1 00:00:03,320 --> 00:00:06,720 Speaker 1: Global business news twenty four hours a day. If Bloomberg 2 00:00:06,760 --> 00:00:09,840 Speaker 1: dot Com the radio plus mobile act and on your radio. 3 00:00:10,119 --> 00:00:14,160 Speaker 1: This is a Bloomberg business flag from Bloomberg World Headquarters. 4 00:00:14,240 --> 00:00:18,680 Speaker 1: I'm Charlie Pellett's stocks fluctuating, the dollar rallies, treasuries plunge, 5 00:00:18,720 --> 00:00:21,440 Speaker 1: an indication of the Federal Reserve may raise rates as 6 00:00:21,480 --> 00:00:24,840 Speaker 1: early as June was weighed against signs the world's largest 7 00:00:24,880 --> 00:00:29,680 Speaker 1: economy is gaining momentum. SMP five hundred index down two points, 8 00:00:29,680 --> 00:00:32,440 Speaker 1: a drop there of point one percent. The SMP had 9 00:00:32,520 --> 00:00:35,920 Speaker 1: been higher heading into today's minutes, NAS dank holding onto 10 00:00:35,960 --> 00:00:38,720 Speaker 1: a gain of fifteen points, up three tents of one percent. 11 00:00:39,000 --> 00:00:41,920 Speaker 1: Town Industrials down thirty had dropped there of two tents 12 00:00:41,920 --> 00:00:44,680 Speaker 1: of one percent. We've got the tenure down twenty seven 13 00:00:44,680 --> 00:00:47,000 Speaker 1: thirty seconds. Looking at the yield of one point eight 14 00:00:47,040 --> 00:00:50,600 Speaker 1: six percent. Gold down eighteen dollars, the ounce to twelve 15 00:00:50,600 --> 00:00:53,280 Speaker 1: fifty eight, a drop of one point four percent. West 16 00:00:53,320 --> 00:00:56,720 Speaker 1: Texas Intermedia crewed down forty five cents, a drop there 17 00:00:56,760 --> 00:01:00,640 Speaker 1: of point nine percent. W t I eighty six barrel. 18 00:01:00,840 --> 00:01:04,560 Speaker 1: I'm Charlie Peloton. That's a Bloomberg Business flash. Thank you 19 00:01:04,680 --> 00:01:07,039 Speaker 1: very much. Charlie Bella, it is time now for the 20 00:01:07,040 --> 00:01:08,640 Speaker 1: e t F Report. It is brought to you by 21 00:01:08,680 --> 00:01:12,160 Speaker 1: Vanach Vector's et F s. Expect more from your muni's 22 00:01:12,400 --> 00:01:16,400 Speaker 1: target tax exempting income by maturity and credit quality, all 23 00:01:16,480 --> 00:01:19,600 Speaker 1: with low cost e t F s. Visit vanak dot 24 00:01:19,640 --> 00:01:24,760 Speaker 1: com slash Muni Vanek access the opportunities. Let's go to 25 00:01:24,800 --> 00:01:28,080 Speaker 1: Catherine Cawdary for the e t F Report. The sea 26 00:01:28,200 --> 00:01:31,320 Speaker 1: change from high cost to low cost investments can be 27 00:01:31,440 --> 00:01:34,679 Speaker 1: seen in the growing popularity of Charles Schwab's a t S. 28 00:01:35,080 --> 00:01:40,000 Speaker 1: Bloomberg intelligence analyst Eric Beltuna says, nineteen of Schwabs have 29 00:01:40,160 --> 00:01:42,560 Speaker 1: taken in money this year. That is hard to believe. 30 00:01:42,720 --> 00:01:45,640 Speaker 1: Right again, it shows you that you know, Schwab is 31 00:01:45,640 --> 00:01:48,520 Speaker 1: getting money through robo advisors and through people who are 32 00:01:48,560 --> 00:01:51,040 Speaker 1: at allocating. You could argue that s dumb money, but 33 00:01:51,080 --> 00:01:52,960 Speaker 1: you could argue that smart too, because it's going in 34 00:01:53,000 --> 00:01:56,240 Speaker 1: and buying everything. Um sometimes when it's down, which is good, 35 00:01:56,280 --> 00:01:59,560 Speaker 1: you get cheaper prices. Valtuna says Schwab has attracted four 36 00:01:59,640 --> 00:02:02,360 Speaker 1: to five billion dollars and inflows into its e t s. 37 00:02:02,360 --> 00:02:06,160 Speaker 1: This here including into its newest suite, a smart Beta products. 38 00:02:06,200 --> 00:02:09,040 Speaker 1: For Schwab to start taking your money in smart Beta, 39 00:02:09,240 --> 00:02:11,040 Speaker 1: that's a big deal because smart beat has always been 40 00:02:11,080 --> 00:02:13,440 Speaker 1: the area we can charge a little more, but Schwab's 41 00:02:13,760 --> 00:02:16,920 Speaker 1: products are dirt cheap. So it's interesting to see if 42 00:02:17,000 --> 00:02:20,160 Speaker 1: that fee war, you know, and Schwab getting in collecting 43 00:02:20,200 --> 00:02:22,720 Speaker 1: assets will affect Smart Beta. So far, there is some 44 00:02:23,560 --> 00:02:25,960 Speaker 1: there's some evidence of that. Four of schwab six new 45 00:02:26,000 --> 00:02:29,560 Speaker 1: fundamental index ets have an expense ratio of thirty two 46 00:02:29,560 --> 00:02:34,560 Speaker 1: basis points. That's your Bloomberg ETF report. I'm Katherine Cowdery. 47 00:02:35,320 --> 00:02:38,320 Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim 48 00:02:38,400 --> 00:02:42,560 Speaker 1: Fox on Bloomberg Radio. I had a nice little rally 49 00:02:42,600 --> 00:02:45,920 Speaker 1: going in stocks today until the FED released the minutes 50 00:02:46,040 --> 00:02:49,320 Speaker 1: of its April meeting at two o'clock Wall Street time. 51 00:02:49,919 --> 00:02:54,160 Speaker 1: Stocks sliding after the minutes revealed the Feder reserve that 52 00:02:54,360 --> 00:02:58,399 Speaker 1: is ready willing and able to raise rates in its 53 00:02:58,440 --> 00:03:02,520 Speaker 1: meeting in June if the continue to support this move. 54 00:03:02,560 --> 00:03:05,720 Speaker 1: It doesn't seem like this is a symmetric question. It 55 00:03:05,800 --> 00:03:07,760 Speaker 1: seems like the Fed is poised just waiting to see 56 00:03:07,800 --> 00:03:10,560 Speaker 1: if the data is supported. What does this mean for stocks? 57 00:03:10,560 --> 00:03:13,440 Speaker 1: Not just today but down the road for bonds as well. 58 00:03:13,600 --> 00:03:15,920 Speaker 1: Happy to welcome back to the show. Kevin Divney, chief 59 00:03:15,919 --> 00:03:21,400 Speaker 1: investment Officer Beacon Crest Capital Management in Boston. So, Kevin, 60 00:03:21,480 --> 00:03:24,240 Speaker 1: first of all, your take on the minutes looks like 61 00:03:24,280 --> 00:03:28,320 Speaker 1: the treasury market, the US bond market was not positioned 62 00:03:28,480 --> 00:03:33,440 Speaker 1: for minutes that sounded this hawk ish. I guess definitely 63 00:03:33,440 --> 00:03:36,119 Speaker 1: good to be with you. The market was clearly surprised, 64 00:03:36,160 --> 00:03:38,600 Speaker 1: But also I thought it was interesting how so much 65 00:03:38,600 --> 00:03:40,840 Speaker 1: of the said minutes were explaining what they thought the 66 00:03:40,880 --> 00:03:43,440 Speaker 1: market thought about their last comments. So I think that's 67 00:03:43,480 --> 00:03:46,160 Speaker 1: something else that's been happening here. The said is sort 68 00:03:46,200 --> 00:03:48,920 Speaker 1: of responding too much to the capital markets in in 69 00:03:48,960 --> 00:03:51,440 Speaker 1: the short term. But I think the good news is 70 00:03:51,480 --> 00:03:54,160 Speaker 1: for investors looking at equity markets not so much. What's 71 00:03:54,200 --> 00:03:58,360 Speaker 1: happening today is that the exiting of the stimulative policies, 72 00:03:58,400 --> 00:04:01,840 Speaker 1: in our view, is a positive thing they've done. There's 73 00:04:01,880 --> 00:04:05,000 Speaker 1: long term unintended consequences, and I think we're transitioning to 74 00:04:05,040 --> 00:04:07,720 Speaker 1: a point where we could be more of a normal 75 00:04:07,800 --> 00:04:12,880 Speaker 1: operating environment for stocks. Kevin Tiffany talk about the death 76 00:04:13,080 --> 00:04:15,520 Speaker 1: of beta. First, you got to tell me what it is, 77 00:04:15,760 --> 00:04:17,560 Speaker 1: and then tell me what happens when it has a 78 00:04:17,600 --> 00:04:22,719 Speaker 1: stake through its heart. Well, what we've seen, obviously since 79 00:04:22,839 --> 00:04:25,960 Speaker 1: the QUEUEI really exited in the end of FEEN is 80 00:04:26,000 --> 00:04:27,960 Speaker 1: sort of a flat the sideways market with a lot 81 00:04:27,960 --> 00:04:30,719 Speaker 1: of alatility. So a lot of equity investors are not 82 00:04:30,800 --> 00:04:33,839 Speaker 1: feeling that's good. They were feeling very good after we 83 00:04:33,920 --> 00:04:36,360 Speaker 1: had the zero interest rate policy and watching this set 84 00:04:36,400 --> 00:04:39,240 Speaker 1: and seeing the market recover and you know, this STIMULTI 85 00:04:39,320 --> 00:04:43,160 Speaker 1: policy we're about. The benefits from the stimulus really went 86 00:04:43,200 --> 00:04:46,279 Speaker 1: to the capital markets, maybe went to the real economy. 87 00:04:46,640 --> 00:04:50,000 Speaker 1: So what has happened across multiple equity strategies, whether you 88 00:04:50,080 --> 00:04:54,760 Speaker 1: call it hedge funds, traditional mutual funds, traditional strategies, it's 89 00:04:54,800 --> 00:04:57,920 Speaker 1: been very difficult for them to generate alpha because they've 90 00:04:57,920 --> 00:04:59,920 Speaker 1: been relying so much on the beta for the last 91 00:05:00,120 --> 00:05:02,400 Speaker 1: x years or so. So now I think what we're 92 00:05:02,400 --> 00:05:06,760 Speaker 1: seeing is stocks being priced more on the underlying fundamentals, 93 00:05:06,800 --> 00:05:10,080 Speaker 1: more of the individual characteristics of the company, not so 94 00:05:10,160 --> 00:05:12,440 Speaker 1: much the group as a whole. And that's a very 95 00:05:12,520 --> 00:05:15,239 Speaker 1: very healthy thing because one, it's how the capital markets 96 00:05:15,240 --> 00:05:17,960 Speaker 1: are supposed to function to allocate capital, and two, for 97 00:05:18,080 --> 00:05:21,080 Speaker 1: active management strategies, that's the environment that we want to 98 00:05:21,080 --> 00:05:23,640 Speaker 1: see because we're buying fundamentals. We're not trying to buy 99 00:05:23,680 --> 00:05:30,400 Speaker 1: the whole market generally, So you see um a margin contraction. 100 00:05:30,480 --> 00:05:36,200 Speaker 1: Now you see market arrange bound stock market, it's it's 101 00:05:36,279 --> 00:05:40,280 Speaker 1: not exactly maybe realistic, but not necessarily the most positive 102 00:05:40,320 --> 00:05:41,960 Speaker 1: I think to a lot of people who just want 103 00:05:41,960 --> 00:05:44,000 Speaker 1: to jump in and buy stocks, there are ways to 104 00:05:44,040 --> 00:05:46,680 Speaker 1: make money at a time like this, where do we start? 105 00:05:47,400 --> 00:05:49,080 Speaker 1: There are ways to make money. I think that's the 106 00:05:49,120 --> 00:05:51,800 Speaker 1: one message people can't forget. There's plenty of opportunities in 107 00:05:52,120 --> 00:05:55,599 Speaker 1: the stock markets. One on the interest rates that I 108 00:05:55,600 --> 00:05:57,720 Speaker 1: think if you look at the ten year yield and 109 00:05:57,880 --> 00:06:00,760 Speaker 1: just very quickly as the backdrop we're operating, and the 110 00:06:00,800 --> 00:06:03,560 Speaker 1: tenure yields very highly correlated to nominal GDP. If you 111 00:06:03,600 --> 00:06:05,600 Speaker 1: go back to nineteen fifty nine, I think the R 112 00:06:05,640 --> 00:06:08,000 Speaker 1: squares like point three five, which means it's positive. So 113 00:06:08,000 --> 00:06:09,920 Speaker 1: now we have a ten year going up hopefully it's 114 00:06:09,920 --> 00:06:13,520 Speaker 1: going to be reflective of and and the economy growing. Also, 115 00:06:13,600 --> 00:06:16,160 Speaker 1: I think that when you look at the earnings productivity 116 00:06:16,240 --> 00:06:18,960 Speaker 1: that happened, which was very very impressive in this last 117 00:06:19,120 --> 00:06:21,680 Speaker 1: expansion of recovery, wherever we want to call it is 118 00:06:21,720 --> 00:06:24,039 Speaker 1: that we heat, we hit peak margins again, and every 119 00:06:24,080 --> 00:06:26,880 Speaker 1: time we go through a recession, margins contract. But we've 120 00:06:26,880 --> 00:06:29,280 Speaker 1: seen this cycle in the United States which is very impressive. 121 00:06:29,400 --> 00:06:31,919 Speaker 1: Is each cycle we hit a new peak, and we 122 00:06:32,000 --> 00:06:34,960 Speaker 1: got to that about a year ago. Now we're contracting 123 00:06:35,000 --> 00:06:37,880 Speaker 1: part of that. You could allocate the energy um and 124 00:06:38,000 --> 00:06:40,000 Speaker 1: now what you've seen what that also led to is 125 00:06:40,080 --> 00:06:42,479 Speaker 1: multiple expansion. So what are we left with after this 126 00:06:42,600 --> 00:06:45,360 Speaker 1: interst rate policy with us? It's an expensive looking market 127 00:06:45,720 --> 00:06:48,599 Speaker 1: was contracting multiples and people use a lot of that 128 00:06:48,640 --> 00:06:51,040 Speaker 1: cheap money to buy back stock, which really drove up 129 00:06:51,040 --> 00:06:54,200 Speaker 1: the multiples as well and kept earnings growing, maybe not organically. 130 00:06:54,640 --> 00:06:57,599 Speaker 1: So now investors have been paying for value this year, 131 00:06:57,680 --> 00:07:01,560 Speaker 1: so tilting towards value strategies or company with better earnings visibility, 132 00:07:01,920 --> 00:07:03,800 Speaker 1: and even as we saw some of the moves from 133 00:07:04,200 --> 00:07:07,120 Speaker 1: other investors going into technology, seeing there as a value 134 00:07:07,320 --> 00:07:10,600 Speaker 1: trade this week is attractive. But the long cycle businesses 135 00:07:10,640 --> 00:07:13,920 Speaker 1: and those with good good visibility and good free cash 136 00:07:13,960 --> 00:07:16,400 Speaker 1: flow yields is what we're really looking at and what 137 00:07:16,440 --> 00:07:18,160 Speaker 1: our screens are telling us where we want to point 138 00:07:18,160 --> 00:07:23,400 Speaker 1: new money. Kevin, let's talk specifically about handbags and wallets 139 00:07:23,440 --> 00:07:26,720 Speaker 1: and shoes and watches and jewelry and all kinds of 140 00:07:26,920 --> 00:07:29,520 Speaker 1: leather goods from Coach, because I want to get your 141 00:07:29,560 --> 00:07:32,800 Speaker 1: thoughts on Coach. The shares are of about fourteen percent 142 00:07:32,960 --> 00:07:34,680 Speaker 1: so far this year. It pays a dividend of a 143 00:07:34,680 --> 00:07:37,720 Speaker 1: little bit more than three and a half percent. Well, 144 00:07:37,720 --> 00:07:39,560 Speaker 1: that's a very unique thing to get a dividend that 145 00:07:39,640 --> 00:07:42,120 Speaker 1: high in that space, and that's one thing. Another replacement 146 00:07:42,120 --> 00:07:44,240 Speaker 1: for these low yields is looking for dividends. So that's 147 00:07:44,240 --> 00:07:46,640 Speaker 1: a sub part of the story for us. But retail 148 00:07:46,680 --> 00:07:49,280 Speaker 1: has been very treacherous, But there are positive stories out 149 00:07:49,280 --> 00:07:51,560 Speaker 1: there and what Coach has been able to do. Even 150 00:07:51,600 --> 00:07:53,560 Speaker 1: they had some competitive threats come in in the last 151 00:07:53,600 --> 00:07:56,640 Speaker 1: three or five years, they continue to reinvent, they continue 152 00:07:56,640 --> 00:07:59,560 Speaker 1: to keep the brand. They have an underlying recognition. Obviously, 153 00:08:00,080 --> 00:08:01,760 Speaker 1: you have to come up with new ideas all the time, 154 00:08:01,760 --> 00:08:03,640 Speaker 1: and they were willing to do that. Plus, on a 155 00:08:03,720 --> 00:08:07,120 Speaker 1: valuation basis, I think when you have an established leader 156 00:08:07,280 --> 00:08:09,480 Speaker 1: like a Coach, when it looks cheap, you can buy 157 00:08:09,560 --> 00:08:12,520 Speaker 1: without really having to worry too much about it. Um 158 00:08:12,640 --> 00:08:15,600 Speaker 1: retail in general, our view is it's very treacherous. You 159 00:08:15,640 --> 00:08:17,720 Speaker 1: have to be very specific, and I would not buy 160 00:08:17,760 --> 00:08:21,760 Speaker 1: the group right now because there's very powerful creative destruction 161 00:08:21,840 --> 00:08:25,960 Speaker 1: happening in the retail sector right now. What about the 162 00:08:26,120 --> 00:08:29,720 Speaker 1: technology space broadly? And I guess maybe more particularly, would 163 00:08:29,800 --> 00:08:32,319 Speaker 1: you be on board with the the two people who 164 00:08:32,320 --> 00:08:34,760 Speaker 1: work for Warren Buffett Berkshire halfway now who pumped a 165 00:08:34,880 --> 00:08:40,520 Speaker 1: billion bucks into Apple recently well out of So what 166 00:08:40,720 --> 00:08:42,920 Speaker 1: is Apple is now a value stock? I think that's 167 00:08:43,320 --> 00:08:45,320 Speaker 1: a question. I mean, when it's a group, it's I 168 00:08:45,320 --> 00:08:47,520 Speaker 1: wouldn't buy it as a quote unquot growth stock. I think, 169 00:08:47,559 --> 00:08:49,240 Speaker 1: you know, we sort of pique that when you see 170 00:08:49,280 --> 00:08:53,000 Speaker 1: the unit sales, especially in China, affecting the top line 171 00:08:53,000 --> 00:08:56,040 Speaker 1: growth for Apple. But is there value? They're sure, and 172 00:08:56,040 --> 00:08:58,559 Speaker 1: and then deploying money like that clearly as a lot 173 00:08:58,679 --> 00:09:01,760 Speaker 1: there very long horizon investors. They're not going to accept 174 00:09:01,760 --> 00:09:04,000 Speaker 1: that trade anytime soon. So I think that's a positive 175 00:09:04,040 --> 00:09:06,480 Speaker 1: for a long horizon in general, though, I think the 176 00:09:06,520 --> 00:09:09,920 Speaker 1: trans in tech, you want to exploit our continued broadband 177 00:09:09,960 --> 00:09:13,320 Speaker 1: to the home, continued mobility, that continued bandwidth that we're 178 00:09:13,320 --> 00:09:16,880 Speaker 1: doing everywhere, and that really is more of the unknown 179 00:09:17,000 --> 00:09:19,880 Speaker 1: mid cap and small cap companies that that seem to 180 00:09:19,880 --> 00:09:23,479 Speaker 1: have a technology advantage of you will either be acquired 181 00:09:23,520 --> 00:09:25,760 Speaker 1: by one of the large guys or they can really 182 00:09:25,760 --> 00:09:28,439 Speaker 1: take share in a very very fast way. But you know, 183 00:09:28,520 --> 00:09:31,800 Speaker 1: multiples are still high in tech in general and profits. 184 00:09:31,800 --> 00:09:34,040 Speaker 1: Really that's one of the fastest declining sectors we're seeing 185 00:09:34,080 --> 00:09:36,520 Speaker 1: right now, at least within the SMP five hundred um. 186 00:09:36,559 --> 00:09:40,239 Speaker 1: But still the innovation and combining that with a good valuation, 187 00:09:40,280 --> 00:09:43,240 Speaker 1: it's a place I would be deploying capital, and technology 188 00:09:43,280 --> 00:09:45,200 Speaker 1: makes a big makes up a big component of our 189 00:09:45,240 --> 00:09:48,520 Speaker 1: portfolios today. How about the can I interest you, Kevin 190 00:09:48,720 --> 00:09:52,960 Speaker 1: in some shares of LB Foster and Company. They've lost 191 00:09:53,000 --> 00:09:55,760 Speaker 1: about fifteen percent of their value so far this year. 192 00:09:55,840 --> 00:09:58,480 Speaker 1: What do you like or don't like about this Pittsburgh 193 00:09:58,800 --> 00:10:02,560 Speaker 1: based company. Well, one, it's in Pittsburgh. We'd like to 194 00:10:02,600 --> 00:10:05,440 Speaker 1: avoid crowded trades, and we'd like to find companies that 195 00:10:05,760 --> 00:10:09,160 Speaker 1: have an attractive valuation and are under followed by Wall 196 00:10:09,200 --> 00:10:11,840 Speaker 1: Street at least when we start to enter them. Uh, 197 00:10:11,880 --> 00:10:14,199 Speaker 1: they're a MidCap company with a good balance sheet, a 198 00:10:14,320 --> 00:10:18,360 Speaker 1: long term management in place, and they're just repeating success 199 00:10:18,400 --> 00:10:20,800 Speaker 1: over and over again. So in that sense, when you 200 00:10:20,800 --> 00:10:22,880 Speaker 1: can deploy capital like that. That was what I would 201 00:10:22,880 --> 00:10:25,840 Speaker 1: call a more longer horizon holding. And you could probably 202 00:10:25,840 --> 00:10:28,120 Speaker 1: be much more patient than when we talked about coach. 203 00:10:28,160 --> 00:10:30,040 Speaker 1: When you make some money and coach, you may want 204 00:10:30,040 --> 00:10:31,800 Speaker 1: to be kind of pulling that back because that tends 205 00:10:31,840 --> 00:10:34,120 Speaker 1: to get a lot of the a lot of the 206 00:10:34,200 --> 00:10:37,600 Speaker 1: chatter from the street when stocks like that do well. 207 00:10:37,640 --> 00:10:40,000 Speaker 1: Thank you very much for spending time with us. Kevin 208 00:10:40,120 --> 00:10:45,160 Speaker 1: Divney is the chief investment officer for becon Crest Capital Management, 209 00:10:45,520 --> 00:10:50,800 Speaker 1: joining us from Boston home to Bloomberg twelve hundred and Uh. Well, Kathleen, 210 00:10:50,840 --> 00:10:52,520 Speaker 1: we're going to take it into the clothes on a 211 00:10:52,600 --> 00:10:55,600 Speaker 1: day when we've learned a little bit more, perhaps about 212 00:10:55,600 --> 00:10:59,240 Speaker 1: the Federal Reserves thinking process. We certainly have him. I 213 00:10:59,240 --> 00:11:02,400 Speaker 1: mean that when we had three FED officials in the hotels, 214 00:11:02,440 --> 00:11:05,040 Speaker 1: it was a live meeting in June. In our recent interviews, 215 00:11:05,200 --> 00:11:06,880 Speaker 1: I guess they met what they were saying and a 216 00:11:06,880 --> 00:11:09,760 Speaker 1: lot of other people on them. He agree, you're listening 217 00:11:09,800 --> 00:11:11,880 Speaker 1: to taking Stock on Bloomberg Radio.