepare his report. What

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Speaker 1: happens to that actual evidence? Well, what again, the findings

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Speaker 1: that he issue us all? As I mentioned, there's a

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Speaker 1: question whether they become public. But so much of what

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Speaker 1: Mueller has done has already played out in indictments and

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Speaker 1: court proceedings. He's made a lot of referrals to US

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Speaker 1: attorney's offices, and they can pursue that evidence whether he's

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Speaker 1: there or not. And so in a way, there's a

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Speaker 1: lot that Mueller has done that would be impossible to undo.

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Speaker 1: Larry Liebert, thank you so much for being with us.

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Speaker 1: Larry Libert, national security editor for Bloomberg News, talking about

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Speaker 1: the situation in Washington, d C. As it unfolds with

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Speaker 1: respect to the independent investigation into Russia collusion and interference

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Speaker 1: in elections. We are broadcasting live from the Commonwealth Financial

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Speaker 1: Networks Annual National Conference of Advisors from the Marriott in Austin,

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Speaker 1: Texas and unusually chilly daycare actually him, I was sort

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Speaker 1: of surprised. I was expecting Texas to be warm and

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Speaker 1: it is instead of fifty degrees and somewhat wet. Joining

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Speaker 1: us now, Virgil Kale, President, owner of spring Ridge Financial Group,

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Speaker 1: UH from Pennsylvania, but joining us here, Virgil, I want

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Speaker 1: to start with this idea that you know, there's sort

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Speaker 1: of an institutional memory of two thousand and eight and

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Speaker 1: a collective fear that's sort of still pervasive in the markets.

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Speaker 1: What is the biggest concern right now of the clients

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Speaker 1: who you work with. I think clients understand that it

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Speaker 1: has been a nice recovery from two thousand and eight.

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Speaker 1: I still think that they are subconsciously worried about something

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Speaker 1: terribly going wrong in the markets or the financial system

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Speaker 1: and seeing their their values drop substantially, as I remember

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Speaker 1: in two thousand eight, in the first two weeks, right,

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Speaker 1: so people still worry about that. And I think my

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Speaker 1: memories of two thousand eight, I compared it to h

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Speaker 1: being like an e R doctor and all your patients

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Speaker 1: are in the R at the same time, and you

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Speaker 1: have to save them from from making the wrong decision. Um.

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Speaker 1: But as far as UM you know I, you basically

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00:23:58,200 --> 00:24:00,600
Speaker 1: have to go through with clients. Okay, this is what

431
00:24:00,760 --> 00:24:05,360
Speaker 1: caused it? Is it likely to happen again? Um? Can

432
00:24:05,400 --> 00:24:08,879
Speaker 1: we ever be sure? Can we ever be sure? I'm

433
00:24:08,920 --> 00:24:12,320
Speaker 1: not worried about our financial system in the US. Perhaps

434
00:24:12,400 --> 00:24:14,919
Speaker 1: I might be worried about a financial system issue in

435
00:24:14,960 --> 00:24:24,040
Speaker 1: another country. Um, but we commit rhymes with I'll let

436
00:24:24,080 --> 00:24:26,359
Speaker 1: you do the poetry. But I want to ask an

437
00:24:26,440 --> 00:24:29,280
Speaker 1: Virgil if you don't mind. UM, in a previous life,

438
00:24:29,320 --> 00:24:32,399
Speaker 1: you were a certified public accountant. Okay, you still have

439
00:24:32,520 --> 00:24:34,960
Speaker 1: the designation and I'm wondering if you could tell us

440
00:24:34,960 --> 00:24:37,880
Speaker 1: a little bit about what did you learn from that

441
00:24:38,080 --> 00:24:42,600
Speaker 1: experience that you have been able to apply in the

442
00:24:42,720 --> 00:24:46,480
Speaker 1: role that you have at spring Ridge Because a c

443
00:24:46,680 --> 00:24:50,040
Speaker 1: p A. Uh, First of all, it's a legal designation.

444
00:24:50,080 --> 00:24:53,080
Speaker 1: I mean you you have a level of responsibility that

445
00:24:53,119 --> 00:24:56,520
Speaker 1: many people may not recognize. Well. I do think that

446
00:24:56,720 --> 00:25:02,159
Speaker 1: having a cp A background definitely, uh. I would say

447
00:25:02,320 --> 00:25:04,560
Speaker 1: influences the way I look at the markets and the

448
00:25:04,560 --> 00:25:08,560
Speaker 1: way I look at UM valuations. Even though we've been

449
00:25:08,600 --> 00:25:11,480
Speaker 1: told that, you know, studying the pe ratios isn't exactly

450
00:25:11,520 --> 00:25:13,879
Speaker 1: the best way to decide whether the markets overheating or

451
00:25:13,920 --> 00:25:16,680
Speaker 1: not because they go to one extreme to another. But

452
00:25:17,640 --> 00:25:20,000
Speaker 1: I think when you have when because I was an

453
00:25:20,040 --> 00:25:23,000
Speaker 1: auditor when I was in public accounting, and I had

454
00:25:23,040 --> 00:25:25,400
Speaker 1: to do balance sheets and income statements and I kind

455
00:25:25,400 --> 00:25:27,520
Speaker 1: of know what goes into it and cash flow statements

456
00:25:27,520 --> 00:25:30,600
Speaker 1: and all that stuff matters. So when we talk about

457
00:25:30,720 --> 00:25:34,040
Speaker 1: the markets and you know whether the SMP and indexing

458
00:25:34,119 --> 00:25:36,680
Speaker 1: is the right thing to do, I tend to think

459
00:25:36,760 --> 00:25:39,080
Speaker 1: more on a from a fundamental standpoint. So that does

460
00:25:39,200 --> 00:25:42,480
Speaker 1: influence my way of looking at the markets. And I

461
00:25:42,480 --> 00:25:44,320
Speaker 1: don't know if I wasn't a c p A first,

462
00:25:44,359 --> 00:25:46,560
Speaker 1: if I would be that strong on that, Okay, In

463
00:25:46,560 --> 00:25:48,800
Speaker 1: other words, it's really important to look at the cash

464
00:25:48,800 --> 00:25:51,119
Speaker 1: flows and not just invest in a basket of companies

465
00:25:51,400 --> 00:25:53,040
Speaker 1: and and hope for the best. Is that is that

466
00:25:53,040 --> 00:25:54,920
Speaker 1: what you're saying. I would say that the cash flow

467
00:25:54,920 --> 00:25:58,720
Speaker 1: statement is is the statement that doesn't lie? Right, But

468
00:25:58,720 --> 00:26:01,439
Speaker 1: but but here's here's here's the challenge to that is

469
00:26:01,480 --> 00:26:04,080
Speaker 1: that that is true, and yet it also doesn't lie.

470
00:26:04,119 --> 00:26:06,640
Speaker 1: Is diversification And if you have a couple of bad apples,

471
00:26:06,880 --> 00:26:09,640
Speaker 1: in general, you'll have enough winners that you'll get more

472
00:26:10,119 --> 00:26:12,919
Speaker 1: You'll get more of an upside than potentially downside in

473
00:26:13,000 --> 00:26:15,280
Speaker 1: terms of outperforming or just performing with the rest of

474
00:26:15,280 --> 00:26:17,880
Speaker 1: the market with an index fund. I'm just wondering from you,

475
00:26:18,040 --> 00:26:19,880
Speaker 1: I mean, is there any proof that you sort of

476
00:26:19,880 --> 00:26:24,159
Speaker 1: looked to to show your clients why active is preferable

477
00:26:24,400 --> 00:26:27,160
Speaker 1: to passive, because that seems to be the argument here. Well, yeah,

478
00:26:27,280 --> 00:26:30,600
Speaker 1: and and I would say most of my allocation and

479
00:26:30,720 --> 00:26:34,120
Speaker 1: when I build a portfolio is active. But now there

480
00:26:34,200 --> 00:26:36,359
Speaker 1: is a time and place for passive. If you really

481
00:26:36,400 --> 00:26:41,000
Speaker 1: feel like the entire market has you know, gotten significantly oversold,

482
00:26:41,200 --> 00:26:43,560
Speaker 1: and you just want your clients to participate in the

483
00:26:43,720 --> 00:26:47,800
Speaker 1: entire market upswing, you know, or a sector that oversold.

484
00:26:48,000 --> 00:26:51,760
Speaker 1: I could see being passive in certain circumstances. But on

485
00:26:51,800 --> 00:26:53,960
Speaker 1: the other hand, you know, I guess we should be

486
00:26:54,400 --> 00:26:57,040
Speaker 1: No one loves what happened in October, but by the

487
00:26:57,080 --> 00:26:59,560
Speaker 1: same token, we should be maybe thankful that had happened,

488
00:26:59,560 --> 00:27:03,199
Speaker 1: because it kind of, uh, the fluff of the market,

489
00:27:03,440 --> 00:27:06,199
Speaker 1: you know, I feel like has dissipated and now we

490
00:27:06,280 --> 00:27:10,800
Speaker 1: can't really say that we're stretched invaluations, and and I

491
00:27:10,840 --> 00:27:14,040
Speaker 1: feel like that's as healthy. It's healthy to that point.

492
00:27:14,520 --> 00:27:17,639
Speaker 1: Um if volatility is going to pick up, and it

493
00:27:17,680 --> 00:27:19,600
Speaker 1: should pick up, and I believe it will pick up

494
00:27:19,600 --> 00:27:21,800
Speaker 1: for the next couple of years after a very low

495
00:27:21,880 --> 00:27:26,199
Speaker 1: volatile seen and a very low volatile decade. Actually, I

496
00:27:26,240 --> 00:27:31,679
Speaker 1: feel active managers can I identify the inefficiencies that are

497
00:27:31,720 --> 00:27:34,000
Speaker 1: out there. When the market's going straight up and there's

498
00:27:34,000 --> 00:27:37,600
Speaker 1: no volatility, it's harder for active managers to outperform. That's

499
00:27:37,640 --> 00:27:39,640
Speaker 1: why all of the data saying, you know, active managers

500
00:27:39,640 --> 00:27:42,760
Speaker 1: can outperform, but most of the time that's focused on

501
00:27:42,800 --> 00:27:45,280
Speaker 1: the large cap US market, and that's not a fully

502
00:27:45,320 --> 00:27:49,040
Speaker 1: diversified portfolio. So it's kind of you know, there's just

503
00:27:49,200 --> 00:27:53,480
Speaker 1: there's no simple way to say active versus passive. You

504
00:27:53,480 --> 00:27:56,560
Speaker 1: have to look at it with every sliver of of

505
00:27:56,640 --> 00:27:59,520
Speaker 1: the asset class pie and and make a judgment call

506
00:27:59,560 --> 00:28:02,960
Speaker 1: on whether broad exposure or a manager that has proven

507
00:28:03,000 --> 00:28:06,520
Speaker 1: themselves that it's highly rated of, you know, strong on

508
00:28:06,560 --> 00:28:09,320
Speaker 1: their Lipper average or their morning Star rating, or your

509
00:28:09,400 --> 00:28:11,960
Speaker 1: knowledge of of the team that's in place with that

510
00:28:12,040 --> 00:28:15,200
Speaker 1: fund or the e t F. You know, I feel

511
00:28:15,240 --> 00:28:17,560
Speaker 1: like there is a time and place for everything, and

512
00:28:17,600 --> 00:28:22,159
Speaker 1: I'm looking forward to active management actually having better results

513
00:28:22,600 --> 00:28:25,440
Speaker 1: as volatility picks up and as we head into maybe

514
00:28:25,840 --> 00:28:28,879
Speaker 1: uh coming from peak growth and peak earnings growth to

515
00:28:29,880 --> 00:28:34,160
Speaker 1: more disappointments in twenty nineteen and and the economy maybe

516
00:28:34,200 --> 00:28:38,760
Speaker 1: slowing down a little bit eventually. So um yeah, that's

517
00:28:38,760 --> 00:28:40,360
Speaker 1: why I look at I want to thank you very

518
00:28:40,440 --> 00:28:43,000
Speaker 1: much for sharing your information with us in your story

519
00:28:43,120 --> 00:28:46,280
Speaker 1: of Virgil kale Is, the president and the owner of

520
00:28:46,560 --> 00:28:50,400
Speaker 1: spring Ridge Financial Group, helping to manage about seven hundred

521
00:28:50,480 --> 00:28:54,760
Speaker 1: million dollars worth of assets. Much appreciated and thank you

522
00:28:54,920 --> 00:28:58,040
Speaker 1: for being here with us at the Commonwealth Financial Networks

523
00:28:58,200 --> 00:29:03,880
Speaker 1: National Conference twenty eighteen, over two thousand attendees, and we'll

524
00:29:03,880 --> 00:29:08,040
Speaker 1: be carrying more information from the conference. This is Bloomberg.

525
00:29:08,120 --> 00:29:12,400
Speaker 1: I'm Pim Fox along with Lisa Abramowitz. Thanks for listening

526
00:29:12,400 --> 00:29:15,320
Speaker 1: to the Bloomberg P and L podcast. You can subscribe

527
00:29:15,320 --> 00:29:18,920
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever

528
00:29:18,960 --> 00:29:22,440
Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter

529
00:29:22,720 --> 00:29:26,480
Speaker 1: at pim Fox. I'm on Twitter at Lisa abramowits one

530
00:29:26,720 --> 00:29:29,440
Speaker 1: before the podcast. You can always catch us worldwide on

531
00:29:29,480 --> 00:29:30,280
Speaker 1: Bloomberg Radio.