1
00:00:03,279 --> 00:00:06,680
Speaker 1: Global business news twenty four hours a day. It's Bloomberg

2
00:00:06,720 --> 00:00:09,799
Speaker 1: dot Com, the Radio plus mobile last and on your radio.

3
00:00:10,039 --> 00:00:14,560
Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Handquarters,

4
00:00:14,560 --> 00:00:18,160
Speaker 1: Signed Charlie Pallet. Stocks are trading little change equities near

5
00:00:18,239 --> 00:00:22,480
Speaker 1: records as investors continued to debate the FEDS next interest

6
00:00:22,560 --> 00:00:25,360
Speaker 1: rate move s and p five hundred indecks down to

7
00:00:25,400 --> 00:00:29,440
Speaker 1: point now four down less than one tenth of one percent,

8
00:00:29,960 --> 00:00:33,240
Speaker 1: nastack up four points at a record fifty two eighty

9
00:00:33,280 --> 00:00:35,400
Speaker 1: a gain there of one tenth of one percent. Down,

10
00:00:35,440 --> 00:00:38,960
Speaker 1: Industrials down twenty two a drop there of one tenth

11
00:00:39,000 --> 00:00:42,320
Speaker 1: of one percent. Ten Ure yield one point five three percent,

12
00:00:42,440 --> 00:00:46,440
Speaker 1: Gold down five ten the ounce, a drop of four

13
00:00:46,479 --> 00:00:50,040
Speaker 1: tenths of one percent. And crude oil West Texas Intermediat

14
00:00:50,120 --> 00:00:52,760
Speaker 1: up one point three percent, up fifty eight cents of

15
00:00:52,800 --> 00:00:57,040
Speaker 1: barrel forty one right now on West Texas Intermedia Crude.

16
00:00:57,320 --> 00:01:01,680
Speaker 1: I'm Charlie Pallett, and that's the Bloomberg Business w you're

17
00:01:01,720 --> 00:01:04,880
Speaker 1: listening to Taking stock with Kathleen Hayes and Pim Fox

18
00:01:05,000 --> 00:01:09,200
Speaker 1: on Bloomberg Radio. Stocks will soon exhibit a flight to quality.

19
00:01:09,280 --> 00:01:12,800
Speaker 1: The price of oil will soon collapse. While we're very

20
00:01:12,800 --> 00:01:15,400
Speaker 1: happy to welcome someone to the show who when he

21
00:01:15,520 --> 00:01:18,360
Speaker 1: says something like that, when that's something he wants to

22
00:01:18,400 --> 00:01:23,039
Speaker 1: talk about, you must realize that he is widely recognized

23
00:01:23,040 --> 00:01:27,920
Speaker 1: as an expert who translates academic techniques into real market applications,

24
00:01:27,959 --> 00:01:32,480
Speaker 1: a discipline quantitative analysis on stocks on the overall market.

25
00:01:32,560 --> 00:01:36,120
Speaker 1: That's what Louis Navalier is known for. Chairman, founder and

26
00:01:36,200 --> 00:01:40,160
Speaker 1: chief investment officer at Navalier and Associates. LOUI, welcome to

27
00:01:40,200 --> 00:01:42,800
Speaker 1: the show. It's good to be here. So in your words,

28
00:01:42,880 --> 00:01:46,640
Speaker 1: just some up for our listeners who may have not

29
00:01:46,800 --> 00:01:50,960
Speaker 1: followed your analysis over the years. How would you yourself say,

30
00:01:51,000 --> 00:01:54,480
Speaker 1: what is it that you do that you have put

31
00:01:54,520 --> 00:01:58,480
Speaker 1: your whole, your whole career, your whole reputation behind. Well,

32
00:01:58,520 --> 00:02:01,920
Speaker 1: I'm read the original quant but I give my research

33
00:02:01,960 --> 00:02:04,480
Speaker 1: away free in the public domain. So whether it's my

34
00:02:04,560 --> 00:02:06,960
Speaker 1: Stock Greater or divon Greater, they're all out there either

35
00:02:07,000 --> 00:02:12,760
Speaker 1: on my newsletter side or money management site, and folks

36
00:02:12,800 --> 00:02:14,600
Speaker 1: and go there and keep their stocks and I great

37
00:02:14,639 --> 00:02:18,160
Speaker 1: them ABC d F And obviously the dividend models totally

38
00:02:18,160 --> 00:02:22,239
Speaker 1: different than the growth stock model, but they're both two

39
00:02:22,320 --> 00:02:27,679
Speaker 1: very good models. And but what's happened this year that's

40
00:02:27,720 --> 00:02:30,720
Speaker 1: interesting is a lot of low quality stocks of rally,

41
00:02:30,800 --> 00:02:32,880
Speaker 1: especially in July and August. But it's been going on

42
00:02:32,919 --> 00:02:37,560
Speaker 1: since February eleven, and it's largely uh financials and energy.

43
00:02:37,680 --> 00:02:39,880
Speaker 1: And I'm most worried about the energy sector right now

44
00:02:40,520 --> 00:02:44,280
Speaker 1: because I think people confuse seasonal strength with real strength.

45
00:02:44,760 --> 00:02:46,760
Speaker 1: It always goes up in the spring, and it always

46
00:02:46,760 --> 00:02:48,880
Speaker 1: goes down the fall, and we have a glut that's

47
00:02:48,919 --> 00:02:53,240
Speaker 1: not dissipating. And I'm very, very worried that a lot

48
00:02:53,240 --> 00:02:56,440
Speaker 1: of people are gonna get hurt. Louis will this also

49
00:02:56,639 --> 00:03:01,560
Speaker 1: hurt non energy stocks, it hurts the whole market. Um.

50
00:03:01,600 --> 00:03:05,560
Speaker 1: You know, people are buying UM, chasing dividendial, they're buying

51
00:03:05,560 --> 00:03:07,880
Speaker 1: these big baskets of stocks. They have no idea what

52
00:03:07,919 --> 00:03:12,000
Speaker 1: they're buying. In the first quarter, UM, we had a

53
00:03:12,000 --> 00:03:15,760
Speaker 1: lot of dividend cuts were in the energy patch. Second quarter,

54
00:03:15,880 --> 00:03:18,440
Speaker 1: with the price recovery, we didn't have the problem. I

55
00:03:18,440 --> 00:03:20,720
Speaker 1: should add the natural gas prices. It looks very very

56
00:03:20,720 --> 00:03:23,600
Speaker 1: strong because of the hot summer we had and then

57
00:03:24,160 --> 00:03:27,400
Speaker 1: the Farmer's almanecas forecasts a very cool winter and UH

58
00:03:27,639 --> 00:03:30,440
Speaker 1: so natural gases is the exception in the energy patch.

59
00:03:30,520 --> 00:03:32,800
Speaker 1: But I'm very worried about the glad of refined product,

60
00:03:33,120 --> 00:03:35,760
Speaker 1: the glad of crude oil, which is a worldwide phenomena,

61
00:03:36,000 --> 00:03:37,880
Speaker 1: and I'm just worried that we'll get in the seasonal

62
00:03:37,920 --> 00:03:40,240
Speaker 1: swoon and it's going to hurt a lot of these stocks,

63
00:03:40,240 --> 00:03:43,840
Speaker 1: and the dividend cuts may resume. Are you then concerned, Louie,

64
00:03:43,880 --> 00:03:45,960
Speaker 1: that we're going to return what we saw earlier in

65
00:03:45,960 --> 00:03:48,360
Speaker 1: the year where one of the things that you could

66
00:03:48,400 --> 00:03:50,800
Speaker 1: just day to day no the stock market was going

67
00:03:50,880 --> 00:03:53,000
Speaker 1: to trade on more than anything else, was whatever the

68
00:03:53,040 --> 00:03:54,960
Speaker 1: price of oil was doing. You think we're gonna return

69
00:03:55,000 --> 00:03:57,400
Speaker 1: of that kind of volatility, in that kind of lock

70
00:03:57,440 --> 00:04:00,360
Speaker 1: step action. I hope not, but you can see the

71
00:04:00,360 --> 00:04:05,520
Speaker 1: markets are manipulated. Uh, every day there's a new rumor.

72
00:04:05,920 --> 00:04:09,360
Speaker 1: Whether it's pudin Saudi Arabia, rock iron, doesn't matter. You know,

73
00:04:09,400 --> 00:04:12,280
Speaker 1: we live in a world where not everybody has Bloomberg,

74
00:04:12,760 --> 00:04:15,040
Speaker 1: and you know there's blogs out there and people just

75
00:04:15,040 --> 00:04:18,400
Speaker 1: put stuff out to see what happens. And you know,

76
00:04:18,480 --> 00:04:22,440
Speaker 1: crude oil future traders are are pretty interesting characters. Uh,

77
00:04:23,000 --> 00:04:26,760
Speaker 1: It's not unusual for crude oil to move nine and

78
00:04:26,800 --> 00:04:28,960
Speaker 1: three or four days, especially towards the end of the month,

79
00:04:29,200 --> 00:04:31,839
Speaker 1: if they try to cover their positions. So this is

80
00:04:31,839 --> 00:04:34,919
Speaker 1: where the sharks swim on Wall Street, and guys like

81
00:04:34,960 --> 00:04:37,920
Speaker 1: me to calculate volatility just wouldn't go here because it's

82
00:04:37,960 --> 00:04:40,640
Speaker 1: just too hot to handle. And then guys like me

83
00:04:40,760 --> 00:04:43,400
Speaker 1: also check out fundamentals and then they can check out.

84
00:04:43,839 --> 00:04:46,479
Speaker 1: So I've been avoiding this entire sector and been a

85
00:04:46,960 --> 00:04:49,280
Speaker 1: kind of warn everybody all year, and now here comes

86
00:04:49,279 --> 00:04:52,240
Speaker 1: to September swoon, and I'm worried about folks. All right,

87
00:04:52,279 --> 00:04:55,760
Speaker 1: you're worried about folks. And also you posted some weekly

88
00:04:56,040 --> 00:04:58,719
Speaker 1: ratings changes, and wonder if we could just take a

89
00:04:58,800 --> 00:05:03,160
Speaker 1: select few and give get your thoughts on them. Berkshire Hathaway,

90
00:05:03,240 --> 00:05:07,360
Speaker 1: you've rated that a quantitative grade of B with also

91
00:05:07,520 --> 00:05:10,920
Speaker 1: a fundamental grade of B. What about Berkshire Hathway attracts

92
00:05:10,920 --> 00:05:14,560
Speaker 1: you to the company. Well, Berkshire Hathaway rightly wrongly is

93
00:05:14,600 --> 00:05:19,400
Speaker 1: a big reinsurance portfolio, and they've gotten lucky on natural disasters. Uh.

94
00:05:20,200 --> 00:05:22,600
Speaker 1: I always sent a hurricane up the East coast last week,

95
00:05:22,640 --> 00:05:26,880
Speaker 1: but they got they got lucky. And also their benefit

96
00:05:26,920 --> 00:05:30,400
Speaker 1: from the big bond rally so um the it's funny

97
00:05:30,400 --> 00:05:33,240
Speaker 1: and the reinsurance business. Their biggest disaster in recent years

98
00:05:33,279 --> 00:05:36,480
Speaker 1: has been the floods in Taiwan and Jimmy Thailand. Thailand.

99
00:05:36,520 --> 00:05:39,760
Speaker 1: It took out a lot of the destroyed companies. Louis,

100
00:05:39,800 --> 00:05:43,920
Speaker 1: you also have given uh cbs B s across the board.

101
00:05:44,080 --> 00:05:47,640
Speaker 1: You like them. Why, it's just that's where everybody goes.

102
00:05:47,680 --> 00:05:51,600
Speaker 1: Walgreens isn't bad either. It's uh, you know, we all

103
00:05:51,600 --> 00:05:56,400
Speaker 1: need our drugs, even me. All right, tell us about hotels,

104
00:05:56,480 --> 00:06:01,720
Speaker 1: Intercontinental hotels a group bees all around for I h G.

105
00:06:02,440 --> 00:06:05,160
Speaker 1: Is this anything to do with the consumer spending more

106
00:06:05,160 --> 00:06:09,080
Speaker 1: money or is it specific to h G. It's specific

107
00:06:09,120 --> 00:06:11,920
Speaker 1: to them, and some of its business travels from consumer travel,

108
00:06:11,960 --> 00:06:13,719
Speaker 1: but a lot of it's also the acquisitions. You know

109
00:06:14,080 --> 00:06:17,240
Speaker 1: there where's acquisitions out there in the hotel and so

110
00:06:17,279 --> 00:06:22,400
Speaker 1: that's good. So you have also downgraded from by to

111
00:06:22,480 --> 00:06:25,200
Speaker 1: hold a few big names, one of them costsc. It's

112
00:06:25,200 --> 00:06:27,240
Speaker 1: got seas across the ward. That's not so bad. But

113
00:06:27,360 --> 00:06:29,760
Speaker 1: what's going on, Well, I'm glad you brought that up.

114
00:06:29,800 --> 00:06:33,960
Speaker 1: I think Costco. I probably should write their their PR

115
00:06:34,040 --> 00:06:37,440
Speaker 1: stuff for them, uh, their Samester sales aren't bad, but

116
00:06:37,880 --> 00:06:39,839
Speaker 1: a lot of their sales are gasoline related. So I

117
00:06:39,839 --> 00:06:42,000
Speaker 1: guess what happens in gas prices dropped their sales drop.

118
00:06:42,640 --> 00:06:44,479
Speaker 1: And I think they really need to separate that more

119
00:06:45,440 --> 00:06:47,800
Speaker 1: because you know, people react to the headlines and they

120
00:06:47,800 --> 00:06:50,040
Speaker 1: may not look at the details. And I think they

121
00:06:50,040 --> 00:06:52,919
Speaker 1: need to say in a nice way that, um, that

122
00:06:53,440 --> 00:06:55,640
Speaker 1: outside of gasoline, it's not that bad. Now, they did

123
00:06:55,680 --> 00:06:59,040
Speaker 1: have an international expansion that that slowed them down as well.

124
00:06:59,520 --> 00:07:01,479
Speaker 1: And you know, we just live in in a world

125
00:07:01,480 --> 00:07:04,080
Speaker 1: where people will focus on the negative or in the positive,

126
00:07:04,520 --> 00:07:06,520
Speaker 1: And so if I was writing a pr thing, I

127
00:07:06,560 --> 00:07:10,000
Speaker 1: would basically try to have more positiveness. Louis, when do

128
00:07:10,080 --> 00:07:13,720
Speaker 1: you determine to sell us stock when it's poorly performing

129
00:07:13,960 --> 00:07:16,800
Speaker 1: or when it's reached a certain level that you're willing

130
00:07:16,840 --> 00:07:19,080
Speaker 1: to take the profit when they get too hot to handle.

131
00:07:19,120 --> 00:07:21,920
Speaker 1: We keep the least sixty of our portfolios and conservative

132
00:07:22,000 --> 00:07:25,960
Speaker 1: socks molly aggressive and teen percent aggressive. Now, risk tomy

133
00:07:26,280 --> 00:07:29,360
Speaker 1: isn't the angle of sense dispersion. So probably the best

134
00:07:29,400 --> 00:07:32,240
Speaker 1: case study is we thought Facebook was a lot safer

135
00:07:32,240 --> 00:07:35,840
Speaker 1: than Kroger. Now that may not be intuitive to most people.

136
00:07:35,880 --> 00:07:38,120
Speaker 1: They would think, well, my goodness, Facebook, so tech sock

137
00:07:38,280 --> 00:07:41,640
Speaker 1: as high multiple. Uh you know it's it's the people.

138
00:07:41,840 --> 00:07:44,600
Speaker 1: It should be acting a nervous manner. No, No, it

139
00:07:44,680 --> 00:07:47,040
Speaker 1: was going up in a much smoother manner than than

140
00:07:47,240 --> 00:07:50,239
Speaker 1: than Kroger. And and Kroger did miss by a penny

141
00:07:50,240 --> 00:07:52,600
Speaker 1: one quarter so that a while back, so they probably

142
00:07:52,800 --> 00:07:57,160
Speaker 1: you know, affected it. But uh, you know, when we

143
00:07:57,240 --> 00:08:00,280
Speaker 1: do our quantitative screens, we naturally gravitate towards ever is

144
00:08:00,280 --> 00:08:02,760
Speaker 1: going in a very smooth city manner. Risk to us

145
00:08:02,840 --> 00:08:06,600
Speaker 1: isn't the angle of sentence dispersion. And in our case,

146
00:08:06,680 --> 00:08:09,720
Speaker 1: Facebook still looks safer than Kroger at this moment, just

147
00:08:09,920 --> 00:08:13,960
Speaker 1: on your your weekly list of changes. But I'm wondering

148
00:08:14,040 --> 00:08:17,840
Speaker 1: how you rank and rate Apple, especially after they've come

149
00:08:17,920 --> 00:08:21,240
Speaker 1: up with their latest iPhone iterations today. Yeah, Apple is

150
00:08:21,280 --> 00:08:24,120
Speaker 1: a dividend stock right now. Obviously it's a very low

151
00:08:24,280 --> 00:08:27,440
Speaker 1: PA stock. It's UM. It sells a ton of debt

152
00:08:28,120 --> 00:08:32,800
Speaker 1: to UM just sustained that healthy dividend and as well

153
00:08:32,840 --> 00:08:34,520
Speaker 1: as by its stock back last I look, I think

154
00:08:34,520 --> 00:08:37,680
Speaker 1: the second biggest stock by back company out there. Um.

155
00:08:37,800 --> 00:08:40,440
Speaker 1: You know, I'm a little worried about him, but I

156
00:08:40,480 --> 00:08:43,120
Speaker 1: think that the there you know, they have a cult

157
00:08:43,200 --> 00:08:45,520
Speaker 1: and a lot of people upgrade the iPhone seven. I'm

158
00:08:45,520 --> 00:08:48,640
Speaker 1: mostly worried about them in emerging markets, um, where they

159
00:08:48,640 --> 00:08:51,080
Speaker 1: haven't been as a successful. But let's face it, that

160
00:08:51,440 --> 00:08:54,040
Speaker 1: little Sampson problem they have with the battery exploding was

161
00:08:54,080 --> 00:08:58,040
Speaker 1: probably the best thing ever happened to Apple on the iPhone. So, uh,

162
00:08:58,080 --> 00:09:00,240
Speaker 1: you know, I think they had a six US to

163
00:09:00,320 --> 00:09:02,079
Speaker 1: launch today. Now we just got to make sure the

164
00:09:02,240 --> 00:09:05,560
Speaker 1: orders are there. Um. You know, Apple, you know hasn't

165
00:09:05,600 --> 00:09:07,959
Speaker 1: had earnings growth for a couple of quarters, so let's

166
00:09:08,360 --> 00:09:11,120
Speaker 1: hopefully have real sales, real earnings moving forward. But if

167
00:09:11,120 --> 00:09:13,240
Speaker 1: you want to lopee and nice David Niel, that's fine.

168
00:09:13,360 --> 00:09:16,000
Speaker 1: Right now. Apple shares up about a half a percent

169
00:09:16,160 --> 00:09:21,160
Speaker 1: right now at five with the yield of two percent. Louis,

170
00:09:21,240 --> 00:09:23,640
Speaker 1: what's the biggest mistake that you've made over the last

171
00:09:23,640 --> 00:09:27,839
Speaker 1: twelve months? Um, basically not trimming stocks as they get

172
00:09:27,840 --> 00:09:30,000
Speaker 1: too volatile. I mean I do trim them, but sometimes

173
00:09:30,240 --> 00:09:32,560
Speaker 1: they move a little faster than I can. If there's

174
00:09:32,600 --> 00:09:35,760
Speaker 1: an extraordinary event and something gaps down that that that's

175
00:09:35,800 --> 00:09:38,560
Speaker 1: what happens. Um. I think the main thing I like

176
00:09:38,679 --> 00:09:41,200
Speaker 1: to stress to your to your viewers. Is that the

177
00:09:41,280 --> 00:09:43,520
Speaker 1: market is actually dying on us. You know, the actual

178
00:09:43,520 --> 00:09:47,040
Speaker 1: stock market is physically shrinking. The stocks that seemed to

179
00:09:47,080 --> 00:09:48,839
Speaker 1: rank the highest in my system are the ones that

180
00:09:48,880 --> 00:09:52,600
Speaker 1: buy their stock back and we had record that issuance

181
00:09:52,640 --> 00:09:55,679
Speaker 1: in August. That's gonna mean a lot of buy backs. Um.

182
00:09:55,880 --> 00:09:58,360
Speaker 1: Normally a lot of my stocks pulled back after earning season,

183
00:09:58,400 --> 00:10:02,400
Speaker 1: but lately the buybacks are so navy um that they

184
00:10:02,679 --> 00:10:05,800
Speaker 1: firm up after any season. So I'm very, very bullish

185
00:10:05,880 --> 00:10:07,640
Speaker 1: on the on the market. As long as you have

186
00:10:07,720 --> 00:10:10,560
Speaker 1: these low rates and fairly low price raage racials, companies

187
00:10:10,559 --> 00:10:12,320
Speaker 1: are going to contain to borrow by this dock back,

188
00:10:12,760 --> 00:10:16,319
Speaker 1: and Gilead and Apple are leading the way. Uh. How

189
00:10:16,320 --> 00:10:18,920
Speaker 1: do you connect the dotsley? Just quick final question. When

190
00:10:18,960 --> 00:10:20,880
Speaker 1: you look at something like the Institute for Supply Management

191
00:10:20,920 --> 00:10:23,360
Speaker 1: and Manufacturing the services, do you ignore that is in

192
00:10:23,400 --> 00:10:25,200
Speaker 1: your kind of analysis? There is the way you connect

193
00:10:25,200 --> 00:10:27,240
Speaker 1: the dots to yours dot com. Well, I talked about

194
00:10:27,240 --> 00:10:29,719
Speaker 1: all that because they're right for a living and and

195
00:10:30,120 --> 00:10:32,960
Speaker 1: basically that creates more uncertainty and it's creating a more

196
00:10:33,040 --> 00:10:36,280
Speaker 1: narrow market. September is a flight to quality month, and

197
00:10:36,400 --> 00:10:40,560
Speaker 1: our big pitch in our client correspondence is that we

198
00:10:40,679 --> 00:10:42,600
Speaker 1: had a bit of a low quality rally in July

199
00:10:42,679 --> 00:10:46,920
Speaker 1: and in August, and although we did okay, but we

200
00:10:47,040 --> 00:10:49,120
Speaker 1: expect that a lot of the energies will leave the

201
00:10:49,120 --> 00:10:51,480
Speaker 1: way down in September and they'll be these huge flights

202
00:10:51,480 --> 00:10:54,040
Speaker 1: of quality. And we are especially excited at the last

203
00:10:54,040 --> 00:10:56,320
Speaker 1: week in September because the professional managers have to make

204
00:10:56,320 --> 00:10:59,040
Speaker 1: their portfos really pretty poorly in the quarter, so they'll

205
00:10:59,080 --> 00:11:00,640
Speaker 1: kick out the stuff that's not going to earn and

206
00:11:00,679 --> 00:11:04,640
Speaker 1: buy our stuff, hopefully by the the last week of September.

207
00:11:04,640 --> 00:11:06,360
Speaker 1: Although last week we know one of my funds will

208
00:11:06,400 --> 00:11:09,040
Speaker 1: stop one percent, so you know, the flights of quality

209
00:11:09,080 --> 00:11:11,360
Speaker 1: is definitely underway in September. We've got to leave it there.

210
00:11:11,520 --> 00:11:14,679
Speaker 1: Louis Navalier, chairman, founder Navalier Associates