WEBVTT - Amazon’s Growth Boils Down to Two Words: ’Alexa Listening,’ Garrity 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 Abramowitz. 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 --> 0:00:32.080 Podcast on Apple Podcasts, SoundCloud and Bloomberg dot com. I 0:00:32.120 --> 0:00:34.559 want to turn out to David Garretty, the chief executive 0:00:34.560 --> 0:00:37.360 of g v A Research, to tell us about the 0:00:37.400 --> 0:00:41.080 world domination plans of Amazon. David, always a pleasure to 0:00:41.120 --> 0:00:43.519 have you. Thanks for being here. Um, I was just 0:00:43.520 --> 0:00:45.840 looking at the market cap of Amazon at nearly four 0:00:45.880 --> 0:00:49.120 hundred and eighty billion dollars, right, So four and eighty 0:00:49.120 --> 0:00:51.840 billion is the market cap for a company that did 0:00:51.840 --> 0:00:54.440 sales of about a hundred and forty billion, So we're 0:00:54.440 --> 0:00:57.960 talking about a four to one there net income two 0:00:58.000 --> 0:01:00.680 and a half billion. How does that work on an 0:01:00.680 --> 0:01:03.520 annual basis? You got a four d and eighty billion 0:01:03.560 --> 0:01:06.560 dollar valuation and yet your net is two and a 0:01:06.560 --> 0:01:10.000 half billion and people just love you well. Pim, thanks 0:01:10.000 --> 0:01:12.360 for the setup on world domination. But the issue it 0:01:12.440 --> 0:01:16.039 is it goes into the competitive dynamics that Amazon under 0:01:16.040 --> 0:01:19.520 founder and CEO Jeff Bezos, have followed since pretty much 0:01:19.520 --> 0:01:21.880 the beginning, which is the company is always focused on 0:01:22.000 --> 0:01:24.760 pricing as being the wedge that it is used to 0:01:24.800 --> 0:01:27.440 gain market share, and the company has always referred to 0:01:27.480 --> 0:01:29.880 the fact that they arguably have this flywheel which at 0:01:29.920 --> 0:01:32.679 some point in time, when things slow down and margins 0:01:32.720 --> 0:01:35.600 start to improve, should lead to meaningful expansion on the 0:01:35.640 --> 0:01:39.240 bottom line. So the profit margin that you highlight is 0:01:39.360 --> 0:01:44.160 raizor thin arguably has the potential to expand, and certainly, 0:01:44.200 --> 0:01:46.360 you know, here we are a week I'll expand. Even 0:01:46.360 --> 0:01:49.160 though some people have said that Amazon, you know, first 0:01:49.200 --> 0:01:50.960 built this business on the fact that they did not 0:01:51.040 --> 0:01:54.880 pay sales tax in the states to which they ship books, 0:01:55.000 --> 0:01:58.000 very true, and in some respects, you know, this continues 0:01:58.040 --> 0:02:00.920 to the present day. So yes, there's acts avoidance, and 0:02:01.040 --> 0:02:04.480 arguably the pricing on that can be worked into what 0:02:04.840 --> 0:02:07.640 price it is that the consumers have to pay. But 0:02:08.000 --> 0:02:11.160 one might argue that as we've seen this business model 0:02:11.280 --> 0:02:16.200 develop and evolve, and following the acquisition announcement a week 0:02:16.240 --> 0:02:19.639 ago of the thirteen point four billion dollars being spent 0:02:19.680 --> 0:02:23.840 to acquire whole Foods. I would really say Amazon's growth 0:02:23.880 --> 0:02:30.120 prospects boiled down to two words right now, Alexa listens. 0:02:31.280 --> 0:02:34.520 And if we look at the Amazon Echo being implanted 0:02:34.639 --> 0:02:39.600 in the homes of a wider range of higher income households. 0:02:40.440 --> 0:02:44.560 While people may think, gosh, the echo was wonderful, you know, 0:02:44.680 --> 0:02:47.440 I give a request, I get an answer. Well, it's 0:02:47.480 --> 0:02:50.440 not just a matter of depending upon interaction, it's the 0:02:50.480 --> 0:02:54.200 matter of listening and gathering further data. And so how 0:02:54.240 --> 0:02:58.239 can Amazon monetize that? Amazon argument is going to monetize 0:02:58.280 --> 0:03:01.679 that if we looked at Whole Foods. Whereas Whole Foods located, 0:03:01.680 --> 0:03:04.800 Whole Foods is located in situations where it caters to 0:03:05.360 --> 0:03:08.360 high income households, so it has to be in fairly 0:03:08.400 --> 0:03:11.680 close proximity to where these households are located. So not 0:03:11.800 --> 0:03:14.880 only has Amazon now just gotten a wider number of 0:03:14.919 --> 0:03:18.120 distribution points that are closer to their customers, they arguably 0:03:18.160 --> 0:03:21.280 at the same time have gathered a source of data 0:03:21.400 --> 0:03:24.080 which gives them greater depth in terms of understanding the 0:03:24.200 --> 0:03:27.760 range of products that consumers are buying. Complement that with 0:03:27.840 --> 0:03:29.560 the fact that you know, if we go back over 0:03:29.639 --> 0:03:32.240 last six or twelve months, Amazon had been rolling out 0:03:32.240 --> 0:03:35.360 the Echo and we've had people have responded to this 0:03:35.440 --> 0:03:39.560 product favorably. But there are implications longer term where this 0:03:39.760 --> 0:03:43.480 integration on the part of Amazon is getting far closer 0:03:43.480 --> 0:03:46.520 to consumers such that it's now within the consumers home 0:03:47.080 --> 0:03:51.280 passively gathering data. So I'm trying to understand, going back 0:03:51.320 --> 0:03:55.040 to something that you said earlier, Amazon has proven really 0:03:55.040 --> 0:04:00.279 good at disintermediating some of the big behemoth retailers and 0:04:00.480 --> 0:04:04.680 having more efficient systems also by squeezing out prices by 0:04:04.760 --> 0:04:07.120 by getting prices as low as possible. At what point 0:04:07.200 --> 0:04:11.120 will they be able to meaningfully increase prices to improve 0:04:11.160 --> 0:04:13.400 their margins. Well, you're starting to see some of that 0:04:13.480 --> 0:04:17.400 happen already. Um. You know, Amazon over time has started 0:04:17.440 --> 0:04:20.760 to introduce more of their own brand products and have 0:04:20.839 --> 0:04:24.080 been providing those two consumers and consumers have appreciated Amazon 0:04:24.200 --> 0:04:27.200 very much because Amazon was convenient. You could shop on 0:04:27.240 --> 0:04:31.200 Amazon anytime you want, wherever you want it, and Amazon 0:04:31.240 --> 0:04:34.000 would deliver. But in the process of the trade off 0:04:34.040 --> 0:04:38.159 of this convenience, consumers aren't necessarily being perhaps as mindful, 0:04:38.320 --> 0:04:40.240 and it may not matter so much at the higher 0:04:40.360 --> 0:04:43.760 end income end of the distribution. Curve. Consumers are making 0:04:43.800 --> 0:04:45.559 a trade off. They're not necessarily looking at the price 0:04:45.600 --> 0:04:47.479 that they're paying. They're not looking at the value because 0:04:47.480 --> 0:04:50.239 they're putting greater value in the convenience that Amazon can deliver. 0:04:50.440 --> 0:04:53.039 And there is documentation out there that says Amazon, with 0:04:53.080 --> 0:04:55.960 respect of their own brand products, changes the prices on 0:04:56.000 --> 0:04:59.160 a fairly rapid basis, and more often than not, you 0:04:59.200 --> 0:05:02.640 actually end up paying more for the Amazon owned brand 0:05:02.720 --> 0:05:06.080 product then you do for a branded name product being 0:05:06.080 --> 0:05:10.480 provided by another vendor through the Amazon site. That's kind 0:05:10.480 --> 0:05:14.000 of an amazing situation, isn't it. This is yield management, 0:05:14.000 --> 0:05:15.800 which people have been accustomed to thinking of in the 0:05:15.839 --> 0:05:17.839 context of the airline industry, where you look at the 0:05:17.880 --> 0:05:21.880 manipulation around per seat pricing. This is yield management going 0:05:22.000 --> 0:05:27.920 online and then with Alexa coming into your home. Talking 0:05:27.920 --> 0:05:31.240 about Alexa, maybe you can expand on this because if 0:05:31.279 --> 0:05:36.600 you go to the Alexa site, it is targeted towards businesses, 0:05:37.120 --> 0:05:41.159 not to individuals necessarily, and it's designed to give businesses 0:05:41.240 --> 0:05:45.320 what they call competitive analysis tools. And one if you 0:05:45.360 --> 0:05:48.839 could speak about that in the context of what Alexa 0:05:48.960 --> 0:05:53.520 is doing, because boy, if you're offering web website traffic 0:05:53.560 --> 0:05:58.400 statistics plus an audience overlap. That's kind of a sophisticated 0:05:58.440 --> 0:06:01.800 piece of information for companies that don't have to host 0:06:01.920 --> 0:06:04.599 the technology. Well, it's really a byproduct of what it 0:06:04.680 --> 0:06:08.640 is that Amazon is doing, and and Amazon, in the 0:06:08.680 --> 0:06:11.320 process of doing that, is obviously trying to monetize what 0:06:11.440 --> 0:06:14.760 it's already gathering for itself. Some people have been making 0:06:14.800 --> 0:06:18.440 a case, you know, in fairly significant publications, um that 0:06:18.520 --> 0:06:22.080 Amazon is now acquiring the role that railroads used to 0:06:22.120 --> 0:06:26.120 play back in the late nineteenth century, when railroads essentially 0:06:26.120 --> 0:06:29.240 determined what traffic crossed the rails and what was the 0:06:29.279 --> 0:06:32.680 price at which this traffic crossed its rails. So one 0:06:32.760 --> 0:06:36.360 might argue that it is Historically we looked at Amazon 0:06:36.400 --> 0:06:41.440 as being a disruptor. You know, Amazon now as the intermediary, 0:06:41.640 --> 0:06:46.760 is gaining substantial economic power, and the question here might 0:06:46.839 --> 0:06:49.279 have to be argued as we look at the Whole 0:06:49.320 --> 0:06:54.880 Foods acquisition, you know, will the regulators decide to intervene 0:06:55.040 --> 0:06:58.359 because of this greater influence that Amazon has. And the 0:06:58.400 --> 0:07:01.239 other question is will read later start to be concerned 0:07:01.240 --> 0:07:04.080 about some of the privacy issues that may be raised 0:07:04.120 --> 0:07:07.160 around the prospect of having Alexa, sitting in the home, 0:07:07.320 --> 0:07:10.160 listening to what people are saying and then anticipating what 0:07:10.240 --> 0:07:13.920 people want before they actually themselves consciously know that are 0:07:14.000 --> 0:07:17.280 consumers willing to give that much away of themselves to 0:07:17.400 --> 0:07:21.600 get this convenience that Amazon has historically provided. This is fascinating, 0:07:21.640 --> 0:07:24.720 you know, I hadn't realized that Amazon branded products were 0:07:24.720 --> 0:07:27.640 actually charging more than what you could get for other 0:07:27.960 --> 0:07:32.240 brands that are sold through Amazon's network. Fascinating, fascinating talk. 0:07:32.400 --> 0:07:35.400 David Garretty, chief executive officer of g v A Research. 0:07:35.440 --> 0:07:38.640 Also he's a columnist at Investor PDA, and he joins 0:07:38.720 --> 0:07:41.440 us here in our Bloomberg eleven three oh studios. Looking 0:07:41.520 --> 0:07:56.000 very summary. Always wonderful to see you, David. Well, there 0:07:56.040 --> 0:07:58.800 was a leg Mason survey that came out earlier today 0:07:58.800 --> 0:08:02.000 that showed that in come investors are seeking an overall 0:08:02.360 --> 0:08:06.679 rate of return of about eight point six four per cent, 0:08:06.800 --> 0:08:10.280 which seems difficult to get at a time when junk 0:08:10.280 --> 0:08:13.400 bond yields are a little over five percent. Here to 0:08:13.400 --> 0:08:15.160 put some perspective on that, I want to bring in 0:08:15.160 --> 0:08:18.960 Alan McKnight, chief investment officer in the wealth management division 0:08:19.040 --> 0:08:22.520 of Regent's Bank, which oversees about eighty one billion dollars. 0:08:22.560 --> 0:08:24.960 Alan joins us here in our Bloomberg eleven three oh studios. 0:08:24.960 --> 0:08:27.560 Thank you so much for joining us. Uh have you 0:08:27.600 --> 0:08:31.320 found when you're talking with fund managers and clients that 0:08:32.000 --> 0:08:35.280 people have unrealistic expectations of what kinds of returns they 0:08:35.320 --> 0:08:37.559 could possibly get? We think so when we think the 0:08:37.559 --> 0:08:39.160 biggest issue is that people want to look on a 0:08:39.200 --> 0:08:41.840 historical basis as to what they should expect in the future. 0:08:42.200 --> 0:08:43.920 And if you look at the long term returns and 0:08:44.000 --> 0:08:47.240 use a very simplified ten percent for stocks, five percent 0:08:47.280 --> 0:08:50.800 for bonds, you get to this magic equilibrium of eight percent. Well, 0:08:50.800 --> 0:08:53.800 the reality is if we believe that expect returns and 0:08:53.800 --> 0:08:56.160 stocks will be closer to seven and bonds will be 0:08:56.160 --> 0:08:58.880 closer to two, suddenly you're looking at closer to five 0:08:58.960 --> 0:09:01.760 five and a half percent versus this magic eight. Well, 0:09:01.800 --> 0:09:04.760 on a second to you're talking about a blended UH 0:09:05.120 --> 0:09:08.160 group of fixed income that includes corporate and government dead 0:09:08.240 --> 0:09:10.800 Is that right exactly? And we just think, given where 0:09:10.800 --> 0:09:12.960 we are on the curve and what we've already seen 0:09:13.040 --> 0:09:15.960 with the benefits to high yield investment grade corporate bonds, 0:09:16.000 --> 0:09:18.880 that it seems less likely to us that will generate 0:09:18.920 --> 0:09:20.880 the types of returns and fixed income as we have. 0:09:21.040 --> 0:09:23.920 So a total return kind of bond return of about 0:09:23.960 --> 0:09:26.280 two percent by year end, that means that we see 0:09:26.280 --> 0:09:30.160 some losses before your end. That probably includes some increases 0:09:30.160 --> 0:09:32.920 in bunchmark yields. Correct, that's that's correct. So where do 0:09:32.960 --> 0:09:35.400 you see it going the benchmark tenure for example, Yeah, 0:09:35.400 --> 0:09:37.120 so we think the tenure will continue to go higher. 0:09:37.400 --> 0:09:39.120 But what we've seen so far is what we think 0:09:39.160 --> 0:09:41.040 is indicative of the future, which is one of we're 0:09:41.040 --> 0:09:42.760 seeing the back end of the curve come down, We're 0:09:42.760 --> 0:09:44.320 seeing the short end of the curve go up. We've 0:09:44.360 --> 0:09:47.000 seen this flattening effect until such time that we see 0:09:47.080 --> 0:09:51.199 some implemental ideas from Washington and some real change associated. 0:09:51.440 --> 0:09:53.800 It's hard for us to envision a scenario where the 0:09:53.960 --> 0:09:56.600 entire curve shifts up dramatically in the ten makes any 0:09:56.640 --> 0:09:59.520 greater move than say to two six or two seven 0:09:59.559 --> 0:10:02.960 by year end. At what point do asset prices, whether 0:10:03.000 --> 0:10:05.480 they be bonds or equities, get to the point where 0:10:05.520 --> 0:10:10.040 you say, let's keep something in cash, let's deploy capital 0:10:10.440 --> 0:10:15.400 in a neutral position, because we feel that well, we've 0:10:15.400 --> 0:10:18.520 made enough money. Looking at the SMP five, it's up 0:10:18.600 --> 0:10:21.560 nine percent this year. So our thought on that is 0:10:21.600 --> 0:10:23.840 that you have to continue to rebalance the portfolio and 0:10:23.880 --> 0:10:26.840 rebalance to the underperforming asset classes and rather than going 0:10:26.880 --> 0:10:29.079 solely to cash, we think that there are better uses 0:10:29.080 --> 0:10:32.080 of funds. And certainly if you look over the long term, 0:10:32.160 --> 0:10:35.120 there should be a correction of about ten percent every 0:10:35.200 --> 0:10:38.320 year if you go back to nineteen hundred and approximately 0:10:39.240 --> 0:10:42.280 every three years, just looking at the statistical data. So 0:10:42.520 --> 0:10:44.760 our perspective is, if you can be a long term investor, 0:10:45.120 --> 0:10:47.600 you shouldn't try to get in and out just as 0:10:47.640 --> 0:10:50.760 that's about to occur. Instead ride through it and rebalance 0:10:51.160 --> 0:10:54.520 to find those underperforming asset classes and opportunities such as 0:10:54.559 --> 0:10:57.760 what we've seen last year in international developed markets as 0:10:57.800 --> 0:11:00.959 well as emerging markets, rather than going to reallocate that 0:11:01.000 --> 0:11:03.480 capital out to some some cheaper assets, if you will. 0:11:03.559 --> 0:11:05.640 So when you talk to clients and you say, you know, 0:11:05.760 --> 0:11:08.280 you guys may be expecting eight point six percent hold 0:11:08.320 --> 0:11:10.920 or returns for this year, that's not gonna happen. You're 0:11:10.920 --> 0:11:12.680 gonna get five and a half percent. Do they just 0:11:12.720 --> 0:11:16.560 say okay, or do they say can you make that happen. Please. 0:11:17.559 --> 0:11:19.520 It's a great question and it's a real challenge because 0:11:19.520 --> 0:11:21.760 I think most investors would say that's what I need. 0:11:22.160 --> 0:11:25.800 So when you think about what's what's required versus what's possible, 0:11:26.120 --> 0:11:28.160 we would say what's possible as closer to the seven 0:11:28.200 --> 0:11:32.240 percent range, but what's required is much higher. But with 0:11:32.520 --> 0:11:35.160 what's possible is not possible without taking a lot of 0:11:35.280 --> 0:11:37.760 risk and being lucky, right, I mean, how is it 0:11:37.840 --> 0:11:41.520 possible to get seven percent risk without potentially losing your shirt? Well, 0:11:41.559 --> 0:11:44.400 that's that's exactly I mean the differences around long term 0:11:44.480 --> 0:11:46.400 versus short term and the very short term. We don't 0:11:46.400 --> 0:11:49.080 believe that you're going to get seven percent let's say 0:11:49.120 --> 0:11:50.520 through the end of the year. What we believe is 0:11:50.520 --> 0:11:52.520 of the next five to ten years you should be 0:11:52.559 --> 0:11:54.800 able to deliver that. And more importantly, if you talk 0:11:54.840 --> 0:11:57.160 to clients, it should be about what is your timeline, 0:11:57.440 --> 0:11:59.360 what are your liquidity needs, and how much risk are 0:11:59.400 --> 0:12:01.400 you willing to take to to go down that path? 0:12:01.720 --> 0:12:04.480 And that's where we see the greatest disconnect for clients 0:12:04.520 --> 0:12:07.360 who want something, they want to be able to do 0:12:07.400 --> 0:12:09.000 certain things. But then when you start to back into 0:12:09.000 --> 0:12:11.760 the data around it, in the numbers. It's this aha 0:12:11.840 --> 0:12:14.640 moment of well, I neither save more, I need to 0:12:14.679 --> 0:12:17.000 allocate more capital of this, or if I'm reaching for 0:12:17.320 --> 0:12:19.640 risk or yield, then I should assume I'm gonna have 0:12:19.720 --> 0:12:23.160 more volatility. And that's a difficult concept for many folks 0:12:23.200 --> 0:12:26.120 to think that they just want the return without all 0:12:26.120 --> 0:12:30.439 the risk. What are you hearing from your your base 0:12:30.559 --> 0:12:35.319 of of salespeople and and managers. What of those, let's say, 0:12:35.360 --> 0:12:38.400 reactions that you hear from investors, what's the most common one. 0:12:38.440 --> 0:12:42.600 Do they readjust their risk profile? Do they kid themselves 0:12:42.679 --> 0:12:45.240 into thinking, no, I'll worry about it later. Do they 0:12:45.360 --> 0:12:48.559 add more to savings? What's normally what they do? Well, 0:12:48.559 --> 0:12:51.760 we've seen as far is that most want to wait. Unfortunately, 0:12:51.840 --> 0:12:54.480 most folks don't really want to have that difficult conversation 0:12:54.520 --> 0:12:56.560 and in some case, if it's in an institutional investor, 0:12:56.760 --> 0:12:58.440 they don't have the luxury of that because it's set 0:12:58.520 --> 0:13:00.880 for them rather than them being able to actually discern 0:13:01.160 --> 0:13:05.600 what that true target rate might be. So denial, you're saying, exactly, okay, so, 0:13:05.920 --> 0:13:08.559 but it's always a good strategy, right to just deny 0:13:08.640 --> 0:13:10.800 that the issue exists, Right, it's good, good, I try 0:13:10.800 --> 0:13:12.560 to do that on a regular basis. But I'm just 0:13:12.600 --> 0:13:14.120 trying to think though, you know, to get to that 0:13:14.160 --> 0:13:17.559 seven percent, what would the allocation have to be? Uh, 0:13:17.600 --> 0:13:20.720 you know, given some degree of volatility, perhaps more than 0:13:20.760 --> 0:13:22.680 some people are willing to stomach. What are people what 0:13:22.720 --> 0:13:25.640 are you recommending people allocate to an aggressive strategy for 0:13:25.679 --> 0:13:30.120 a longer term horizon with uh, some ability to have 0:13:30.160 --> 0:13:32.920 a liquid investments right, So we're allocating more to equities 0:13:32.920 --> 0:13:35.840 and more broadly to emerging markets, international developed where we 0:13:35.840 --> 0:13:39.440 think there's opportunity right now, we also allocate to small 0:13:39.480 --> 0:13:41.720 and MidCap stocks because we think there's a higher return 0:13:42.000 --> 0:13:44.439 premium there. I'll be it. There's a little bit more volatility, 0:13:44.480 --> 0:13:47.120 and it's decreasing our exposure to fixed income. Now, the 0:13:47.120 --> 0:13:49.800 tradeoff of that is there's going to be more volatility 0:13:49.800 --> 0:13:52.480 in the portfolio. But we don't view volatility solely in 0:13:52.520 --> 0:13:55.160 a standard deviation. Okay, this is what the statistic means. 0:13:55.200 --> 0:13:57.080 It's how much can you stop it? From an absolute 0:13:57.120 --> 0:13:59.760 value perspective and what that may mean for your portfolio. 0:13:59.840 --> 0:14:01.959 Does at mean that you're not pricing in any chance 0:14:01.960 --> 0:14:04.199 of a recession in the next few years. We don't 0:14:04.240 --> 0:14:06.480 anticipated recession. Right now, we think that we're going to 0:14:06.600 --> 0:14:09.320 hover around two to two point two percent growth, but 0:14:09.520 --> 0:14:12.920 we need some implementation in DC to help that along. 0:14:13.559 --> 0:14:15.360 So right now, you're still betting on the Trump up 0:14:15.600 --> 0:14:18.680 we are. I want to press you just a little 0:14:18.679 --> 0:14:21.000 bit on this seven percent idea, because you know, when 0:14:21.040 --> 0:14:23.560 someone says seven percent, I go looking on my Bloomberg 0:14:23.560 --> 0:14:26.160 and I call up Royal Dutch Shell. All right, this 0:14:26.240 --> 0:14:30.160 is a global or soup him. Well, but I mean 0:14:30.240 --> 0:14:34.360 it's okay, well it's not Royal. Well, okay, Royal Dutch Shell, 0:14:34.480 --> 0:14:37.760 and it's got a yield of over seven percent, albeit 0:14:37.800 --> 0:14:40.680 the stock is down nearly eight percent this year. But 0:14:40.760 --> 0:14:42.480 if you're telling me that this is a long term 0:14:42.520 --> 0:14:45.800 bet for whomever is the customer, then they're not going 0:14:45.840 --> 0:14:48.800 to necessarily worry about the capital appreciation or are they. 0:14:48.800 --> 0:14:53.000 At what point does that become a denial conversation as well? Well? 0:14:53.240 --> 0:14:56.320 I think the big question for investors around do I 0:14:56.400 --> 0:14:59.280 chase yield in that case where you have an underperforming asset, 0:14:59.280 --> 0:15:03.000 because the energy businesses has been hit over the last 0:15:03.040 --> 0:15:05.880 really eighteen months, but more um recently in the last 0:15:05.920 --> 0:15:08.920 couple of months, and when you chase just absolute levels 0:15:08.920 --> 0:15:10.760 of yield, you're gonna get hurt. What we would say is, 0:15:11.080 --> 0:15:14.760 build a portfolio around equity income and what's more important 0:15:14.840 --> 0:15:17.720 is the actual growth of yield rather than the absolute 0:15:17.760 --> 0:15:20.360 dollar value, because if you go chasing that dollar value 0:15:20.360 --> 0:15:23.560 of yield, inevitably you're going to get hurt because it's 0:15:23.560 --> 0:15:25.240 the names that have already sold off, and unless you 0:15:25.240 --> 0:15:27.360 have a very long term time perspective and you have 0:15:27.400 --> 0:15:30.680 a very clear indication of default risk and cash flow 0:15:30.880 --> 0:15:34.320 needs of that company, it can be a more challenging situation. 0:15:34.600 --> 0:15:37.560 Real quick. What's the most overvalued aspect of markets right now? 0:15:38.920 --> 0:15:41.720 We would say that probably the most overvalued would be 0:15:42.720 --> 0:15:46.680 marginally in the high yield space, just as it relates 0:15:46.720 --> 0:15:49.520 to where spreads are. They're so tight, um, we haven't 0:15:49.520 --> 0:15:51.840 seen them this tight and quite a while, so that 0:15:51.840 --> 0:15:53.800 would be the place where we're still allocating to them, 0:15:53.800 --> 0:15:55.160 but we want to be on a conservative side and 0:15:55.240 --> 0:15:57.680 high quality within the high yield space. Well you can't 0:15:57.680 --> 0:16:01.400 see it, but Lisa is shaking her head because this 0:16:01.480 --> 0:16:05.760 is something you've been noting for any any little bit. 0:16:05.800 --> 0:16:09.320 Alan McKnight, thanks very much, Chief Investment Officer, Wealth Management, 0:16:09.440 --> 0:16:13.440 Regents Bank eighty one billion dollars under management. They're based 0:16:13.440 --> 0:16:27.400 in New Orleans. But we did get the healthcare bill 0:16:27.520 --> 0:16:30.600 out of the Senate yesterday. We at least saw a 0:16:30.760 --> 0:16:33.320 version of it coming out of the GOP and there 0:16:33.400 --> 0:16:36.880 were some scathing responses to it, including from Dr Jonathan 0:16:36.920 --> 0:16:40.400 Gruber and m I t Professor of economics, who said 0:16:40.440 --> 0:16:44.560 that the deal was quote amazingly bad. Dr Gruber was 0:16:44.600 --> 0:16:48.120 also a key architect of Obamacare, and he joins us now. 0:16:48.240 --> 0:16:51.320 Dr Gruber, thank you so much for taking the time. 0:16:51.480 --> 0:16:53.240 We have a sense of where you may be coming 0:16:53.280 --> 0:16:57.280 from with respect to your view on this proposal. I 0:16:57.280 --> 0:17:00.200 would love to get your sense of which provisions in 0:17:00.240 --> 0:17:03.520 the Senate bill are most important to watch and have 0:17:03.640 --> 0:17:08.119 the most potential impact going forward. Yeah, thanks for having me. 0:17:08.160 --> 0:17:10.919 And look, I think it's very important to recognize we 0:17:10.960 --> 0:17:13.560 all come in this of the view, but the facts 0:17:13.640 --> 0:17:18.680 be clearly, which is literally, if you ask Republican senators 0:17:19.040 --> 0:17:21.600 what this bill accomplishes, they don't have an answer for 0:17:21.640 --> 0:17:24.959 you other than what repeals Obamacare, which it doesn't do. 0:17:25.560 --> 0:17:30.280 I mean, this is literally taking Obamacare and just making 0:17:30.320 --> 0:17:32.639 it worse. Well, hold on a second, wait, hold on second, 0:17:33.080 --> 0:17:35.840 because I think that somebody might say, well, honestly, it 0:17:35.920 --> 0:17:38.320 lowers the cost. And if it lowers the cost, but 0:17:38.480 --> 0:17:43.080 that goes forward and helps the overall budget of the US. Okay, well, 0:17:43.440 --> 0:17:46.160 let's be clear, so let's separate key terms. It does 0:17:46.200 --> 0:17:48.879 not lower the cost of healthcare. It does not lower 0:17:48.920 --> 0:17:53.680 health premiums. It so it does lower government spending on healthcare, 0:17:54.200 --> 0:17:57.120 but it doesn't lower the deficit. It just goes into 0:17:57.240 --> 0:17:59.760 tax cuts for the rich. So we're talking about the 0:18:00.080 --> 0:18:04.080 largest social insurance rollback in our nation's history, and the 0:18:04.160 --> 0:18:07.120 torre diduction. The deficit will be maybe ten billion a year, 0:18:07.200 --> 0:18:11.240 which is like, okay, so or two or three percent, 0:18:11.480 --> 0:18:14.239 so like who cares. So basically my point is I 0:18:14.280 --> 0:18:17.240 don't understand the point of this whole bill. And this 0:18:17.320 --> 0:18:20.400 isn't about the fact that, like Obamacare. This is literally 0:18:20.440 --> 0:18:24.120 a question what does this bill accomplish. It doesn't lower 0:18:24.160 --> 0:18:28.840 the deficit, it doesn't lower premiums, it doesn't lower healthcare spending. 0:18:29.280 --> 0:18:32.359 It does create more uninsured. It does mean that the 0:18:32.440 --> 0:18:34.920 sick and loving come out to pay much more further healthcare. 0:18:35.560 --> 0:18:36.960 I just don't know what the point of it is, 0:18:37.600 --> 0:18:41.359 all right. Having said that, Dr Kruber, as someone that 0:18:41.600 --> 0:18:45.560 I'm sure is well steeped in the political world now 0:18:45.640 --> 0:18:48.800 as you are in the world of economics and healthcare, 0:18:49.240 --> 0:18:52.240 because you have a pedigree that you know, you're director 0:18:52.240 --> 0:18:54.920 of healthcare program at the National View of Economic Research 0:18:54.960 --> 0:18:58.119 and so on. You know, very distinguished. Can you be 0:18:58.160 --> 0:19:02.760 a little bit perhaps more political and explain to everybody 0:19:02.800 --> 0:19:05.560 what do you really believe is going on and what 0:19:05.760 --> 0:19:11.840 is the ultimate purpose? So basically, honestly, from a standard 0:19:11.840 --> 0:19:14.480 politically con perspective, I can't explain what's going on. Because 0:19:14.480 --> 0:19:18.080 if you said to me, will the will an administration 0:19:18.080 --> 0:19:22.720 and Congress passive bill which literally makes ninety seven percent 0:19:22.760 --> 0:19:25.920 of Americans, you know, makes two percent Americans better off 0:19:25.960 --> 0:19:29.879 and probably Americans worse off, I would have said, you 0:19:29.880 --> 0:19:34.360 can't do that, because that's just politically impossible. So honestly, 0:19:34.400 --> 0:19:38.280 I can't explain the politics of this other than Republicans 0:19:38.359 --> 0:19:40.600 just feel that they need to please their base, that 0:19:40.720 --> 0:19:43.880 they promise their base they do something about Obamacare. They're 0:19:43.920 --> 0:19:45.920 gonna label us a repeal of Obamacare, although as I 0:19:46.000 --> 0:19:50.040 said yesterday, it's sort of half repeal of Obamacare plus 0:19:50.040 --> 0:19:52.680 a massive Medicaid cut, So it's really it's a weird 0:19:52.720 --> 0:19:55.399 bill because it's not a repeal of Obamacare. Okay, it 0:19:55.480 --> 0:19:59.160 is Obamacare light. It's literally just a scaling back of Obamacare. 0:19:59.680 --> 0:20:01.800 You don't like Obamacare tax credits, while we do is 0:20:01.840 --> 0:20:04.439 make them smaller. You don't like Obamacare regulations, They make 0:20:04.480 --> 0:20:07.320 them a little bit weaker. You don't like Obamacare pieces, 0:20:07.320 --> 0:20:09.480 They just make them smaller. Well, plus they add a 0:20:09.560 --> 0:20:13.160 massive cut in Medicaid above and beyond what Obama did 0:20:13.160 --> 0:20:15.159 to expand Medicaid, and they used to pay for a 0:20:15.160 --> 0:20:17.800 tax cut for the rich. Well, honestly, I don't understand 0:20:17.800 --> 0:20:20.679 the politics, So Dr Gruber, one of one thing that 0:20:20.720 --> 0:20:24.880 a lot of Republicans are saying is, look, Obamacare, the costs, 0:20:24.920 --> 0:20:27.959 the premiums are poised to go up rapidly in the 0:20:28.040 --> 0:20:32.560 upcoming years. You know, to quote President Trump that Obamacare 0:20:32.640 --> 0:20:35.119 is quote broken. So clearly there is a lot of 0:20:35.160 --> 0:20:39.920 concern going forward about the potential for Obamacare to continue 0:20:39.920 --> 0:20:42.760 providing some of the care that it already has. So, 0:20:42.960 --> 0:20:45.560 I mean, how would you respond to to that to 0:20:45.600 --> 0:20:47.760 basically say, this is an attempt to at least lower 0:20:47.760 --> 0:20:50.560 costs and ameliorate some of the uh, some of the 0:20:50.600 --> 0:20:53.399 aspects of Obamacare that haven't yet even been observed. So 0:20:53.480 --> 0:20:55.639 the way I would respond to that is to is 0:20:55.640 --> 0:20:59.120 to explain the facts. First of all, we're not talking 0:20:59.160 --> 0:21:03.280 about the vastment already of Americans. Neither Obamacare nor this 0:21:03.400 --> 0:21:06.320 law affects you. If you have employer responsive insurance. This 0:21:06.400 --> 0:21:08.000 law makes your life a little bit worse because it 0:21:08.400 --> 0:21:11.240 allows employers to put lifetime limits back. So it's sort 0:21:11.240 --> 0:21:13.480 of violence that Jimmy kim erule, if you will. But 0:21:13.840 --> 0:21:16.440 other than that, it doesn't much affect you employer sponsored insurance. 0:21:16.440 --> 0:21:19.000 We're talking about the minority of people who buy insurance 0:21:19.000 --> 0:21:22.720 in the individual market. All this law will do is 0:21:23.119 --> 0:21:26.360 destroy that market. Now, it's true that market doesn't work 0:21:26.359 --> 0:21:29.320 that well for many people. Um, and that's a shame, 0:21:29.400 --> 0:21:31.439 and we should address that. And we could address that. 0:21:31.840 --> 0:21:34.119 But it's sort of like saying, we've got a market 0:21:34.119 --> 0:21:36.680 that Obamacare created that's not working as we would have liked, 0:21:36.800 --> 0:21:39.520 so let's just destroy it. But it doesn't replace it, 0:21:39.520 --> 0:21:42.520 it doesn't fix it. Nothing still makes it better. Now, 0:21:42.520 --> 0:21:45.600