WEBVTT - Increasing Longevity Is Putting Strain On Global Pensions: Yik 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:27.840 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:27.840 --> 0:00:32.959 Four hundred trillion dollars. That is the gap between what 0:00:33.080 --> 0:00:37.600 pension funds have and what they will need by twenty fifty. 0:00:38.120 --> 0:00:42.080 Our next guest has been studying the brewing pension crisis, 0:00:42.159 --> 0:00:44.519 and we're very lucky to have Han Yick, head of 0:00:44.520 --> 0:00:48.560 Institutional Investors at the World Economic Forum. He has worked 0:00:48.640 --> 0:00:51.599 in the pension industry on all sides and is intimately 0:00:51.640 --> 0:00:55.320 aware of this. Han, can you talk about the problem globally? 0:00:55.440 --> 0:00:59.639 Is it the same everywhere? And our pensions dealing with 0:00:59.680 --> 0:01:04.080 this by lowering the returns assumptions to increasing the contributions 0:01:04.080 --> 0:01:07.240 of members. Sure, thanks for having me. I think um 0:01:07.480 --> 0:01:09.800 First of all, it is a global crisis. We've looked 0:01:09.800 --> 0:01:13.360 at this analysis on a very global level. Are are 0:01:13.400 --> 0:01:15.840 We have a project which are running called retirement Investment 0:01:15.880 --> 0:01:18.600 Systems reform and we're looking and working with countries from 0:01:18.640 --> 0:01:21.280 around the world. I will say some countries are in 0:01:21.319 --> 0:01:24.080 better shape than other countries. But overall, if you look 0:01:24.080 --> 0:01:26.800 at what it means to have the gap, UM you 0:01:26.880 --> 0:01:31.160 have liabilities and assets. The liabilities are you have retirement 0:01:31.200 --> 0:01:35.360 aages when pension payments start. And the bad news right 0:01:35.400 --> 0:01:39.000 now from a pension's perspective is because we're all living longer, Uh, 0:01:39.040 --> 0:01:41.760 it means that the pension benefits have to last us 0:01:41.920 --> 0:01:45.240 much much longer. And that's the problem that all countries 0:01:45.280 --> 0:01:48.520 are facing. You know, longevity is increasing gay for us overall, 0:01:48.920 --> 0:01:51.880 but from a pension perspective, that's putting strain. If nothing 0:01:51.960 --> 0:01:55.280 else is changing, it's just math that the amount that 0:01:55.320 --> 0:01:58.440 we need to UH to account for the amount of 0:01:58.480 --> 0:02:00.919 money just needs to go up. That money needs come somewhere. 0:02:01.040 --> 0:02:04.680 Is there is the dependence on defined contribution rather than 0:02:04.760 --> 0:02:09.079 define benefit plans contributing to this problem. I think the 0:02:09.440 --> 0:02:13.600 shift from defined benefits to define contribution has caused UM 0:02:14.160 --> 0:02:19.239 a different a shift in the responsibility of clear tensions. Yeah. 0:02:19.280 --> 0:02:22.640 So the issue there is that now the individual bears 0:02:22.680 --> 0:02:25.320 the burden of being their own actuary, being being their 0:02:25.320 --> 0:02:28.799 own asset manager UM and and the burden of the 0:02:28.840 --> 0:02:33.480 savings themselves. So that's actually caused quite a bit of 0:02:33.480 --> 0:02:35.680 of gap as well. So is that considered to be 0:02:35.720 --> 0:02:40.359 a positive element or a negative element? Um? Uh, I 0:02:40.400 --> 0:02:42.359 would maybe have a lot of different people who are 0:02:42.360 --> 0:02:46.280 personally responsible for their own retirement. It gets very difficult 0:02:46.320 --> 0:02:48.960 to implement any kind of change if, for example, you 0:02:49.040 --> 0:02:51.480 and people at the World Economic Form and a variety 0:02:51.520 --> 0:02:53.960 of government officials sit down and figure out a solution 0:02:54.320 --> 0:02:56.840 that it doesn't it make it more challenging to actually 0:02:57.560 --> 0:03:00.880 affect any kind of change. I think that's I think 0:03:00.880 --> 0:03:03.480 that's true. One of the issues is it is a 0:03:03.520 --> 0:03:07.160 global issue, UM, but the solutions will have to be 0:03:07.240 --> 0:03:10.919 done at a more regional level. UM. If you look 0:03:10.960 --> 0:03:14.399 at the U S specifically the four one case situation, 0:03:14.440 --> 0:03:17.320 there is a little different than the fine contributions schemes 0:03:17.320 --> 0:03:19.799 in other countries. So, for example, the Netherlands has done 0:03:19.800 --> 0:03:22.240 a very good job in terms of a collectivized DC 0:03:22.400 --> 0:03:27.000 plan because mandatory, it's mandatory. UM. Also look at Australia, 0:03:27.120 --> 0:03:30.440 they have mandatory contributions. Now the word mandatory here in 0:03:30.480 --> 0:03:35.280 the US not so popular. It's getting exactly so sometimes 0:03:35.320 --> 0:03:39.280 the solutions are can be difficult politically, but in the US, 0:03:39.360 --> 0:03:42.360 for example, one of the things that UM that can 0:03:42.400 --> 0:03:46.840 help is auto enrollment and auto escalation. So the idea 0:03:47.040 --> 0:03:50.040 still maintain choice, but have people opt out rather than 0:03:50.080 --> 0:03:53.080 opt in. So I want to talk about the investment 0:03:53.120 --> 0:03:55.640 strategies of these pensions. So what they do is they 0:03:55.680 --> 0:03:58.440 take the contributions they get, they invest them in assets 0:03:58.440 --> 0:04:01.200 like bonds and stocks in private equity, and hope to 0:04:01.240 --> 0:04:03.960 earn a return in order to meet the seven or 0:04:04.000 --> 0:04:08.960 eight percent obligations that they need to pay out each year. UM. 0:04:09.080 --> 0:04:12.880 First of all, some have ratcheted back those expectations for returns, 0:04:12.880 --> 0:04:15.400 but widely people do not think they've come down enough. 0:04:15.800 --> 0:04:19.600 How much have you looked into potential losses in some 0:04:19.760 --> 0:04:23.360 riskier strategies that pensions have been going into in order 0:04:23.400 --> 0:04:26.080 to get those bigger returns that they are still seeking 0:04:26.440 --> 0:04:29.200 in other words, like the private equity for example, which 0:04:29.520 --> 0:04:32.360 firms have a record amount of cash and are investing 0:04:32.520 --> 0:04:37.320 in companies at peak valuations. Potentially. Yeah, so UM, on 0:04:37.360 --> 0:04:41.119 our end, we're looking a little more. Uh, I guess 0:04:41.120 --> 0:04:44.000 a high level than that in terms of UM. In 0:04:44.120 --> 0:04:46.480 terms of this is the problem these are the steps 0:04:46.520 --> 0:04:49.400 they are needed to solve it. From the investment strategy perspective, 0:04:49.400 --> 0:04:53.400 that's something that UM that the individual pension funds will 0:04:53.440 --> 0:04:57.719 need to tackle. But it's an area that UM that 0:04:58.200 --> 0:05:02.200 UH will need to be examined because the problem when 0:05:02.320 --> 0:05:04.479 once you have a gap you have with the liabilities 0:05:04.480 --> 0:05:07.039 and the assets, it's really the gap sounds like one number, 0:05:07.040 --> 0:05:09.440 but it's really based on two numbers. I just wrote 0:05:09.480 --> 0:05:13.080 a blog that the George Georgetown Center for Retirement Initiatives 0:05:13.120 --> 0:05:16.279 published where I talk about this tale of two numbers. UM. 0:05:16.320 --> 0:05:18.080 Once you have a gap where the liabilities are higher 0:05:18.120 --> 0:05:21.240 than the assets, you need to close that which means 0:05:21.240 --> 0:05:24.599 the assets needs to be growing faster than than the liabilities. 0:05:24.880 --> 0:05:27.640 And if the liabilities are growing because we're living longer, 0:05:27.920 --> 0:05:31.160 if nothing else changes on that front, if we don't 0:05:31.320 --> 0:05:35.160 increase retirement age, if we don't reduce benefits, UM, then 0:05:35.560 --> 0:05:37.719 you know then the liability will continue to grow at 0:05:37.760 --> 0:05:39.800 a certain rate. Then we need to increase assets in 0:05:39.960 --> 0:05:43.400 order to close that gap. UM. Now the problem then 0:05:43.440 --> 0:05:47.800 becomes what you said, do we go into asset classes 0:05:48.200 --> 0:05:52.640 that can be potentially riskier but have a potentially greater 0:05:52.800 --> 0:05:56.880 long term return UM I would argue that steps need 0:05:56.920 --> 0:05:58.880 to be made on both sides in order to close 0:05:58.920 --> 0:06:01.880 that gap, because just mathematically it cannot work out if 0:06:02.000 --> 0:06:05.479 one number is increasing quicker than the other. We're talking 0:06:05.480 --> 0:06:08.280 about numbers, and I'm wondering whether the benefits that were 0:06:08.360 --> 0:06:11.880 describing that will not be there if we continue on 0:06:11.920 --> 0:06:15.960 our current path. Can they in any way be replaced 0:06:15.960 --> 0:06:20.760 by the actual services that need to be rendered too 0:06:20.880 --> 0:06:24.279 elderly people, And I mean things like healthcare, shelter, food, 0:06:24.320 --> 0:06:26.920 and so on. In other words, you put a price 0:06:27.000 --> 0:06:30.600 on them, but that's really just a mechanism. The actual 0:06:30.720 --> 0:06:36.680 service itself doesn't have to be priced, does it. Um. 0:06:36.720 --> 0:06:40.240 That's a great, great question or a great point. UM. 0:06:40.279 --> 0:06:43.720 I would say that for our analysis, the way we've 0:06:43.720 --> 0:06:46.960 looked at it is in terms of um UH as 0:06:46.960 --> 0:06:50.680 a replacement ratio, In terms of UH the fact that 0:06:50.720 --> 0:06:53.440 you may need a smaller percentage of your current income 0:06:53.440 --> 0:06:56.400 in order to mean to maintain a certain lifestyle. Now 0:06:56.560 --> 0:07:01.680 that's UM something that is UH usually good approximation. It 0:07:01.720 --> 0:07:06.080 allows us to compare country different countries because UM that 0:07:06.120 --> 0:07:09.840 does factor into account healthcare standards, you know, the things, 0:07:09.920 --> 0:07:12.040 the cost of living, things like that in different countries. 0:07:12.600 --> 0:07:16.760 UM in general what's needed though in retirement you cannot 0:07:16.760 --> 0:07:20.560 separate what's need in retirement with healthcare. UM. That's something 0:07:20.600 --> 0:07:22.120 we're going to explore in the third phase of the 0:07:22.200 --> 0:07:26.840 project most likely because UM, the two aren't are definitely linked. 0:07:27.040 --> 0:07:29.320 If you live longer, what's the quality of life? What's 0:07:29.320 --> 0:07:31.520 the cost needed for that? And that will play a 0:07:31.600 --> 0:07:34.000 huge impact on terms of what's needed as a pension. 0:07:34.120 --> 0:07:37.760 Tell people how they can just learn more about your work. Sure, 0:07:38.280 --> 0:07:40.040 I would say you can go to the World Economic 0:07:40.080 --> 0:07:43.640 Form website. We have a page on the Retirement Investment 0:07:43.680 --> 0:07:46.640 Systems Reform Project. We have a white paper UM and 0:07:46.680 --> 0:07:49.640 as I mentioned in the Georgetown Center for Retirement Initiatives 0:07:49.720 --> 0:07:53.600 have a new blog post outlining hopefully in easy language, 0:07:53.600 --> 0:07:55.720 in terms of what this means is in terms of 0:07:55.720 --> 0:07:57.520 the gap the tail of two numbers. Thank you very 0:07:57.600 --> 0:07:59.760 much for being with us, so much appreciated. Han Yak 0:07:59.880 --> 0:08:04.680 is head of Institutional Investors at the World Economic Forum. 0:08:04.720 --> 0:08:07.920 And coming up, of course, we have Bloomberg Politics, policy, 0:08:08.000 --> 0:08:11.120 power and law and Amy Morris. What have you got 0:08:11.160 --> 0:08:14.200 on tap for us? You know, Facebook's reviewing the invitation 0:08:14.360 --> 0:08:17.080 for Zuckerberg to testify on Capitol Hill, so we'll talk 0:08:17.120 --> 0:08:21.120 to Congressman Greg Walden, the lawmaker who extended that invitation. 0:08:21.520 --> 0:08:25.120 We'll be listening. That's coming up Bloomberg Politics, Policy, power 0:08:25.200 --> 0:08:28.040 and law. Thanks for listening. I'm Pim Fox along with 0:08:28.080 --> 0:08:31.800 my co host and colleague Lisa Abramwitz. This is Bloomberg. 0:08:35.360 --> 0:08:38.960 We are broadcasting from the Quinnipiac Game eight form. Global 0:08:39.000 --> 0:08:42.800 asset management education is the topic of the day here 0:08:43.280 --> 0:08:45.520 at the New York Hilton, and coming up there'll be 0:08:45.600 --> 0:08:49.160 a conversation with Neil Kashkari. He is the Federal Reserve 0:08:49.240 --> 0:08:52.280 President of the the Federals Bank of Minneapolis, interviewed by our 0:08:52.320 --> 0:08:55.760 own Kathleen Hayes. Right now we have David Auerlick. He 0:08:55.880 --> 0:08:58.520 is managing director and special Advisor to the Chairman of 0:08:58.559 --> 0:09:02.199 GAMCO Assets on the management at Gamco forty billion dollars. 0:09:02.240 --> 0:09:04.719 But he also happens to hold the title of a 0:09:04.720 --> 0:09:07.400 Commissioner and Chair of the Investment Committee of the New 0:09:07.480 --> 0:09:10.480 York State Insurance Fund. Mr rol Like, thank you very 0:09:10.559 --> 0:09:14.000 much for being here, much appreciated. Tell people what is 0:09:14.080 --> 0:09:16.760 the remit of the New York State Insurance funds so 0:09:16.800 --> 0:09:19.400 we understand what we're talking about. Sure, UM, thank you 0:09:19.440 --> 0:09:22.120 for having me. The New York State Insurance Fund is 0:09:22.200 --> 0:09:26.120 a hundred and seven year old state agency that is 0:09:26.160 --> 0:09:31.280 a mono line insurance company UM it UH rights workmen 0:09:31.320 --> 0:09:36.880 comp insurance policies UH covering approximately thirty seven percent of 0:09:36.920 --> 0:09:40.800 every worker in New York State UM from large policy 0:09:40.840 --> 0:09:46.280 holders UM million plus two UH. Most of the policy 0:09:46.280 --> 0:09:50.439 holders are five ten thousand annually. It's a off budget 0:09:50.480 --> 0:09:56.320 state agency. It has full time employees. UM seventeen billion 0:09:56.320 --> 0:10:02.080 dollar fund office is located in fifteen office located in 0:10:02.280 --> 0:10:05.199 UH in New York throughout New York State. So this 0:10:05.280 --> 0:10:07.680 is UH. This is an agency that has to have 0:10:07.720 --> 0:10:09.760 a long term approach and has to meet a certain 0:10:09.800 --> 0:10:13.920 amount of returns each year to meet potential obligations. You're 0:10:13.920 --> 0:10:18.120 a few weeks away from changing your investment thesis, your 0:10:18.360 --> 0:10:21.160 investment strategy. Can you give us a taste of kind 0:10:21.160 --> 0:10:24.560 of how you're planning to change your allocation? Sure? Just 0:10:24.600 --> 0:10:27.960 so you understand. So, UM approximately ten or eleven billion 0:10:27.960 --> 0:10:34.760 dollars is managed internally to meet our liabilities paying insurance claims. 0:10:35.280 --> 0:10:41.439 The balance is used to provide a backstop in case 0:10:41.480 --> 0:10:45.360 our actuaries say we need more money in our liability pool, 0:10:45.440 --> 0:10:47.720 so we can take it from the surplus. So the 0:10:47.760 --> 0:10:53.720 asset allocation UM is that we are shortly going to 0:10:53.800 --> 0:11:00.960 complete will provide us with additional diversification within at portfolio. 0:11:01.559 --> 0:11:07.640 So UM we will expect to see UM investments in 0:11:07.880 --> 0:11:13.520 alternatives UM broadly speaking, private markets which includes it could 0:11:13.520 --> 0:11:18.400 be optimist credit, it could be bank loans um UM, 0:11:18.400 --> 0:11:21.920 it could be private lending strategy increasing allocations, that's correct, 0:11:21.960 --> 0:11:27.640 Private equity UM could include infrastructure, real estate UM. So 0:11:27.720 --> 0:11:32.800 those are going to be UM new asset classes for us. 0:11:32.840 --> 0:11:36.520 So we're going to be one of the We're building 0:11:36.600 --> 0:11:41.960 out a alternatives portfolio de novo UM and so that's 0:11:42.000 --> 0:11:46.400 going to be quite an interesting UM undertaking for us. 0:11:47.240 --> 0:11:49.520 At this event, there are many young people. I'm wondering 0:11:49.559 --> 0:11:51.520 if you could explain, what is it you would like 0:11:51.600 --> 0:11:54.000 to communicate to them? What message would you like to 0:11:54.080 --> 0:11:57.960 leave them with. One of the things that I will 0:11:58.040 --> 0:12:01.400 be talking about is the perspective of a long term 0:12:01.440 --> 0:12:08.959 investor UM and how we are UM UM patient. We 0:12:09.080 --> 0:12:13.800 don't get caught up in UM UH sort of quarterly 0:12:14.040 --> 0:12:18.440 monthly daily gyrations that we have to be consistent. We 0:12:18.520 --> 0:12:23.600 have to be UH patient investors. We have to have 0:12:23.760 --> 0:12:29.679 a diversified portfolio to spread out our risk across UM 0:12:29.720 --> 0:12:36.240 different environments, through different markets, and hopefully UH engaged them 0:12:36.240 --> 0:12:39.000 in a dialogue because they are students and I expect 0:12:39.000 --> 0:12:41.480 them to ask us budget questions. You know, one thing 0:12:41.520 --> 0:12:43.880 that I thought was interesting as we were talking ahead 0:12:43.880 --> 0:12:48.320 of this is UH that you are reducing your allocation 0:12:48.720 --> 0:12:52.920 somewhat too active managers, at least in the large cap space, 0:12:53.440 --> 0:12:58.680 although replacing that with passive instead. UM I find it 0:12:58.720 --> 0:13:01.760 interesting is it's basically a bifurcation where you're basically going 0:13:01.840 --> 0:13:04.560 into passive for the broad market exposure and then trying 0:13:04.600 --> 0:13:07.080 to increase your exposure to more esoteric markets. Is that 0:13:07.120 --> 0:13:11.959 basically the broader thesis here UM. I think, UM, what 0:13:12.000 --> 0:13:15.319 we had experienced over the last ten years is this 0:13:16.080 --> 0:13:20.920 the market has gone up, and you can capture that 0:13:21.120 --> 0:13:26.120 in a passive index for a lot less than active management. UM. 0:13:26.280 --> 0:13:30.760 I don't necessarily believe in that same thesis UM in 0:13:31.120 --> 0:13:35.079 small and mid cap I think active management UM is 0:13:35.840 --> 0:13:39.720 adding alpha and adding value. UM. I also think that 0:13:39.800 --> 0:13:43.280 in a in volatile markets, you need active market, you 0:13:43.320 --> 0:13:47.800 need active you need active management UM. And UH, so 0:13:48.160 --> 0:13:52.520 it's it's strategic. It's hard to um uh argue that 0:13:52.600 --> 0:13:56.240 large cap active managers have been consistently outperforming the benchmark 0:13:56.840 --> 0:14:02.360 as opposed to passive managers. UM so hopefully, um we 0:14:02.559 --> 0:14:06.440 still have active on on large cap, but it made 0:14:06.480 --> 0:14:10.319 sense to have a portion of it managed passively. David 0:14:10.320 --> 0:14:12.040 our Like, thank you so much for being with us, 0:14:12.120 --> 0:14:14.240 Have fun on your panel and the best of luck. 0:14:14.400 --> 0:14:17.240 David our liked Managing director and special advisor to the 0:14:17.320 --> 0:14:21.600 Chairman for GAMCO, overseeing forty billion dollars. Also commissioner and 0:14:21.840 --> 0:14:24.640 chair of the Investment Committee for the New York State 0:14:25.160 --> 0:14:33.040 Insurance Fund. Does buy the dip? Still apply with us 0:14:33.040 --> 0:14:36.960 to discuss? Phil Orlando, chief equity market strategist at Federated 0:14:37.240 --> 0:14:39.200 friend to this show, Phil, thank you so much for 0:14:39.280 --> 0:14:42.560 being here, pleasure, Thanks for having me back. So we've 0:14:42.600 --> 0:14:45.120 seen a little bit of red in the past few days. Um. 0:14:45.160 --> 0:14:47.960 In the past there is a pavlavi in response to 0:14:48.000 --> 0:14:52.120 immediately buy any dip, no matter how small. Today we 0:14:52.160 --> 0:14:54.240 saw that in pre market trading was down. It is 0:14:54.280 --> 0:14:57.280 now up largely except for the NASDAC. Were you in 0:14:57.320 --> 0:15:01.160 there buying No, we we weren't. And um so yeah, 0:15:01.200 --> 0:15:03.320 you had this two and a half percent correction yesterday. 0:15:03.320 --> 0:15:06.760 Everyone's scared to death about the impact on tariffs and 0:15:06.800 --> 0:15:12.360 trade wars, and that's all reasonable and understands. I think. So, um, now, 0:15:13.240 --> 0:15:16.400 if if, if you were ready to turn here, today 0:15:16.440 --> 0:15:18.920 would have been a big move day up and the 0:15:19.080 --> 0:15:22.920 SMP had a nice you know, green in the futures. 0:15:22.920 --> 0:15:26.360 But then I guess we're largely flat, maybe fractionally higher. 0:15:26.600 --> 0:15:29.320 That that tells you that we're not there yet. You know, 0:15:29.480 --> 0:15:31.760 the kids in the back of the car, are we 0:15:31.840 --> 0:15:34.440 there yet? We're not there yet. And and from our 0:15:34.520 --> 0:15:38.000 perspective again, you gotta remember sort of the typical pattern here. 0:15:38.080 --> 0:15:40.320 You had this nice move up in the beginning of 0:15:40.320 --> 0:15:42.880 the year, and then this waterfall collapse. We're down twelve 0:15:43.760 --> 0:15:45.800 and then you bounce and then what you what you 0:15:45.840 --> 0:15:48.480 need to do technically is sort of retest that low. 0:15:48.840 --> 0:15:51.480 And we haven't done that retest. That's where we are now. 0:15:51.520 --> 0:15:55.120 It's that retest process. And and so you know, our 0:15:55.160 --> 0:15:57.600 best guess is that you probably are looking at a 0:15:57.680 --> 0:16:01.240 retest at the two day moving average, probably over the 0:16:01.280 --> 0:16:04.920 course of the next couple of weeks um ahead of 0:16:04.960 --> 0:16:07.160 the earning season. I think the only season is gonna 0:16:07.160 --> 0:16:10.000 be pretty good. But that's just that you've got I 0:16:10.000 --> 0:16:12.720 think a little more downside. I think that two hundred 0:16:12.760 --> 0:16:20.160 day moving averages around twenty's like okay, But I got 0:16:20.160 --> 0:16:25.040 the advantage I have the actually charting. Yeah yeah, savant 0:16:25.120 --> 0:16:28.280 with a computer and yeah right exactly in my dreams. 0:16:28.600 --> 0:16:32.400 Uh you know, okay, So eight four. So I want 0:16:32.400 --> 0:16:35.480 to know who do you believe are all the smart 0:16:35.600 --> 0:16:40.520 sellers or the market participants ince January six that have 0:16:40.640 --> 0:16:45.080 caused this increase in volatility. It's not like the companies 0:16:45.080 --> 0:16:48.200 are all different, it's not like the economy is all different. 0:16:48.400 --> 0:16:50.920 There's got to be something that explains why. When you 0:16:50.920 --> 0:16:52.760 look at a chart of the S and P five 0:16:53.200 --> 0:16:55.880 it looks really lovely going up to the twenty sixth 0:16:55.920 --> 0:16:58.480 of January, and then from then on in it looks 0:16:58.520 --> 0:17:03.000 like a heart patient who's having a stroke. So understand 0:17:03.040 --> 0:17:05.960 that the stock market from just before the election back 0:17:05.960 --> 0:17:11.680 in sixteen through that January aforementioned peak stock market was 0:17:11.760 --> 0:17:16.199 up like or some ridiculous number. And the reality is 0:17:16.240 --> 0:17:18.560 that looking at some of the fundamentals, looking at some 0:17:18.600 --> 0:17:21.760 of the technicals, the move up in January, and I 0:17:21.800 --> 0:17:23.280 think we were up like seven and a half or 0:17:23.320 --> 0:17:25.639 eight percent in that first three or four weeks. Was 0:17:25.640 --> 0:17:28.760 probably ahead of itself, and we were due for a correction, 0:17:28.760 --> 0:17:32.919 and we were due, frankly for a a more healthy 0:17:33.119 --> 0:17:37.320 spate of volatility. The VICS last year was was sitting 0:17:37.320 --> 0:17:39.280 between like eight and ten. You know, I know, but 0:17:39.400 --> 0:17:42.880 but Phil, but who or is it a machine? Because 0:17:42.920 --> 0:17:45.000 I understand, you know, it was ahead of itself, but 0:17:45.040 --> 0:17:47.200 I mean, every time we use those pronouns, there's got 0:17:47.200 --> 0:17:49.920 to be something behind it. And the market doesn't move 0:17:49.960 --> 0:17:52.920 all by itself. There's either a human being or there's 0:17:52.920 --> 0:17:55.719 a decision being taken, or there's a machine that's program 0:17:55.880 --> 0:17:58.320 that says, you know, when it does X sell or 0:17:58.320 --> 0:18:02.160 when it does why by so we're we're told, we're 0:18:02.200 --> 0:18:04.439 hearing that there were some al goes, you know, some 0:18:04.520 --> 0:18:07.240 of the really smart hedges that were you know, taking 0:18:07.280 --> 0:18:10.200 some money off the top there back in in late January, 0:18:10.200 --> 0:18:12.240 and then we dropped twelve percent in a couple of weeks. 0:18:12.440 --> 0:18:16.200 We were dramatically oversold in our view. We did buy there, 0:18:16.840 --> 0:18:18.720 uh and we had a nice so eight to ten 0:18:18.760 --> 0:18:22.119 percent bounce or so, and then we've been uh, you know, 0:18:22.160 --> 0:18:25.320 sort of patiently waiting for the retest here. So I 0:18:25.440 --> 0:18:27.399 think we may get more aggressive in a couple of 0:18:27.400 --> 0:18:31.320 weeks if we get down to this four level as 0:18:31.359 --> 0:18:34.480 you talk about him. We are expecting that that corporate 0:18:34.480 --> 0:18:36.560 earnings in the first quarter are going to be very solid. 0:18:36.600 --> 0:18:38.480 We think the full year is going to be very solid. 0:18:38.640 --> 0:18:40.720 We're in a hundred and fifty five s and P 0:18:41.720 --> 0:18:44.960 versus one one thirty last year or thereabouts now. When 0:18:45.000 --> 0:18:47.840 we raised our number to one fifty five, you know, 0:18:47.960 --> 0:18:50.040 in the fourth quarter of last year, people thought we 0:18:50.040 --> 0:18:53.679 were star craving lunatics. Well go back and look at 0:18:53.680 --> 0:18:56.360 your little computer screen there. The consensus has now moved 0:18:56.440 --> 0:18:58.800 up to one fifty eight for this year. We're now 0:18:58.840 --> 0:19:02.840 behind the consensus. So now, well, so what we thought 0:19:02.880 --> 0:19:04.720 we saw three or four months ago, the rest of 0:19:04.720 --> 0:19:06.639 the street is starting to catch on, and that is 0:19:06.920 --> 0:19:10.600 that the fiscal policy initiatives that are playing out I 0:19:10.640 --> 0:19:14.000 have a positive impact on underlying you know, company and 0:19:14.080 --> 0:19:17.200 market fundamentals. So we think the market will grind up 0:19:17.200 --> 0:19:19.439 over the course of the year. But this period right 0:19:19.520 --> 0:19:23.080 now is ugly. It's uncomfortable. Uh and and this is 0:19:23.119 --> 0:19:25.760 what we're living through, all right, you know, it's uncomfortable 0:19:25.840 --> 0:19:29.520 right now Mark Zuckerberg and his dinner time conversations. Facebook 0:19:29.560 --> 0:19:34.440 shares have declined since March sixte They've declined eleven per cent. 0:19:35.119 --> 0:19:38.119 Is this a buy an opportunity? Well, I don't follow 0:19:38.160 --> 0:19:41.040 the stock closely enough to make that judgment. I did 0:19:41.080 --> 0:19:44.239 hear that them forward multiple on on. A lot of 0:19:44.280 --> 0:19:47.720 these sort of fang stocks are are down pretty sharply. 0:19:47.840 --> 0:19:50.880 I thought I heard a comment that that Bill Miller, uh, 0:19:50.920 --> 0:19:53.040 you know, one of the greatest value investors in the 0:19:53.080 --> 0:19:55.840 game for the last twenty or thirty years now thinks 0:19:55.880 --> 0:19:58.760 that the stock could be you know, attractive. He maybe 0:19:59.359 --> 0:20:01.000 you know, dip into toe in the water. So one 0:20:01.000 --> 0:20:03.000 guy like Bill Miller says this thing is starting to 0:20:03.040 --> 0:20:05.960 get cheap. You perk up your forty little years and 0:20:06.000 --> 0:20:09.200 you start to pay attention. So I don't know definitively 0:20:09.359 --> 0:20:11.480 that we're ready to buy, but you know, if a 0:20:11.520 --> 0:20:13.600 guy like Bill Miller says it's cheap, then then maybe 0:20:13.600 --> 0:20:16.480 it's worth taking a look at. Just quickly, if you 0:20:16.600 --> 0:20:18.760 take a look at the SMP five hundred, go back 0:20:18.760 --> 0:20:22.160 to this time last year, we are up thirty Okay, 0:20:22.280 --> 0:20:25.200 uh that is that? Okay? Can you live with that, Yeah, 0:20:25.240 --> 0:20:28.159 I could certainly live with that. And from here we 0:20:28.200 --> 0:20:30.199 think we could do mid teens over the course of 0:20:30.200 --> 0:20:32.240 this year and next year. We're still a thirty one 0:20:32.320 --> 0:20:36.440 hundred this year, thirty five hundred next year, no recession 0:20:36.520 --> 0:20:42.720 before probably twenty twenty late one, early on the horizon. 0:20:42.800 --> 0:20:44.960 So we think that that, you know, you can still 0:20:44.960 --> 0:20:48.080 make some some pretty good money here before we have 0:20:48.160 --> 0:20:51.040 to worry about the positioning more defensively. Thank you very 0:20:51.119 --> 0:20:55.040 much for being with us. Expert Savanta phil Orlando, chief 0:20:55.040 --> 0:20:59.960 equity market strategist at Federated. You're listening to Bloomberg Market 0:21:00.040 --> 0:21:03.320 Time pim Fox along with Lisa Bramwitz. This is Bloomberg. 0:21:06.200 --> 0:21:10.959 We're broadcasting live from the Quinnipiac Game eight form educating 0:21:11.119 --> 0:21:14.399 future financial professionals here at the New York Hilton in 0:21:14.480 --> 0:21:17.359 Midtown Manhattan. And one of the things we're gonna have 0:21:17.359 --> 0:21:19.639 to deal with this political risk, Well, how do you 0:21:19.840 --> 0:21:24.040 factor in the resignation of a president's attorney or indeed 0:21:24.080 --> 0:21:27.320 even a replacement as a national security advisor. Well, perhaps 0:21:27.400 --> 0:21:30.000 the first thing might be to call Mark Rosenberg. He 0:21:30.160 --> 0:21:33.520 is the chief executive of geo quant and he can 0:21:33.600 --> 0:21:39.560 be followed on Twitter at geo underscore Quant. Mark Rosenberg, 0:21:40.000 --> 0:21:42.399 thank you very much for being with us. Tell us 0:21:42.440 --> 0:21:47.160 exactly what is geo quant What are you trying to accomplish? 0:21:47.840 --> 0:21:51.159 We what we do is generate high frequency political risk 0:21:51.240 --> 0:21:55.360 indicators that measure political risk across the arrangements vectors at 0:21:55.359 --> 0:21:59.080 the same frequency as financial market. So it's increasingly accepted 0:21:59.160 --> 0:22:03.480 that politics pack markets. Um. Political risk is rarely quantified, 0:22:03.520 --> 0:22:05.400 and if it is, it's really done at the same 0:22:05.400 --> 0:22:08.760 frequency as as the market that it impacts. So what 0:22:08.800 --> 0:22:12.960 geo quant does is produced daily as objective as possible 0:22:12.960 --> 0:22:17.400 political risk indicators across each country we cover. Mark, it's 0:22:17.400 --> 0:22:22.240 got to be tough to objectively quantify the risk. Before 0:22:22.280 --> 0:22:26.320 I get into just the specifics of how you do that, 0:22:26.920 --> 0:22:28.880 please bring us up to date. Where are we now? 0:22:28.920 --> 0:22:31.359 We have a lot of turmoil. People are talking about 0:22:31.400 --> 0:22:36.879 the change in the National Security Advisor in Washington, the tariffs. Uh, 0:22:37.040 --> 0:22:40.560 how much has your geo political risk indicators skyrocketed in 0:22:40.640 --> 0:22:45.480 the US? Well, frankly, the indicators haven't moved. All risk 0:22:45.520 --> 0:22:47.879 indicators are off, of course, but they haven't moved that 0:22:47.960 --> 0:22:52.399 much simply because um, the political political risk indicators have increased. 0:22:52.440 --> 0:22:55.840 So much up to this point. I think these events 0:22:55.960 --> 0:22:58.360 are really a symptom rather than a cause of political 0:22:58.440 --> 0:23:01.119 risk in the United States. Political risk is in building 0:23:01.200 --> 0:23:04.480 up for quite a while, and I think up until now, 0:23:04.600 --> 0:23:06.399 or up until that's at least the first court of 0:23:06.400 --> 0:23:11.000 this year, equity markets are they're kind of UM shielded 0:23:11.040 --> 0:23:14.600 from the impacts UM, and now that's no longer the case. 0:23:14.640 --> 0:23:16.800 So I think what we're seeing here, the civilian, the 0:23:16.800 --> 0:23:21.800 Trump administration, the the hawkish ad hoc policy moves, these 0:23:21.840 --> 0:23:25.160 are symptoms of a significant build up in political risky 0:23:25.240 --> 0:23:27.919 United States over the past eighteen months that are now 0:23:27.960 --> 0:23:31.159 coming to their well mark. To follow up on a 0:23:31.280 --> 0:23:34.359 Lisa's question, so how do you actually do this and 0:23:34.400 --> 0:23:38.439 how do you assign some statistical measure to what is 0:23:38.480 --> 0:23:44.200