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Speaker 1: I'm Charlie Pellett's stocks fluctuating, the dollar rallies, treasuries plunge,
Speaker 1: an indication of the Federal Reserve may raise rates as
Speaker 1: early as June was weighed against signs the world's largest
Speaker 1: economy is gaining momentum. SMP five hundred index down two points,
Speaker 1: a drop there of point one percent. The SMP had
Speaker 1: been higher heading into today's minutes, NAS dank holding onto
Speaker 1: a gain of fifteen points, up three tents of one percent.
Speaker 1: Town Industrials down thirty had dropped there of two tents
Speaker 1: of one percent. We've got the tenure down twenty seven
Speaker 1: thirty seconds. Looking at the yield of one point eight
Speaker 1: six percent. Gold down eighteen dollars, the ounce to twelve
Speaker 1: fifty eight, a drop of one point four percent. West
Speaker 1: Texas Intermedia crewed down forty five cents, a drop there
Speaker 1: of point nine percent. W t I eighty six barrel.
Speaker 1: I'm Charlie Peloton. That's a Bloomberg Business flash. Thank you
Speaker 1: very much. Charlie Bella, it is time now for the
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Speaker 1: Catherine Cawdary for the e t F Report. The sea
Speaker 1: change from high cost to low cost investments can be
Speaker 1: seen in the growing popularity of Charles Schwab's a t S.
Speaker 1: Bloomberg intelligence analyst Eric Beltuna says, nineteen of Schwabs have
Speaker 1: taken in money this year. That is hard to believe.
Speaker 1: Right again, it shows you that you know, Schwab is
Speaker 1: getting money through robo advisors and through people who are
Speaker 1: at allocating. You could argue that s dumb money, but
Speaker 1: you could argue that smart too, because it's going in
Speaker 1: and buying everything. Um sometimes when it's down, which is good,
Speaker 1: you get cheaper prices. Valtuna says Schwab has attracted four
Speaker 1: to five billion dollars and inflows into its e t s.
Speaker 1: This here including into its newest suite, a smart Beta products.
Speaker 1: For Schwab to start taking your money in smart Beta,
Speaker 1: that's a big deal because smart beat has always been
Speaker 1: the area we can charge a little more, but Schwab's
Speaker 1: products are dirt cheap. So it's interesting to see if
Speaker 1: that fee war, you know, and Schwab getting in collecting
Speaker 1: assets will affect Smart Beta. So far, there is some
Speaker 1: there's some evidence of that. Four of schwab six new
Speaker 1: fundamental index ets have an expense ratio of thirty two
Speaker 1: basis points. That's your Bloomberg ETF report. I'm Katherine Cowdery.
Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
Speaker 1: Fox on Bloomberg Radio. I had a nice little rally
Speaker 1: going in stocks today until the FED released the minutes
Speaker 1: of its April meeting at two o'clock Wall Street time.
Speaker 1: Stocks sliding after the minutes revealed the Feder reserve that
Speaker 1: is ready willing and able to raise rates in its
Speaker 1: meeting in June if the continue to support this move.
Speaker 1: It doesn't seem like this is a symmetric question. It
Speaker 1: seems like the Fed is poised just waiting to see
Speaker 1: if the data is supported. What does this mean for stocks?
Speaker 1: Not just today but down the road for bonds as well.
Speaker 1: Happy to welcome back to the show. Kevin Divney, chief
Speaker 1: investment Officer Beacon Crest Capital Management in Boston. So, Kevin,
Speaker 1: first of all, your take on the minutes looks like
Speaker 1: the treasury market, the US bond market was not positioned
Speaker 1: for minutes that sounded this hawk ish. I guess definitely
Speaker 1: good to be with you. The market was clearly surprised,
Speaker 1: But also I thought it was interesting how so much
Speaker 1: of the said minutes were explaining what they thought the
Speaker 1: market thought about their last comments. So I think that's
Speaker 1: something else that's been happening here. The said is sort
Speaker 1: of responding too much to the capital markets in in
Speaker 1: the short term. But I think the good news is
Speaker 1: for investors looking at equity markets not so much. What's
Speaker 1: happening today is that the exiting of the stimulative policies,
Speaker 1: in our view, is a positive thing they've done. There's
Speaker 1: long term unintended consequences, and I think we're transitioning to
Speaker 1: a point where we could be more of a normal
Speaker 1: operating environment for stocks. Kevin Tiffany talk about the death
Speaker 1: of beta. First, you got to tell me what it is,
Speaker 1: and then tell me what happens when it has a
Speaker 1: stake through its heart. Well, what we've seen, obviously since
Speaker 1: the QUEUEI really exited in the end of FEEN is
Speaker 1: sort of a flat the sideways market with a lot
Speaker 1: of alatility. So a lot of equity investors are not
Speaker 1: feeling that's good. They were feeling very good after we
Speaker 1: had the zero interest rate policy and watching this set
Speaker 1: and seeing the market recover and you know, this STIMULTI
Speaker 1: policy we're about. The benefits from the stimulus really went
Speaker 1: to the capital markets, maybe went to the real economy.
Speaker 1: So what has happened across multiple equity strategies, whether you
Speaker 1: call it hedge funds, traditional mutual funds, traditional strategies, it's
Speaker 1: been very difficult for them to generate alpha because they've
Speaker 1: been relying so much on the beta for the last
Speaker 1: x years or so. So now I think what we're
Speaker 1: seeing is stocks being priced more on the underlying fundamentals,
Speaker 1: more of the individual characteristics of the company, not so
Speaker 1: much the group as a whole. And that's a very
Speaker 1: very healthy thing because one, it's how the capital markets
Speaker 1: are supposed to function to allocate capital, and two, for
Speaker 1: active management strategies, that's the environment that we want to
Speaker 1: see because we're buying fundamentals. We're not trying to buy
Speaker 1: the whole market generally, So you see um a margin contraction.
Speaker 1: Now you see market arrange bound stock market, it's it's
Speaker 1: not exactly maybe realistic, but not necessarily the most positive
Speaker 1: I think to a lot of people who just want
Speaker 1: to jump in and buy stocks, there are ways to
Speaker 1: make money at a time like this, where do we start?
Speaker 1: There are ways to make money. I think that's the
Speaker 1: one message people can't forget. There's plenty of opportunities in
Speaker 1: the stock markets. One on the interest rates that I
Speaker 1: think if you look at the ten year yield and
Speaker 1: just very quickly as the backdrop we're operating, and the
Speaker 1: tenure yields very highly correlated to nominal GDP. If you
Speaker 1: go back to nineteen fifty nine, I think the R
Speaker 1: squares like point three five, which means it's positive. So
Speaker 1: now we have a ten year going up hopefully it's
Speaker 1: going to be reflective of and and the economy growing. Also,
Speaker 1: I think that when you look at the earnings productivity
Speaker 1: that happened, which was very very impressive in this last
Speaker 1: expansion of recovery, wherever we want to call it is
Speaker 1: that we heat, we hit peak margins again, and every
Speaker 1: time we go through a recession, margins contract. But we've
Speaker 1: seen this cycle in the United States which is very impressive.
Speaker 1: Is each cycle we hit a new peak, and we
Speaker 1: got to that about a year ago. Now we're contracting
Speaker 1: part of that. You could allocate the energy um and
Speaker 1: now what you've seen what that also led to is
Speaker 1: multiple expansion. So what are we left with after this
Speaker 1: interst rate policy with us? It's an expensive looking market
Speaker 1: was contracting multiples and people use a lot of that
Speaker 1: cheap money to buy back stock, which really drove up
Speaker 1: the multiples as well and kept earnings growing, maybe not organically.
Speaker 1: So now investors have been paying for value this year,
Speaker 1: so tilting towards value strategies or company with better earnings visibility,
Speaker 1: and even as we saw some of the moves from
Speaker 1: other investors going into technology, seeing there as a value
Speaker 1: trade this week is attractive. But the long cycle businesses
Speaker 1: and those with good good visibility and good free cash
Speaker 1: flow yields is what we're really looking at and what
Speaker 1: our screens are telling us where we want to point
Speaker 1: new money. Kevin, let's talk specifically about handbags and wallets
Speaker 1: and shoes and watches and jewelry and all kinds of
Speaker 1: leather goods from Coach, because I want to get your
Speaker 1: thoughts on Coach. The shares are of about fourteen percent
Speaker 1: so far this year. It pays a dividend of a
Speaker 1: little bit more than three and a half percent. Well,
Speaker 1: that's a very unique thing to get a dividend that
Speaker 1: high in that space, and that's one thing. Another replacement
Speaker 1: for these low yields is looking for dividends. So that's
Speaker 1: a sub part of the story for us. But retail
Speaker 1: has been very treacherous, But there are positive stories out
Speaker 1: there and what Coach has been able to do. Even
Speaker 1: they had some competitive threats come in in the last
Speaker 1: three or five years, they continue to reinvent, they continue
Speaker 1: to keep the brand. They have an underlying recognition. Obviously,
Speaker 1: you have to come up with new ideas all the time,
Speaker 1: and they were willing to do that. Plus, on a
Speaker 1: valuation basis, I think when you have an established leader
Speaker 1: like a Coach, when it looks cheap, you can buy
Speaker 1: without really having to worry too much about it. Um
Speaker 1: retail in general, our view is it's very treacherous. You
Speaker 1: have to be very specific, and I would not buy
Speaker 1: the group right now because there's very powerful creative destruction
Speaker 1: happening in the retail sector right now. What about the
Speaker 1: technology space broadly? And I guess maybe more particularly, would
Speaker 1: you be on board with the the two people who
Speaker 1: work for Warren Buffett Berkshire halfway now who pumped a
Speaker 1: billion bucks into Apple recently well out of So what
Speaker 1: is Apple is now a value stock? I think that's
Speaker 1: a question. I mean, when it's a group, it's I
Speaker 1: wouldn't buy it as a quote unquot growth stock. I think,
Speaker 1: you know, we sort of pique that when you see
Speaker 1: the unit sales, especially in China, affecting the top line
Speaker 1: growth for Apple. But is there value? They're sure, and
Speaker 1: and then deploying money like that clearly as a lot
Speaker 1: there very long horizon investors. They're not going to accept
Speaker 1: that trade anytime soon. So I think that's a positive
Speaker 1: for a long horizon in general, though, I think the
Speaker 1: trans in tech, you want to exploit our continued broadband
Speaker 1: to the home, continued mobility, that continued bandwidth that we're
Speaker 1: doing everywhere, and that really is more of the unknown
Speaker 1: mid cap and small cap companies that that seem to
Speaker 1: have a technology advantage of you will either be acquired
Speaker 1: by one of the large guys or they can really
Speaker 1: take share in a very very fast way. But you know,
Speaker 1: multiples are still high in tech in general and profits.
Speaker 1: Really that's one of the fastest declining sectors we're seeing
Speaker 1: right now, at least within the SMP five hundred um.
Speaker 1: But still the innovation and combining that with a good valuation,
Speaker 1: it's a place I would be deploying capital, and technology
Speaker 1: makes a big makes up a big component of our
Speaker 1: portfolios today. How about the can I interest you, Kevin
Speaker 1: in some shares of LB Foster and Company. They've lost
Speaker 1: about fifteen percent of their value so far this year.
Speaker 1: What do you like or don't like about this Pittsburgh
Speaker 1: based company. Well, one, it's in Pittsburgh. We'd like to
Speaker 1: avoid crowded trades, and we'd like to find companies that
Speaker 1: have an attractive valuation and are under followed by Wall
Speaker 1: Street at least when we start to enter them. Uh,
Speaker 1: they're a MidCap company with a good balance sheet, a
Speaker 1: long term management in place, and they're just repeating success
Speaker 1: over and over again. So in that sense, when you
Speaker 1: can deploy capital like that. That was what I would
Speaker 1: call a more longer horizon holding. And you could probably
Speaker 1: be much more patient than when we talked about coach.
Speaker 1: When you make some money and coach, you may want
Speaker 1: to be kind of pulling that back because that tends
Speaker 1: to get a lot of the a lot of the
Speaker 1: chatter from the street when stocks like that do well.
Speaker 1: Thank you very much for spending time with us. Kevin
Speaker 1: Divney is the chief investment officer for becon Crest Capital Management,
Speaker 1: joining us from Boston home to Bloomberg twelve hundred and Uh. Well, Kathleen,
Speaker 1: we're going to take it into the clothes on a
Speaker 1: day when we've learned a little bit more, perhaps about
Speaker 1: the Federal Reserves thinking process. We certainly have him. I
Speaker 1: mean that when we had three FED officials in the hotels,
Speaker 1: it was a live meeting in June. In our recent interviews,
Speaker 1: I guess they met what they were saying and a
Speaker 1: lot of other people on them. He agree, you're listening
Speaker 1: to taking Stock on Bloomberg Radio.