Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You,
Speaker 1: along with my co host Lisa Brahma wits each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, the everything rally that investors
Speaker 1: enjoyed in nineteen appears to be continuing here in the
Speaker 1: early parts of To get a sense of what the
Speaker 1: risk rewards scenario is for investors right now, we welcome
Speaker 1: Mark hepp Install, chief investment officer of pen Mutual Asset Management.
Speaker 1: They have about twenty eight and a half billion dollars
Speaker 1: under management based in Philadelphia, but Mark joins us here
Speaker 1: on our Bloomberg Interactive Broker studio. So Mark, again, a
Speaker 1: fantastic performance in financial markets last year, A good start
Speaker 1: to the year. What are the risk to the market
Speaker 1: from your perspective? Well, you know, I do think that, um,
Speaker 1: the geopolitical risks um, certainly with what's going on with
Speaker 1: the RAND attentions there. Um, Clearly the coronavirus is front
Speaker 1: and center, and it seems as though the second case
Speaker 1: arriving here in the United States is enough to pressure
Speaker 1: equity markets some today and lower interest rates. So um,
Speaker 1: but you know, generally our outlook is for a more
Speaker 1: stable market both equities and interest rates this year, and
Speaker 1: I think that's really resulting from the veed honestly wanting
Speaker 1: to get out of the spotlight, move to the side,
Speaker 1: keep interest rates where they are, and we think that's
Speaker 1: going to be uh, really an outcome where both equities
Speaker 1: and interest rates are more range bound this year as
Speaker 1: opposed to dramatic moves like we've seen the previous two years.
Speaker 1: There's been a common theme where people say that bonds
Speaker 1: and stocks are sending different messages, with bonds rallying typically
Speaker 1: indicating some negativity, pessimism about global growth, stocks rallying indicating optimism.
Speaker 1: You said you disagree, You don't think that these narratives
Speaker 1: are inconsistent. Why well, I would say, on the short term,
Speaker 1: like you get a day like the day where fear
Speaker 1: enders and market you can you're gonna see a situation
Speaker 1: where bonds and stocks act differently. However, over the long term,
Speaker 1: I do think that the fact interest rates are so low,
Speaker 1: they are so on a tractive versus other alternatives. UM
Speaker 1: inequities I think are a big part of that equation.
Speaker 1: UM it really forces investors to take more risk when
Speaker 1: interest rates really sit where they do today. So I
Speaker 1: think over the long term that's supportive evaluations. And I
Speaker 1: do think that you know and clearly that you know
Speaker 1: that the mantra don't fight. The Fed worked um in
Speaker 1: late two thousand and eighteen and then worked in two
Speaker 1: thousand nineteen, So I think that's also part of the equation.
Speaker 1: And last year, you know, the FED at the beginning
Speaker 1: of the year was expected to really move interest rates higher.
Speaker 1: So the fact that everything rallied last year in response
Speaker 1: to lower FED interest rates, you know, I think makes
Speaker 1: sense markets an election year this year, how do you
Speaker 1: typically think about your portfolio and positioning in in a
Speaker 1: presidential election year? Well, I will say the pull from
Speaker 1: the middle, um from I would say both parties, really,
Speaker 1: I think means the outcome for the election is going
Speaker 1: to have significance for markets. And it doesn't necessarily mean
Speaker 1: that stocks are gonna scream higher scream lower depending on
Speaker 1: which party wins. But I do think in terms of
Speaker 1: winners and losers will be quite different, um depending on
Speaker 1: the outcome of this year's presidential elections. So and we've
Speaker 1: been involved heavily in the fixed income markets. That's where
Speaker 1: we tend to focus our investment activity. And so you know,
Speaker 1: certainly healthcare is an area that has been under some
Speaker 1: pressure there for fear that you know, there could be
Speaker 1: dramatic changes for the health insurance in the United States,
Speaker 1: so that you know, is against something that the outcome
Speaker 1: I think will deliver different winners and losers next year.
Speaker 1: HILED bonds, they've been on a tear at least through
Speaker 1: the last couple of days when we saw the price
Speaker 1: of oil really tank. Wow. Crew trading on the imax
Speaker 1: now fifty four dollars and forty eight cents on a barrel.
Speaker 1: That's down from the end of the year when it
Speaker 1: was sixty three. It's almost now ten dollars since the
Speaker 1: end of last year. Amazing. Uh. And you are seeing
Speaker 1: HIL debt underperform other types of credit as a result
Speaker 1: of this due to their energy component. What's your view
Speaker 1: on this space, Well, I do think when the double
Speaker 1: B universe is trading sub for scent where it sits
Speaker 1: or close to it today. You know, it's hard to
Speaker 1: make a case that UM, I would say, high quality,
Speaker 1: high yield makes a lot of sense. So you know,
Speaker 1: I do think there are better opportunities for total return
Speaker 1: within uh the investment grade corporate bomb market and also
Speaker 1: within certain parts of the securities securities markets. So you know,
Speaker 1: I will say I think generally consumer balance sheets are
Speaker 1: in better condition than corporate balance sheets. So I think
Speaker 1: if you're gonna take credit risk, you much more UM
Speaker 1: paid well to do it and rewarded in consumer credit
Speaker 1: as opposed to corporate credits. So are you underweaiting how
Speaker 1: yield right now? We are, Yeah, We're looking for opportunities
Speaker 1: to lighten UM our high you would exposure and upgrade
Speaker 1: to UM investment grade into securitized, in particular for our
Speaker 1: Strategic Income Fund, which is really a go anywhere fixed
Speaker 1: income strategy. When did you start doing that, Well, probably
Speaker 1: towards the second half of last year. UM. You know
Speaker 1: when we generally, you know, at the high end, we
Speaker 1: may have ten to fifteen percent of how you would
Speaker 1: exposure within our Strategic Income fund, but we've been gradually
Speaker 1: reducing that. And again, you know, we we're finding similar
Speaker 1: types of spreads for highly rated securitized products. The residential
Speaker 1: mortgage backed securities market in particular, last year they underperformed
Speaker 1: partly as a result of higher prepayment field as h
Speaker 1: fears as mortgage rates declined. So that's an opportunity where
Speaker 1: if our outlook is for more stable rates this year,
Speaker 1: that should outperform corporate credit for example, how about credit
Speaker 1: quality in your portfolio. We're ten eleven years into this
Speaker 1: economic cycle. People are concerned perhaps about credit quality. What
Speaker 1: do you see in your portfolio? Well, we you know,
Speaker 1: we do think that UM. You know, good solid credit research,
Speaker 1: especially UM on the corporate credit side is critical today
Speaker 1: given where UM valuations sits. So you know, our corporate
Speaker 1: credit team, you know, they really focus across the credit spectrum,
Speaker 1: both investment grade and high yield, and they've done a
Speaker 1: terrific job in terms of of navigating these markets. And
Speaker 1: I will say last year, even though generally it wasn't
Speaker 1: everything rally, there were pockets of weakened weakness, especially among
Speaker 1: lower rated high yield credit so energy, some certain triple
Speaker 1: C rated securities last year really underperformed. So that's been
Speaker 1: an area where we have been underweight. What kind of
Speaker 1: returns can people expect from a credit portfolio right now
Speaker 1: that takes a bit of risk. Uh, it doesn't go crazy,
Speaker 1: but is trying to operate and getting a little carry
Speaker 1: in this environment. Well, you know, the starting point really
Speaker 1: for all financial asset pricing is the resk free rate.
Speaker 1: So when you have the ten year yield trading now
Speaker 1: below one point seven percent, you know, to me, it's
Speaker 1: it's hard to make a case that you're going to
Speaker 1: get much more than you know, mid twos to three
Speaker 1: percent for a reasonably high quality investment grade corporate bond
Speaker 1: portfolio today. So you know, again we think it's time
Speaker 1: to be cautious, and we do want to make sure
Speaker 1: that you know, if do if we do get in
Speaker 1: a circumstance similar to the December of two thousand eighteen,
Speaker 1: when really the credit markets were on sale, equities were
Speaker 1: under pressure, you know, we want to have dry powder
Speaker 1: to take advantage of those opportunities. How about new issues
Speaker 1: at least? And I we keep saying Bloomberg News stories
Speaker 1: about all the new issues coming into estment grade market,
Speaker 1: Well there has been, Yeah, there's been incredible demand. And
Speaker 1: I will say there are certain um securities, especially within
Speaker 1: the banking space. Some perpetual preferred securities are getting done
Speaker 1: in that low four percent zip code. So you know
Speaker 1: that was levels of issuance that were unthinkable twelve months ago.
Speaker 1: But you know, again, I do think the negative interest
Speaker 1: rates abroad um really are steering foreign investors to US
Speaker 1: financial assets. Low treasury yield, steering investors to to yield
Speaker 1: where they can get it anywhere. So even though we
Speaker 1: generally think bank credit quality is good, you know some
Speaker 1: of some of the opportunities, they are definitely uh less
Speaker 1: attractive today. That's actually what's distracting me right now is
Speaker 1: the gap between two year bonds in the US and Germany.
Speaker 1: It's just absolutely blown my mind. It's the lowest since
Speaker 1: September seventeen. I'm actually completely serious. But it's exactly your point, Mark,
Speaker 1: which is that basically, uh, this is confirmation in my view,
Speaker 1: I mean take it as you well to me, this
Speaker 1: means that investors are coming over from Europe and coming
Speaker 1: into the US and trying to take advantage of that gap.
Speaker 1: I could be wrong by email address if you want
Speaker 1: to right to me to tell me I'm wrong, Lebrono.
Speaker 1: It's at Bloomberg dot Net. Mark Happens Style, chief investment
Speaker 1: officer of Pen Mutual Asset Management. Well, much of the
Speaker 1: focus on international trade has between between the U S
Speaker 1: and China, but there's also been rising rhetoric between the
Speaker 1: US and France on a whole host of items, including wine.
Speaker 1: We have to figure out what's going on there. Nobody
Speaker 1: better to do that than with Tom Gearing. He's a
Speaker 1: chief executive officer and co founder of Cult Wines Asset
Speaker 1: Management based in London. Tom, thanks so much for joining us.
Speaker 1: Tell us what's going on potentially with the French wine
Speaker 1: market and tariffs? Yeah, good morning, Thanks so much for
Speaker 1: having me. Well, I mean, obviously the current sort of
Speaker 1: impass between the France and US over the digital service
Speaker 1: attacks was in one way you had going to have
Speaker 1: a huge implication potentially on the French wine industry, and
Speaker 1: one particular region that I think would have suffered significantly
Speaker 1: would have been a Champagne region. The Champagne, for example,
Speaker 1: US represents the biggest export market for at four five
Speaker 1: million euros, and the potential ents tariffs that they were
Speaker 1: looking to impose on French goods would have included Champagne
Speaker 1: could have been quite a catastrophic really for the for
Speaker 1: the for the Champagne region, and would have been I mean,
Speaker 1: I don't think you can underestimate the seismic impact that
Speaker 1: would have had on the global wine marketing, in particular um,
Speaker 1: you know, the French wine market. But now that that
Speaker 1: sort of ceasefire has um has been established seen the
Speaker 1: two sides, I think what people have sort of forgotten
Speaker 1: about is that there already are tariffs imposed on e wines,
Speaker 1: in particular French wines, and these were imposed back in
Speaker 1: October as a result of the dispute over airbus. So
Speaker 1: if you actually look at the European wines in take
Speaker 1: a French wines, you know that they've been under fire
Speaker 1: considerably over the last few months. And we've already started
Speaker 1: to see the impact um those tariffs have had on
Speaker 1: French wines in the in the global marketplace, and and
Speaker 1: in particular the impact it's had with US importers canceling
Speaker 1: orders UM that they had placed canceling on from a
Speaker 1: futures contracts they had in place UM. And you know
Speaker 1: a lot of the wine owners, wineries, distributors you know
Speaker 1: in Europe understandably worried and Similarly in the US. You know,
Speaker 1: a lot of the importers, merchants, distributors again are very
Speaker 1: concerned about what's going to happen over over the next
Speaker 1: few months. So I think even though this is a
Speaker 1: this is a good sign for the market, you know
Speaker 1: that they've decided to hold fire. Um, you know, we're
Speaker 1: not out of the woods yet, and it's it's very
Speaker 1: finely poised. I have to ask the burning question in
Speaker 1: the room, Tom Gearing, how does one get into wine
Speaker 1: asset management? So, I mean, my my my background, my
Speaker 1: family we were were passionate wine collectors. It's something that
Speaker 1: I've known about for a long time. But I really
Speaker 1: believe in in the financial viability of wine as a
Speaker 1: as a diversification for an investment portfolio. You know, wine
Speaker 1: is it as an asset. Classes is a tangible product.
Speaker 1: It's something that is um fundamentally based on unique characteristics
Speaker 1: in that the greatest wines in the world are produced
Speaker 1: in very small quantities and they're consumed. So wine has
Speaker 1: a perfectly inverse affly curve. So there's you know, there's
Speaker 1: there's a lot of history and romance around the product.
Speaker 1: But if you take some of that romanticism away and
Speaker 1: treat it as a financial asset. You know, it has
Speaker 1: a lot of potential benefits to anyone investing it. So
Speaker 1: fine wine as an as as as an asset management concept.
Speaker 1: I think it's something that's going to become more and
Speaker 1: more mainstream. Um. You know, over the years, Paul I
Speaker 1: will say that I treated as a viable asset in
Speaker 1: the evening. It does work. It does work. So town,
Speaker 1: what are you buying right now? What are the wines
Speaker 1: that are promising the value right now? Well, I mean
Speaker 1: look to keep it in the context of the conversation
Speaker 1: about the terrorists. Um, you know, it's Italian wines. The
Speaker 1: best Italian wines that have done extremely well. You know,
Speaker 1: they were the best performing subregion last year in terms
Speaker 1: of price performance. Um. If you look at some of
Speaker 1: the best wines that are produced in northern Italy in
Speaker 1: particular and Pierre Mont where the Nebuola grape is uh,
Speaker 1: you know, the grape that's grown more than most the
Speaker 1: wines in that region have gone up significantly in value.
Speaker 1: There's demand that's increasing because if you look at the
Speaker 1: quality the wines are being produced there. In comparison to
Speaker 1: say that the equivalent of Grand Crew Burgundy. There's quite
Speaker 1: a significant price gap, and there's quite a significant price disparity.
Speaker 1: And I think that globally, consumers, especially at the top
Speaker 1: end of the market, um where prices have increased, in
Speaker 1: particular for French wines, in particular Burgundy Groan Crew for example,
Speaker 1: People on our something to look outside that for value,
Speaker 1: you know where, kind of whe where else in the
Speaker 1: wh Where else in the world can I buy into
Speaker 1: really really high quality, um small production wines, but that
Speaker 1: can still deliver um, you know, outstanding experience. Well, I
Speaker 1: guess that there's a question about wine. When you say
Speaker 1: that it's a financial asset, I mean it is, but
Speaker 1: you can consume it. And there's a question are people
Speaker 1: buying these mainly as an investment vehicle? Do they expect
Speaker 1: them to be drunk at some point? I mean, is
Speaker 1: there sort of that end goal or is it that
Speaker 1: they are being increasingly treated as financial assets. Well, I mean, look,
Speaker 1: if you look at wine from a very basic expective
Speaker 1: that you know, the great wines in the world are
Speaker 1: actually made to be drunk in ten, fifty, twenty years.
Speaker 1: So they need someone to carry that cost um. They
Speaker 1: need someone to carry the cost of storage, of insurance
Speaker 1: of the wines and making sure that they're kept in
Speaker 1: the opten conditions. So the fact that wine as an asset,
Speaker 1: as a as a product sorry, um, you know, increases
Speaker 1: over time and value in most cases provides the holder,
Speaker 1: the person who's carrying the costum, a financial incentive to
Speaker 1: do so. So regardless of whether your intentions on day
Speaker 1: one are to buy for purely collection purposes or whether
Speaker 1: you're buying purely for drinking purposes, the fact that wine
Speaker 1: increases in value gives you the financial incentive to actually
Speaker 1: hold and store these wines, which can be quite a
Speaker 1: costly exercise. Um. So what I think is, you know,
Speaker 1: as altruistic is you could be as a wine connoisseur.
Speaker 1: Sometimes you don't know how much your preferences or objectives
Speaker 1: in life might change over time. So with wine, it's
Speaker 1: of course first and foremost product that should be consumed,
Speaker 1: and a lot of people in the world are consuming
Speaker 1: these wines. But from a secondary perspective, if you're if
Speaker 1: you're a collector and you can get a financial benefit
Speaker 1: from doing so and end up drinking the wines for
Speaker 1: less in the future, or you can resell them and
Speaker 1: generate a profit. Or you can come into the markets
Speaker 1: a pure investor and generate a very low risk adjusted turns.
Speaker 1: Then I forget all adds to the overall greatness of
Speaker 1: the asset. Tom Gearing, thank you so much for being
Speaker 1: where us. Tom Geary, chief executive Officer of cult Wines
Speaker 1: Asset Management, joining us by phone. I want to get
Speaker 1: to a fascinating story here. President Donald Trump is again
Speaker 1: facing questions about his relationship with Mohammed been Salmon if
Speaker 1: the Sudi Crown Prince was accused of spying on Amazon
Speaker 1: dot Com chief Jeff Bezos. To get some more on
Speaker 1: this story, we welcome Justin Sinc. Justin covers the White
Speaker 1: House for Bloomberg News. Justin, thanks so much for joining us.
Speaker 1: Talk to us about how this story is expanding from
Speaker 1: what it was originally reported. Jeff Bezos and the Saudi
Speaker 1: Crown Prince. Yeah, I mean what we're seeing now is
Speaker 1: I think a lot of pressure on the US government
Speaker 1: to respond. Obviously, President Trump is still sort of facing
Speaker 1: the fallout from the killing of Jamalika Shogi, who was
Speaker 1: the Washington Post columnist who was murdered in inside a
Speaker 1: diplomatic facility. Uh, and this again has gone back in
Speaker 1: some ways. This uh latest controversy is like an amalgamation
Speaker 1: of all the sort of controversies of President Trump's tenure.
Speaker 1: So you've got, uh, these concerns over you know, closeness
Speaker 1: with Saudi Arabia despite UM human rights violations. He've got
Speaker 1: his back and forth with Jeff Bezos and Amazon, who
Speaker 1: President Trump himself has been frustrated with because of the
Speaker 1: owner ship of the Washington Post. You've got this ongoing
Speaker 1: court case over whether you know, the Pentagon violated UM
Speaker 1: kind of a fair competition by giving Microsoft rather than
Speaker 1: Amazon this huge ten billion dollar contract. And so I
Speaker 1: think a lot of attention is now turning into how
Speaker 1: President Trump is going to handle this, because you would
Speaker 1: think under normal circumstances of foreign government hacking the richest
Speaker 1: man in the United States the head of a prominent
Speaker 1: American company would be something that the US government would
Speaker 1: respond to. Justin there's also a question of cybersecurity. So,
Speaker 1: putting aside the politics of whether President Trump responds to this, UH,
Speaker 1: there is a question of Saudi Arabia's capabilities in any
Speaker 1: potential friendship or contact from people close to the administration.
Speaker 1: We know that, for example, President Trump's son in law
Speaker 1: had some direct contact with Mohammed bin Salmon. Uh. So,
Speaker 1: I'm wondering do we have any sense or better surveillance
Speaker 1: into knowing that other members apps of the government were
Speaker 1: not hacked by the Saudi Arabians in the same kind
Speaker 1: of way that they are suspected of doing so with
Speaker 1: the richest man in America. Yeah, I mean, this is
Speaker 1: a real question here on the White House, is you
Speaker 1: know they're they're Is all that's reporting about Jared Kushner
Speaker 1: and an MBS speaking with each other over WhatsApp? Obviously
Speaker 1: the Saudius have been sort of brazen, at least allegedly.
Speaker 1: But the one kind of point of caution that that
Speaker 1: some people have said during this is that the investigation
Speaker 1: into Jeff bezos phone was done by an independent firm.
Speaker 1: It hasn't yet been reviewed by outside government sources. We're
Speaker 1: not sure if the U. S. Intelligence community has made
Speaker 1: the same determination, and that that could explain some of
Speaker 1: the reticents so far by the White House in the
Speaker 1: administration to to publicly say anything about this. But my
Speaker 1: guess is that they are undertaking a security review, not
Speaker 1: just what happened in the basis case, but if anything
Speaker 1: had happened that could potentially compromise the US security here
Speaker 1: Um the way else it said previously that that Jared's
Speaker 1: PHONN conversations were all properly documented and security measures were taken.
Speaker 1: But I'm sure that this this case has sort of
Speaker 1: prompted a new look at all. That what's interesting, I
Speaker 1: think the is there any sense that the US government
Speaker 1: plans to launch an investigation or are they just going
Speaker 1: to sit on the sidelines and hope this maybe pu
Speaker 1: bose over. Yeah, I mean, certainly the public indications is
Speaker 1: the second. UM. White House spokesman Hogan Ghibley was asked
Speaker 1: about this yesterday. Uh, he said, you know, the while
Speaker 1: the administration takes it seriously that Saudis are an important ally,
Speaker 1: the President himself said he wasn't really familiar with the case,
Speaker 1: and Treasury Secretary Ammunition uh said it shouldn't stop American
Speaker 1: companies from continuing to work with and invest in Saudi Arabia.
Speaker 1: So there's not yet kind of an indication that the
Speaker 1: US is launching kind of a full scale investigation or
Speaker 1: raising red flags in the way that the Obama administration,
Speaker 1: for instance, did after the sort of famous ony hack
Speaker 1: um by North Korea, which ended up, you know, releasing
Speaker 1: a lot of embarrassing internal documents and emails justin sink
Speaker 1: of Flaver News. Thank you so much for bringing us that.
Speaker 1: I do want to just give you an update and
Speaker 1: what's going on in markets right now? You're saying oil
Speaker 1: prices fall, uh, it's actually down now, crede on the
Speaker 1: imax cents, that's down almost ten dollars from the end
Speaker 1: of last year. Meanwhile, you're seeing tenure into your treasury.
Speaker 1: Yields fall to their lowest since October. And there is
Speaker 1: a question of why you've seen it right, you know,
Speaker 1: seen the equities rebound, certainly led by tech. You aren't
Speaker 1: seeing necessarily a massive bid in gold, and there is
Speaker 1: a question of why yields are constantly being pressed lower
Speaker 1: in the US. I do just have to say, I
Speaker 1: do find this interesting. The foreign bid, how much is that?
Speaker 1: What's driving it given the fact that the ECB is
Speaker 1: on hold, possibly looking at more ways to stimulate inflation
Speaker 1: in the rearview mirror, and what a year it was
Speaker 1: starting off, and generally similar type of fashion, broad strength
Speaker 1: of financial markets across the board. Let's see kind of
Speaker 1: what the big drivers are for going forward. Welcome Mark Lusheni,
Speaker 1: Chief investment strategist A Johnny Montgomery Scott Basin, Philadelphia. They
Speaker 1: have ninety billion dollars under management, so lots of money
Speaker 1: putting to work there. Mark, thanks so much for joining
Speaker 1: us on the phone again. We started out the year
Speaker 1: kind of like we ended in some pretty good strength
Speaker 1: across the financial markets. How are you framing outlook? Sure? Well,
Speaker 1: I don't expect a repeat in what we had in
Speaker 1: twenty the least by way of order magnitude, but directionally similar.
Speaker 1: And that is to say, I think that US economy
Speaker 1: is going to remain on sound footing. There are now,
Speaker 1: I think increasingly evidence of better economic growth abroad. We
Speaker 1: a slew of manufacturing numbers that came out from the
Speaker 1: European area this morning, and they were all indicative of
Speaker 1: a month over month sequential improvement. And I think that
Speaker 1: is going to largely play out in a fashion that
Speaker 1: allows investors and business leaders alike to see those better conditions,
Speaker 1: framing an outlook for corporate earnings in twenty to improve,
Speaker 1: and that should set the setting for risk assets to
Speaker 1: continue to march higher um. Although recognizing that nine plus
Speaker 1: of the move last year in the U S stock
Speaker 1: market was a result of multiple expansion rather than earnings growth.
Speaker 1: So it's really going to think be heavily reliant on
Speaker 1: that earnings picture to improve, because without it, I don't
Speaker 1: expect we're going to see that kind of multiple expansion
Speaker 1: repeated this year. I'm old enough to remember when people
Speaker 1: said we were late cycle. Are we still late cycle? Well,
Speaker 1: we're later in the cycle than we were ten years ago,
Speaker 1: are we Some people are actually saying that we've had
Speaker 1: other cycles, their micro cycles, that have cycled with cycles,
Speaker 1: and therefore we're totally fine, and now we're starting a
Speaker 1: news cycle. Well, I mean there is actually some oscillation
Speaker 1: that you can see in, for instance, the manufacturing cycle,
Speaker 1: where they tend to ebb and flow in three year
Speaker 1: periods where you have about eighteen months of manufacturing activity
Speaker 1: advancing and then eighteen months of slowing manufacturing activity. And
Speaker 1: so actually, what worries think we're seeing right now is
Speaker 1: that nater being formed in that eighteen months of a
Speaker 1: slow down in manufacturing that should lead to improving numbers.
Speaker 1: And therefore, I think work up towards catching up to
Speaker 1: the data we've been getting out of the service society
Speaker 1: of the economy, which is much larger, much less volatile
Speaker 1: than the manufacturing side. But together that should lead to
Speaker 1: once again an improved outlook for economic bacteria or the
Speaker 1: balance of this year. Well, Mark, I'm enough to remember
Speaker 1: when valuations matter, and I think about the equity performance
Speaker 1: up nearly thirty percent last year, I don't recall a
Speaker 1: lot of earnings growth accompanying that. So how should we
Speaker 1: be thinking about valuation and the equity markets right now? Well,
Speaker 1: there's a number of ways. One and look at it
Speaker 1: if you just simply look at the price to earnings multiple.
Speaker 1: We started this week with the SMP five hundred trading
Speaker 1: at a precisely nineteen point zero times forward earnings for
Speaker 1: facts at s and P five hundred estimates of a
Speaker 1: little over a hundred seventy five dollars for SMP five
Speaker 1: hundred companies we use consensus. Well, it's probably not a
Speaker 1: number that's all that dissimilar, and as a consequence, it
Speaker 1: suggests that equity markets certainly aren't cheap in here. But
Speaker 1: you know, we've seen multiple expansion even up into the
Speaker 1: mid twenties in the midst of a bull market. Uh,
Speaker 1: and then you when you take it into the context
Speaker 1: of also UH kind of the once again the extension
Speaker 1: of the team to principle, there is no alternative when
Speaker 1: you look at bond yields again pressing lower than one
Speaker 1: seven on the tape, assuming that, I think what's concerning
Speaker 1: investors at the moment is the coronavirus UH tends to
Speaker 1: wane over some period of time without it obviously infesting
Speaker 1: conditions to the point where equity markets need to sell
Speaker 1: off more to reconcile two concerns that this will impact
Speaker 1: on a more permanent basis global growth. UM, then I
Speaker 1: think that the market can sustain this multiple, if not
Speaker 1: even again expand somewhat mark what's your most contrarian call
Speaker 1: for Well, I think obviously one would be the emergence
Speaker 1: of inflation. UM. You know, it's been hibernating now for
Speaker 1: the better part of a decade, and it's probably the
Speaker 1: one thing that has the least consensus around the expectation
Speaker 1: that will ever see it again. You can look at
Speaker 1: that by way of the tips yields at one point
Speaker 1: six one point seven on the tenure um. You can
Speaker 1: look at it by way of Fed policy. You know,
Speaker 1: with their ear markting risks to UM the downside rather
Speaker 1: than the upside, and there are obviously lengthy pause in
Speaker 1: any kind of rate adjustments UM, and so I think
Speaker 1: that would be the one thing that given the tightness
Speaker 1: in the labor markets and any improvement economically UM that
Speaker 1: we could see potentially emerges, certainly not in the near future,
Speaker 1: but maybe out over the balance of So Marc, as
Speaker 1: I think about, as you know, Lisa and I were
Speaker 1: talking about, we're late in what is typically you know, uh,
Speaker 1: late in the cycle. If you think about ten or
Speaker 1: eleven years of this economic cycle, are there sectors that
Speaker 1: you like here more than others? Maybe given where we
Speaker 1: are in the economic cycle, maybe where we are in
Speaker 1: terms of evaluation, Well, I think if you look at
Speaker 1: the sectors that had recently shown some signs of life, again,
Speaker 1: they're indicative of this provement that we're recognizing here that
Speaker 1: I think is still less than convincing among market participants.
Speaker 1: But I think evolving in a way that says that
Speaker 1: one would want to have a more pro growth, more
Speaker 1: procyclical stance. So sectors like industrials, for instance, look appealing
Speaker 1: to US energy would also fall into that camp. But
Speaker 1: has got his own idiosyncratic issues. Material stocks would fall
Speaker 1: into that campus, well, it would financials um those that
Speaker 1: are winning on a day like today, when you have this,
Speaker 1: you know, rather violent rotation from risk on the risk
Speaker 1: off the utilities, consumer staples. Real estate investment trust makes
Speaker 1: sense as a risk caven if you're going to be
Speaker 1: long equities at the moment, but at the same time
Speaker 1: their valuations have expanded to the point where they look
Speaker 1: exceedingly rich to us. And unless this environment is going
Speaker 1: to stay once again, where investors are on their heels
Speaker 1: um from an investment standpoint, they look the least appealing
Speaker 1: among all the sectors in the S and P five hundred.
Speaker 1: Mark Lashni, chief investment strategist, to Jenny Montgomery Scott joining us,
Speaker 1: thank you so much for being with us. Jenny Montgomery
Speaker 1: Scott with ninety billion dollars of assets under management from Philadelphia.
Speaker 1: Thanks for listening to the Bloomberg Penl podcast. You can
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney. And Lisa bram Woods I'm on Twitter at
Speaker 1: Lisa bramwo wits one before the podcast. You can always
Speaker 1: catch us worldwide on Bloomberg Radio