Speaker 1: Yeah, yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom
Speaker 1: Keane Jailey. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Michael
Speaker 1: Holland with us as well. Many of you will know
Speaker 1: him for the courage to be in the markets as well. Michael,
Speaker 1: what happens after a bang up double digit here? What
Speaker 1: what's the history of what happens next? The history, Tom
Speaker 1: is pretty clear that if you look at the last
Speaker 1: quarter of a century, there's been six years of performance
Speaker 1: like we just had in the US. In over three
Speaker 1: quarters of those years, the following year you had double
Speaker 1: digit rates of return. There was Newton law of motion.
Speaker 1: Things in motions stay in motion. That's what's happened, by
Speaker 1: the way, in the other years you lost money. So
Speaker 1: historians would all be millionaires of history simply repeated itself
Speaker 1: perfect exactly. So, Michael, it's interesting, you know, we hear
Speaker 1: a lot of folks coming here and they look back
Speaker 1: at ten they had this huge run. But it's interesting
Speaker 1: if you take a look at it from the peak
Speaker 1: of eighteen and September, it's maybe it's still a double
Speaker 1: digit return, but there's no reason to maybe say, oh
Speaker 1: my god, I can't possibly follow up twenty percent year.
Speaker 1: It's more like a ten or eleven or twelve percent
Speaker 1: year relative to Barry d Barry Ridholtz made it and
Speaker 1: thanks for listening exactly, and we have to give Barty
Speaker 1: Barry credit. How do you think about so nineteen? Do
Speaker 1: I need to think about certain sectors that I want
Speaker 1: to be in? Do I want to be more aggressive
Speaker 1: than I want to be defensive? How do you think
Speaker 1: about it after even a double digit year? I think, Paul,
Speaker 1: when when you whenever including this period we just went
Speaker 1: through and are going into right now, I think you
Speaker 1: always have to look for the individual. If you're buying
Speaker 1: individual companies, you simply have to look at number one management.
Speaker 1: For example, we talked about Boeing earlier too. Uh, you
Speaker 1: have a new management that it probably is a major
Speaker 1: plus for the company. Um. You look at companies like Microsoft,
Speaker 1: what they've done versus IBM and the cloud you go
Speaker 1: on it, so then you look at the valuation. So
Speaker 1: I think it's as simple as fundamentals. Basic blocking and
Speaker 1: tackling Um, there's still companies out there, they're trading at
Speaker 1: reasonable prices given their prospects. How do you factor in
Speaker 1: all these I guess exogenous issues that have really whip
Speaker 1: solved this market around almost on a daily basis. Let's
Speaker 1: just take trade for example. Do you just try to
Speaker 1: just take the trade out of the discussion and focus
Speaker 1: again on the fundamentals of the companies or you can
Speaker 1: have to say, g I have to think about a
Speaker 1: stock that's gonna weather maybe a prolonged trade disagreements skirmish
Speaker 1: with China. Yeah, the crazy trade stuff for the past year, Paul,
Speaker 1: actually provides opportunities if you identify a company really like
Speaker 1: and because someone says we're not gonna have a deal
Speaker 1: with the China, the Chinese uh, and the market goes down,
Speaker 1: you can you have an opportunity to buy it. I
Speaker 1: think at the end end of the process, would would
Speaker 1: you end up with with with the trade thing is
Speaker 1: we're gonna get something, the Chinese will get something, but
Speaker 1: not very much and it doesn't really matter. Far more
Speaker 1: important actually for me over the decades and full of
Speaker 1: markets and market is the Federal Reserve. A year ago,
Speaker 1: the ugly December we had the worse since was caused
Speaker 1: in large part by the worry about the Fed hiking
Speaker 1: interest rates. Made no The market said, this is nuts.
Speaker 1: We may be going into a recession. We don't know,
Speaker 1: and the feed is talking about hiking rates. This is
Speaker 1: crazy in the market. Tank. Now you have opposite day,
Speaker 1: which is massive amounts of liquidity, probably a record balance
Speaker 1: sheet for the Federal Reserve at the end of the year. Okay,
Speaker 1: we're doing We're channel in Wall Street week. Uh this
Speaker 1: day with Danna Telsea later and Elf and Michael Holland
Speaker 1: with us is well in honor of Marty's wife. Don't
Speaker 1: fight the Fed. How do you not fight the Fed? Forward?
Speaker 1: You don't fight him? Marty wonderful friend, do him for years?
Speaker 1: A brilliant investors, really really good investor. Uh, there's gonna
Speaker 1: be a crash, the famous line, and uh, right before
Speaker 1: the crash of the market back anyhow, he he got
Speaker 1: it right. The Federal Reserve, if they were going to
Speaker 1: hike a year ago, you wanted to be out of
Speaker 1: the market. If they can, they don't have a they
Speaker 1: don't have a choice the Fed. Sometimes it's very the
Speaker 1: play card is pretty easy it's easy right now because
Speaker 1: for the time being, the Federal Reserve is really concerned
Speaker 1: about the liquidity in the markets. They looks it looks
Speaker 1: like they've addressed it through the end of the year,
Speaker 1: but there was major concern back in going to rebuild
Speaker 1: the balance sheet and keep yield slow in the next year.
Speaker 1: They because they quick answer yes, yeah, I mean I
Speaker 1: think it's absolutely extraordinary. Michael. How we look at as
Speaker 1: we said earlier Graham, Dodd and Coddle, we've thrown it
Speaker 1: out the window. So what are we left with? What
Speaker 1: is the theory of owning companies like Amazon right now
Speaker 1: or even an elevated Microsoft. What's the underlying theory that
Speaker 1: allows you to own them? Uh? You do human stuff,
Speaker 1: and that is you look at companies where the managements
Speaker 1: have figured it out. They perpetuate themselves Johnson and Johnson, Uh, Microsoft,
Speaker 1: You go on and on through through the great companies
Speaker 1: and you figure out where their price go ahead. No, no,
Speaker 1: don't please continue. No. So so that hasn't changed in
Speaker 1: any way. I think at the end, at the end
Speaker 1: of the day, once once you find very high quality
Speaker 1: I think professional sports to the top athlete and get
Speaker 1: it at the right price, you realize that the only
Speaker 1: reason Holland's here he said, I'd only show up if
Speaker 1: the Bruins beat the capitalist You know that's the truth. Um,
Speaker 1: this is important, folks. You got a couple of minutes
Speaker 1: to go here, and we have where this Paul Sweeney,
Speaker 1: who's done more to develop security analysis at Bloomberg than anyone,
Speaker 1: and a guy named Holland who began with Morgan Guarantee
Speaker 1: and then first Boston. Right, this is a few years ago.
Speaker 1: What are cf A is gonna do ten years from
Speaker 1: now or five years now? We're where Michael Holland, where
Speaker 1: is the security analysis five years from now? Well, I
Speaker 1: think it's it's interesting, Tom. I think the cells, it's
Speaker 1: not necessarily the cell side, which is one of the
Speaker 1: historic landing points for the CFAs. Um, it's going to
Speaker 1: be at the bye side. I think there's taking more
Speaker 1: research in house on the by side. But then it's
Speaker 1: gonna be alternative research platforms, for example Bloomberg Intelligence here
Speaker 1: where we have three analysts covering two thousand stocks. It's
Speaker 1: just a different model kind of reacting to the changes
Speaker 1: in the cell side. And I think there's gonna be
Speaker 1: other models out there. As well. Dana Telsey is a
Speaker 1: great example Tom for some of the independiques, the independent boties.
Speaker 1: But you have to be somebody like what do you
Speaker 1: read every day? Michael Holland. I mean, you know, we
Speaker 1: used to. I used to go up the elevator with
Speaker 1: Phil Kray Pioneer, and he had piles of stuff, you know,
Speaker 1: on the dolly. What do you reading? In his nineties,
Speaker 1: he was still reading stuff. I knew him. He was
Speaker 1: one of my heroes in the business. I'm almost as
Speaker 1: old as he right now. I actually this is not
Speaker 1: a commercial. I don't belong to Bloomberg. I don't get
Speaker 1: paid by Bloomberg. I actually start with Bloomberg in the morning.
Speaker 1: And Paul Sweeney has helped to develop the model of
Speaker 1: the future, the business model of the future. The model
Speaker 1: that I grew up with in the business is dead. Uh.
Speaker 1: The model of the future is what you have at Bloomberg.
Speaker 1: People who have an objective reason to be right about
Speaker 1: Then who who decides by hold self for you? If
Speaker 1: Paul Sweeney doesn't, oh, well, I have to do that myself.
Speaker 1: To do it's a surveillance bre exclusive investors by hold Cell.
Speaker 1: Michael Holland. Thank you so much for joining us here
Speaker 1: as well. We got through that without him talking, Abo.
Speaker 1: Can we hold him for another block? I'd like to
Speaker 1: speak about the upcoming presidential election? What should I disclaimer
Speaker 1: here before we do the three? Michael Holland with us
Speaker 1: getting us into trouble, We're thrilled to bring you know
Speaker 1: uh an original healf on Wall Street Week. Dana Telsey
Speaker 1: joins us now with bear Stearings for years in a
Speaker 1: hugely successful retail research shop, Telsey Advisory. Dana, thank you
Speaker 1: so much for joining us. Let's just sum up here.
Speaker 1: How is this holiday season? Ben? I think the holiday
Speaker 1: season has basically been okay. I think there's a have
Speaker 1: and to have, not value and convenience is winning And basically,
Speaker 1: if you are not having something innovative, you're not going
Speaker 1: to drive the traffic. I saw the other day the
Speaker 1: Steam luxury BRANDI off five days before Christmas or whatever.
Speaker 1: What do they do on the and forward into about
Speaker 1: January five? If they're sixty off, now, how much do
Speaker 1: they go off in the next ten days? I mean
Speaker 1: off typically is the most it's gonna go. They'll move
Speaker 1: the merchandise or else it'll get sold to some of
Speaker 1: the off pricers. But the other key thing is what
Speaker 1: some of the retailers do that is a smart thing.
Speaker 1: They bring in new merchandise. You have to bring in
Speaker 1: fresh goods in order to attract the consumer. It can't
Speaker 1: be a deal a day every day in order to
Speaker 1: generate your profitable margins. So, Dana, what are people buying
Speaker 1: this shopping season? I mean Tom just has got I
Speaker 1: think he bought twelve air pods or something to for
Speaker 1: his lisp. What are most people buying? That's what they're buying.
Speaker 1: Those AirPods are some of the most popular items out there.
Speaker 1: Some TVs are very popular also, and everything active. Check
Speaker 1: out those sneakers. And this is a boot season also
Speaker 1: where boots are doing very well too, like the Selene
Speaker 1: Folco over the knee boot and calf skin one thousand ninety.
Speaker 1: Some saline must have and it's a musty, haven't I
Speaker 1: believe me? Someone was watching you, Dana with me earlier
Speaker 1: and she emailed in and said, deer on the way home,
Speaker 1: pick up those salines. How do these brands still do? What?
Speaker 1: I mean? Some brands are sinking. I'm you know, the
Speaker 1: Bank Group seeds to come. Uh, Dana and that. How
Speaker 1: does someone like Selena of such a good year. I
Speaker 1: think some of the things they do, it's coming out
Speaker 1: with new designs, new styles on a regular basis, and
Speaker 1: basically being in the press and bring on social media
Speaker 1: that people want to be part of that club. Instagram media.
Speaker 1: Instagrams changed everything. How do the department stores adapt to
Speaker 1: the reality of Instagram. They need to offer service. You
Speaker 1: need to be able to have service to marry the
Speaker 1: activity of buying with the activity of doing. It's interesting, Dana,
Speaker 1: what I've noticed, you know, just following the earnings of
Speaker 1: some of the big retailer, big box retailers, whether it's
Speaker 1: a wal Mart, Target is every quarter I look at
Speaker 1: their digital sales numbers and their eye popping, you know,
Speaker 1: kind of growth in e commerce from some of these
Speaker 1: big companies. To me, I'm just a lay person looking
Speaker 1: at the retail space, but it seems like they figured
Speaker 1: out how to compete against Amazon. I think that is
Speaker 1: what's happening. I think when you think about some of
Speaker 1: these do aital numbers and you're marrying it with retail stores. Also,
Speaker 1: I think one of the themes of holiday season two
Speaker 1: thousand nine is going to be buy online pickup in
Speaker 1: store worked. That's ONNI channel tongue. Oh that's um, that's like,
Speaker 1: that's okay, I'm learning, Dana. You wrote a piece two
Speaker 1: days ago. I'll say that was absolutely exquisite on what
Speaker 1: I know everyone is talking about, which is the piles
Speaker 1: and piles of cardboard boxes. Can Amazon, first of all,
Speaker 1: can Amazon be successful with one day shipping? I think
Speaker 1: they're going to be. I think Amazon continues to push
Speaker 1: the needle on speed, and speed basically means everything because
Speaker 1: I can allow you to gaine care. And I think
Speaker 1: we're going to continue to see retailers enhance their speed models.
Speaker 1: What do they do about the expense I believe you
Speaker 1: have in your lead paragraph shipping up eight to that
Speaker 1: crushes retail margins. Do they pass that on to the customer?
Speaker 1: How does that work? I think some of it does
Speaker 1: come in the form of the of cost. I think
Speaker 1: some of it comes in the form of service, and
Speaker 1: I think some of it is just lower margins. It
Speaker 1: is expensive to offer all of these services. It doesn't
Speaker 1: come for free. Yeah, that's kind of where I wanted
Speaker 1: to go, Dana. I mean, if if I'm not a Walmart,
Speaker 1: if I'm not a Target, how do I compete against
Speaker 1: the digital aspect of it all? I can't invest, can I? Well,
Speaker 1: I think there are some elements where you can. I
Speaker 1: think some of these companies overall, if you're not a Walmart,
Speaker 1: you're not a target. Take a look at the off
Speaker 1: pricers that treasure hunt experience. There's a reason why their
Speaker 1: traffic is up all the time. Take a look at
Speaker 1: country brands. You can only get them at those luxury stores.
Speaker 1: Or take a look at Lulu Lemon. Basically the identify
Speaker 1: of that brand, if it's unique and differentiated, the consumer
Speaker 1: will come well, we're unique and differentiated. And then we're
Speaker 1: just two guys talking retail with Dana Telsey sort of
Speaker 1: fix that joining us saw the star of Bloomberg Business Week,
Speaker 1: Carol Masser. Women who can talk about stop. No, I'm
Speaker 1: out of questions. What do you think of all the
Speaker 1: more enlightened No, I am. We've been talking to Selene
Speaker 1: boot for two thousand dollars. Mrs Keane has noted that
Speaker 1: in my dream question, please for data, Telsey, Data Telsey,
Speaker 1: the retailers. You know, it's funny. I was looking at
Speaker 1: some of the best performing and worst performing stocks of
Speaker 1: the S and P five hundred for the year last year,
Speaker 1: Target is near the top and at the bottles, So like,
Speaker 1: how do you reconcile the retailers who figured it out
Speaker 1: and those who haven't. I think one of the things
Speaker 1: that we've seen Target and Brian Cornell do a Target
Speaker 1: that's been pretty amazing and basically has worked the service aspect.
Speaker 1: Look at the look at the look of the stores
Speaker 1: they've gotten cleaner. Look at the exclusive brands that's come
Speaker 1: in where basically he's changing up the brands on a
Speaker 1: regular basis. And look at the categories to it goes
Speaker 1: from electronics to cosmetics, to apparel to food. He really
Speaker 1: has taken that whole business model and turned it upside
Speaker 1: down and came out with something that's and exciting. Dana
Speaker 1: and Carol and also and Danny, you mentioned this earlier
Speaker 1: on my other property, the whole makeup thing. I mean, Carol,
Speaker 1: you're living this in real time with various you know
Speaker 1: Tom King. Literally I just came down the escalator, Dana.
Speaker 1: I'm like here with my bags and he's like coming
Speaker 1: into the studio, coming to the studio. But I have
Speaker 1: to say the makeup category that like creams and lotions.
Speaker 1: Look at Sepphora, look at look at Alta. Alta is
Speaker 1: constantly I'm the most accurate. Who's the target, Dana Telsey,
Speaker 1: who is the targ of the makeup category. It's Alta
Speaker 1: and Sepphora that are doing it. Alta out of the mall,
Speaker 1: Sepphora in the mall, and basically the reason why they
Speaker 1: have they have makeup applications there and it's a community.
Speaker 1: People basically get excited when they say that looks good
Speaker 1: on you or no, this is the color for you.
Speaker 1: It's it's interacting. That's what's driving the bus. Yeah, I
Speaker 1: like Paul Color one oh six, Tasty Hazel. This is
Speaker 1: the Gucci Ruga Levra Matt lipstick forty two dollars after
Speaker 1: after thought, Dana, save us, because can you believe these
Speaker 1: two guys are talking lipstick? You know what? You never know?
Speaker 1: Right map Everyone wants to carry their skin with your
Speaker 1: heritage with Bergdorf? Do they make money in the basement?
Speaker 1: You go down there to the most dangerous basement in
Speaker 1: the world. What per square foot do they make in
Speaker 1: the basement of Bergdorf? I makeup cosmetics is very high margin.
Speaker 1: There's a reason why there's always called the lipstick indicator.
Speaker 1: When recessions come, women will always buy lipstick. It's profitable
Speaker 1: and it adds a Dasha newness where there's a boom. Now,
Speaker 1: what's the newness now from miss mass or is she
Speaker 1: considers getting to the holidays? I mean, is it the
Speaker 1: is it the facelift? The face mask? No, the face
Speaker 1: mask thing you're doing by looking at me and saying
Speaker 1: you wear one of my favorite everybody's walking around the
Speaker 1: house with face mask on? Is that like the next thing, Dana?
Speaker 1: Don't you know? The new look is all about natural
Speaker 1: and it takes a lot of work to look natural,
Speaker 1: but naturals wears that right now, telling Dana to tell us,
Speaker 1: thank you so much for being with us. Thrilled that
Speaker 1: you're with us. We are thrilled to bringing a gentleman
Speaker 1: who put a book out a few years ago there
Speaker 1: was a must must read when markets collide, and when
Speaker 1: then his work for the industry, his work at Pimco
Speaker 1: and Alians, and of course his service to Cambridge which
Speaker 1: comes up in late two thousand and twenty. It is
Speaker 1: rare that you not only deliver when markets collide, but
Speaker 1: a second book as well. The Only Game in Town,
Speaker 1: Dr Larry and joins us Samohama, And I know you're
Speaker 1: working on a new edition of the Only Game in Town?
Speaker 1: What will be new in the in the game in
Speaker 1: this town? I'm good morning, Tom, and thanks for having in.
Speaker 1: Happy holidays to you and and all our listeners. Um,
Speaker 1: what's gonna be new is that since I published a
Speaker 1: book in January two accounting and sixteen people have understood
Speaker 1: the issue. They have understood that there are costs and
Speaker 1: risks of excessive reliance on central banks. And now we
Speaker 1: have a list of things that have become clear, but
Speaker 1: we have a list of other things that have become
Speaker 1: even more murky. And the conversation is starting to lose
Speaker 1: sight of the fact that we can get out of
Speaker 1: this mess, but we need to do it quickly. One
Speaker 1: of my conversations of the year was with great courage,
Speaker 1: David folk arts Landau of Deutsche Bank took a stand
Speaker 1: against negative interest rates with all the complexities of his
Speaker 1: executive abilities at Deutsche Bank. And that do you agree
Speaker 1: with folk its land out that the experiment is done?
Speaker 1: So I think the experiment is done. I think the
Speaker 1: experiment was done. Um. A few years ago that's why
Speaker 1: I wrote the book. But getting out of the experiment
Speaker 1: is not in the hands of central banks. That's what
Speaker 1: people lose sight of. In order to normalize monetary policy,
Speaker 1: you need a policy handoff from excessive reliance on central
Speaker 1: banks to a comprehensive poke growth approach. And that means
Speaker 1: the governments. It means politics, and we're simply not saying it,
Speaker 1: which is why No, I don't mean to interrupt Dr Lambe,
Speaker 1: but this is so important. Under the Hicksie and I
Speaker 1: s l l M framework, you're saying, move it over
Speaker 1: from the monetary game to the real economy game. Does
Speaker 1: that include fiscal policy? Are you suggesting it's strictly a
Speaker 1: policy opportunity. So for a very small handful of countries,
Speaker 1: very small um, it means physical opportunity. For the rest,
Speaker 1: it means focusing on the drivers of productivity, on structure reforms,
Speaker 1: on infrastructure, on labor retraining, on labor retooling. There is
Speaker 1: so much to do, and if you look for the
Speaker 1: last twenty years, with the exception of Germany, nothing has
Speaker 1: been done. In the advanced world. We've relied on finance,
Speaker 1: first on private finance, and then on central banks and
Speaker 1: we've lost sight of what tribes productivity and growth. So
Speaker 1: we need a pivot back. But I'm not too optimistic
Speaker 1: because that means a lot politicians, and it means that
Speaker 1: they have to get their act together. And Mohammed talking
Speaker 1: about getting the act together, I'm thinking about Germany and
Speaker 1: that's kind of you know, think about negative interest rates
Speaker 1: in the industrial world, certainly think about Germany. They have
Speaker 1: shown no signs. I guess from a political point to
Speaker 1: go to your point of thinking about fiscal steamless, what
Speaker 1: has to change? What do you think realistically can happen
Speaker 1: to push it out. So if you are in Germany
Speaker 1: and everybody is lecturing you for fiscal stimulus, you really
Speaker 1: are baffled because, on the one hand, your service industry
Speaker 1: is doing fine. Second, yes, your manufacturing sector is not
Speaker 1: doing great, but that has little to do with demand.
Speaker 1: It has to do with trade, and it has to
Speaker 1: do with the auto sector. So you keep on scrashing
Speaker 1: your head and saying, wait a minute, why is everybody
Speaker 1: asking me to sacrifice my physical side if they're not
Speaker 1: doing more? So I you know this notion we fell
Speaker 1: in love at one stage with them. Are your place
Speaker 1: with this notion that Germany was gonna implement. It's not
Speaker 1: gonna happen. They may do something small. So the answer
Speaker 1: to that is unfortunately more complicated, is that Germany has
Speaker 1: to be part of a regional effort to get fiscal
Speaker 1: integration going. That's that's the answer. That is what the
Speaker 1: engineers would tell you, But the politicians will say, hey, no,
Speaker 1: not now. If you're just joining us worldwide in coast
Speaker 1: to coast Muhammad a'll aian with us of course writing
Speaker 1: for Bloomberg Opinion, uh and with alliance and of course
Speaker 1: moving to Queen's College at Cambridge? Are you going to
Speaker 1: be a tough grader at Queen's Scott What are you
Speaker 1: gonna do at Cambridge? I mean, are you going to
Speaker 1: teach a course? But what you've missed, Tom is I've
Speaker 1: been teaching a course this semester at Wharton and it's
Speaker 1: been the most enjoyable thing. You want to learn something,
Speaker 1: go go talk to seventy secure year old and you
Speaker 1: will learn so much from them. It's been an incredible
Speaker 1: joy in various What are you telling them about the
Speaker 1: new actual assumption? I mean the reality here And this
Speaker 1: is NBA speak, folks, But the bottom line is the
Speaker 1: actual assumption come screaming down. Bill Gross talks about financial repression.
Speaker 1: It's here for retirees. What do you tell them about
Speaker 1: what your new normal is? I mean, is it three
Speaker 1: actual real assumption? Is that where we're heading? So I
Speaker 1: take that as an example of you people sitting in
Speaker 1: the room are going to have to make decisions on
Speaker 1: their radical uncertainty, on the unusual uncertainty. There's lots of
Speaker 1: things that were unthinkable that have become reality, and they
Speaker 1: are changing the way the system works, and that is
Speaker 1: the biggest challenge you're going to face in your business career.
Speaker 1: And then what I do is I give them tools.
Speaker 1: I don't give them the answer because I don't know
Speaker 1: what the answer is, but I give them tools to
Speaker 1: help them figure out how to get to an answer
Speaker 1: in their particular circumstances. Interesting, Mohammed, if I were, you know,
Speaker 1: thinking about that. Tom talks about the actual assumptions. It's
Speaker 1: it's what I tell my kids. Max out on your
Speaker 1: four one K from day one. But Mohammed, so as
Speaker 1: we think about the world going forward, are you in
Speaker 1: the camp that is essentially you know, I can go
Speaker 1: to time assumption issue kind of lower growth for longer.
Speaker 1: I am lower growth for longer if and it's a
Speaker 1: big if. Okay, capital I capital if if if policymakers
Speaker 1: don't step up to their policy responsibilities. Um, I worry.
Speaker 1: There's two really big unknown unknowns. Thomas was talking about this.
Speaker 1: I don't know what the answer is, and the marketplace
Speaker 1: has to deal with short term constructive outlook with the
Speaker 1: longer term uncertainty. I don't know how much damage we've
Speaker 1: created to the market based system with negative rates. I
Speaker 1: don't know whether we are going to deglobalize for a
Speaker 1: number of years or not. And I don't think anybody knows.
Speaker 1: These are big unknowns and the key issues to build resilience.
Speaker 1: I'll go with resilience in Mohammed, if we could speak
Speaker 1: of your time at Harvard and you know the pluses
Speaker 1: and the minuses of actually managing real money, how should
Speaker 1: our listeners position shan there forty thou three hundred dollars
Speaker 1: or their forty two million, three hundred thousand dollars. How
Speaker 1: should they position that after this great ball market if
Speaker 1: they don't know the amplitudes of some of these sharks
Speaker 1: to come, And that is the challenge. So sort of
Speaker 1: proposition that you're trying to implement is to keep a
Speaker 1: claim on the upside while having more protection against the downside.
Speaker 1: If you if you're a professional investor, and that's what
Speaker 1: we did at Harvard when I was there, you can
Speaker 1: do some tail hedging, you can do various things that
Speaker 1: are very low costs. In this environment because of volatility
Speaker 1: has collapsed. If, however, your retail investor, it gets trickier. Um,
Speaker 1: a retail investor doesn't have as many options as a
Speaker 1: professional investor does. So you've got to focus on things
Speaker 1: that matter. Balance sheet matter, cash generations matter, being higher
Speaker 1: up in quality in credit terms matter. And you've just
Speaker 1: got to got to remember you want to maintain a
Speaker 1: claim on the upside, but increasingly protect against the downside.
Speaker 1: And the time we've got left to Dr Hilaria. And
Speaker 1: I was cornered this weekend by a wonderful listener who
Speaker 1: a claim to me of his latest trip to Egypt,
Speaker 1: and he just said it was a complete success and
Speaker 1: the tourism that is so vital to your Egypt as well.
Speaker 1: Give us an update on what Egypt needs to do forward,
Speaker 1: Mr ELCC and the others. All the controversy, how does
Speaker 1: Egypt find a better decade. So economically they need to
Speaker 1: build on this success of the last few years to
Speaker 1: produce more inclusive and higher growth. They having higher growth,
Speaker 1: it needs to be more inclusive. The success is reserves
Speaker 1: are no longer an issue there at record levels, Inflation
Speaker 1: has come down dramatically, and as you said, tourism has
Speaker 1: come back and has come back in size. So now
Speaker 1: you need to pivot it in order to make sure
Speaker 1: that the growth that is produced is more inclusive. And
Speaker 1: that's about second generation reforms. Um, it's not you know
Speaker 1: something we don't know about. It just requires a lot
Speaker 1: of hard work at the micro level. How alone do
Speaker 1: you perceive Egypt to be? Given the challenges that Mr
Speaker 1: Radjuan in Turkey, he had a vision of foreign policy,
Speaker 1: of foreign projection, a Middle East projection of seven eight,
Speaker 1: nine years ago that was to be to take ownership
Speaker 1: in the future of the Eastern Mediterranean. That's evaporated, hasn't it?
Speaker 1: How alone is Egypt and it's it's destiny here and
Speaker 1: how can the United States help? So Egypt has been
Speaker 1: focusing much more on its own issues, exactly a regional
Speaker 1: view that Turkey took and others have Um, you know,
Speaker 1: it has good allies in the region, has a very
Speaker 1: good relationship with the US, and I think what Egypt
Speaker 1: is trying to do is to get its house in order,
Speaker 1: and it has been doing so. Dr Larian, Thank you
Speaker 1: so much, Muhammadhlarian, folks, and when you await the new
Speaker 1: edition of the Only Game in Town, greatly appreciate it.
Speaker 1: We're thrilled to continue with Michael Darta of MKM Partners. Michael,
Speaker 1: I've been in all cash that worked out. There was
Speaker 1: a photo out in the social space today. Have you
Speaker 1: with the Darta rocket ship with your three Bloomberg log
Speaker 1: ins and your various dogs assembled and and all that.
Speaker 1: Are you long the market now? And how do you
Speaker 1: position yourself in the next year? Hi Tom, thanks for
Speaker 1: having me on. Um. You know, I think the investor
Speaker 1: should be diversified and maybe tactically cautious. Here if we
Speaker 1: just re rhind the clock exactly one year ago, we
Speaker 1: were in a situation where the S and P five
Speaker 1: dred had dropped almost twenty at the end of last year.
Speaker 1: And even though it was uncomfortable, uh, the view was
Speaker 1: you really want to be long risk here? Our opinion
Speaker 1: was recession probably unlikely, yet the market has almost priced
Speaker 1: in such a scenario. So today, you know, with these
Speaker 1: huge games that we've had this year, it's just the opposite.
Speaker 1: You know, Valuations have have moved up a lot, the
Speaker 1: markets had a phenomenal year, and markets do not go
Speaker 1: straight up. Um, So you know, probably we're looking at
Speaker 1: some kind of a pullbacker dislocation in the not too
Speaker 1: distant future. A lot of optimism out there right now
Speaker 1: about a second half acceleration in two thousand money about
Speaker 1: this trade deal essentially being sign sealed and delivered, but
Speaker 1: you know that may not turn out to be the case.
Speaker 1: So from a shorter term slash tactical perspective, I think
Speaker 1: a little bit of caution is probably justified here. So Michael,
Speaker 1: earlier in a programmed time when I were talking about
Speaker 1: whether we sense fear or greed in the marketplace, and
Speaker 1: my suggestion was I I kind of felt like it
Speaker 1: was cautiously optimistic, no real sense of greed in the
Speaker 1: marketplace that we've sensed in other parts of this bull market.
Speaker 1: As you talk to your clients as they enter fear
Speaker 1: or greed, what are you hearing most are feeling most? Well,
Speaker 1: I'd say I'd replace agreed with optimism. Um. You know,
Speaker 1: I think most of the institutional money managers we interact
Speaker 1: with are pretty optimistic that we've soft landed. You know,
Speaker 1: that growth isn't going to be booming, but it'll be
Speaker 1: positive next year that the trade deal is done, and
Speaker 1: so they see further upside, but you know, maybe not
Speaker 1: at the same pace that we enjoyed this year. So
Speaker 1: given where we are, Michael, uh, you know, in the
Speaker 1: economic cycle, in this bull market, given a price performance
Speaker 1: that we've seen in as you go into there sectors
Speaker 1: of the market you like more than the others. Yeah,
Speaker 1: thanks for that question. Absolutely. So if we just break
Speaker 1: it down in terms of the ten major sectors of
Speaker 1: the S and P five hundred and look at the
Speaker 1: valuations relative to their own history, very interesting. So we
Speaker 1: had an underperformance by the healthcare sector this year for
Speaker 1: various reasons, obviously, some of which attributed to fears of um,
Speaker 1: you know, policy changes with the rise of Elizabeth Warren
Speaker 1: and concerns that Medicare for All and other changes might
Speaker 1: hurt the sector's profitability. So healthcare underperformed this year. The
Speaker 1: valuations on a forward basis running about thirteen four percent
Speaker 1: um below you know where healthcare tends to trade historically.
Speaker 1: On the other end of the spectrum, consumer discretionary very
Speaker 1: strong this year, but the valuations almost cent above um
Speaker 1: its own history. So our view for next year would be, um,
Speaker 1: why not take a look at a sector that's not
Speaker 1: so tied to the economy that's all that also offers
Speaker 1: attractive valuations. Healthcare would also fit uh into a bucket
Speaker 1: that you know that's shaping up better technically. J C. O'Hara,
Speaker 1: who's our technical strategist that you guys have on a lot,
Speaker 1: likes healthcare from a technical perspective. I like it from
Speaker 1: a fundamental perspective, and I like it from a business
Speaker 1: cycle risk perspective. If there is a downturn next year,
Speaker 1: then these high flying cyclical equity sectors are probably not
Speaker 1: going to be the place to be. Is that is
Speaker 1: energy a value tub? It might be, Tom, It's interesting.
Speaker 1: I mean it screens quite well, not quite as well
Speaker 1: as healthcare on evaluation basis. I mean the valuations are
Speaker 1: below um, you know, their own history, But in an
Speaker 1: environment where the global economy doesn't turn, then you know
Speaker 1: you're gonna still have headwinds there I'd be more comfortable
Speaker 1: with energy perhaps than some of the other cyclical sectors,
Speaker 1: just simply because the valuations are are lower. But it's
Speaker 1: a very relevant question. How much does this will go
Speaker 1: to our next section with Michael Darda, but how much
Speaker 1: of this, Michael, do you link into Fed policy. The
Speaker 1: zeitgeist right now is this is the power bull market?
Speaker 1: Is it? Yeah? I think so, because you know what
Speaker 1: tends to happen when growth is accelerating and you move
Speaker 1: into a decelerating pattern as you get an equity market correction.
Speaker 1: We had you know, two big ones last year, and
Speaker 1: if you're soft landing, you know, if it looks like goldilocks,
Speaker 1: then valuations go back up. And that's exactly what's happened
Speaker 1: so so far. So far, it looks like the FED
Speaker 1: is pulled a rabbit out of the hat, if you will,
Speaker 1: with monetary policy, and they've done just enough to keep
Speaker 1: the economy going at a steady keel, and then you'd
Speaker 1: be justified in you know, in stock prices going back
Speaker 1: up to record highs. But just keep in mind that
Speaker 1: we had a four month yield curb in version this year.
Speaker 1: It's reversed now, but we had the yield curb inverted
Speaker 1: tends to builds for or consecutive months. Historically, that's been
Speaker 1: a twelve month forward recession indicators. So the consensus seems
Speaker 1: to believe we're out of the woods on recession risk.
Speaker 1: But the last three times we had yield curve inversions,
Speaker 1: recessions hit between eight and sixteen months later. We're only
Speaker 1: six months out of the initial inversion at this moment
Speaker 1: in time, So maybe we're getting a bit over our
Speaker 1: skis here in terms of optimism on the business cycle. Hey, Michael,
Speaker 1: this is obviously is presidential election year. Historically, how have
Speaker 1: markets reacted during an election period? You know, I don't
Speaker 1: put a ton of stock into that. Others have seen
Speaker 1: certain patterns, but I think it really comes down to,
Speaker 1: you know, the fundamentals, how much tightening did the FED
Speaker 1: doe in the past. You know, did you move into
Speaker 1: an inverted yield curve environment? You know how our credit
Speaker 1: markets responding? And so as of now, you know, a
Speaker 1: lot of the indicators look like they're telling a soft
Speaker 1: landing story. Um, but I really think the first half
Speaker 1: of next is going to be critical in terms of
Speaker 1: how some of these shorter term leading indicators hold up
Speaker 1: like jobless claims and temporary help employment. Confidently, you know,
Speaker 1: if they hold up through the first half, then I
Speaker 1: think it's you know, looks it's looking much better for
Speaker 1: a soft land, but it's too soon at this point
Speaker 1: to make that judgment. This has been great, Michael Darda,
Speaker 1: thank you so much, greatly appreciate it. With m Camp
Speaker 1: Partners this morning, very generous with his time. We're thrilled
Speaker 1: they have David Kotuk with this Cumberland Advisers. David, I
Speaker 1: just randomly picked off the map the twenty year piece
Speaker 1: of Sarah Soda. This is a small city in Florida,
Speaker 1: enjoying a four percent coupon. The yield at the moment
Speaker 1: is two point four percent. Priced at one eleven. I'm
Speaker 1: up eleven on this dog this year, so I got
Speaker 1: eleven plus four. I got a fifteen percent total return
Speaker 1: on a Muni bond. You live, eating, breathe. Muni bonds.
Speaker 1: Are they priced to perfection? Hi? Tom, Merry Christmas and
Speaker 1: to you into Paul and May I add Rich Truman
Speaker 1: and Tanya Chin who are such a player to work
Speaker 1: and all four of you can come down to the
Speaker 1: old dog Sarah Sota on a fifteen percent total return
Speaker 1: on the Muni bond, and we would be happy to
Speaker 1: entertain you. It's remarkable. It's remarkable. I mean, it's been
Speaker 1: a story is Michael Holland said earlier. Six of the
Speaker 1: last twenty five years have been like this. What do
Speaker 1: you do if you're clipping triple text free coupons and
Speaker 1: you're up fifteen percent in one year, Well, the first
Speaker 1: thing you do is uncorked the bottle of champagne. But
Speaker 1: when you finish it and come back to your sentence,
Speaker 1: you say, this cannot repeat itself. And in our portfolio strategies,
Speaker 1: we have a barbel. A barbell means you have some
Speaker 1: of the kinds of bonds you've described, and you have
Speaker 1: shorter maturities, which is where you have the safety net.
Speaker 1: And as the bond market goes through this terrific increase,
Speaker 1: you move from the successful piece and add to the
Speaker 1: barbell defensive piece, because that's the only way you'll have
Speaker 1: money available to redeploy sometime in the future. Yeah, I apologize,
Speaker 1: my years are going here at the end of year.
Speaker 1: I thought, he said, Barbill, we sometimes they go together together.
Speaker 1: Sometimes they do Tom. I'd tell you. When I read
Speaker 1: David co talks research, I always always always learned something new.
Speaker 1: Here's my nugget from today's UH Sweden's ricks bank. Did
Speaker 1: you know that this was the world's first central banquet
Speaker 1: opened its doors in six David was there? David was there? David.
Speaker 1: That brings me to my point here. I mean, we
Speaker 1: don't have to talk about negative interest rates per se,
Speaker 1: because I'm not really sure how to figure that one out.
Speaker 1: But are you in the camp that says we are
Speaker 1: in a lower for longer rate environment. I'm not there.
Speaker 1: I think negative interest rates our peak, and the peak
Speaker 1: was at about seventeen trillion total worldwide debt specified in
Speaker 1: a negative interest rate by market based prices, and that
Speaker 1: was in the summer. That number is down to twelve.
Speaker 1: Thank you for the compliment about the research on Sweden.
Speaker 1: Sweden is back up to zero and the rest of
Speaker 1: Europe is under discussion. Christine legarde Um has has phrased
Speaker 1: in a nuanced way, we're going to do a full
Speaker 1: review this year and the reason has to be negative
Speaker 1: interest rates have been so damaging. What the review is
Speaker 1: going to say when it will be completed, how they're
Speaker 1: going to move to it and how they do it
Speaker 1: when the staff of the e c B is part
Speaker 1: of the review process and they're the folks that created
Speaker 1: the myth. David, to get to our to our next block,
Speaker 1: which I really want to focus on equity market and
Speaker 1: stock ownership. We we we have such a narrow market
Speaker 1: six eight, ten, twelve stocks. Everybody owns them, everybody loves them,
Speaker 1: or they're not in the market. Can you acquire shares
Speaker 1: of something like Apple today? And I'm just picking that, folks,
Speaker 1: as one of the representative stocks. And what do you
Speaker 1: do with these one story blue chips that have gone up,
Speaker 1: up and up. It's remarkable. Um, we use E T
Speaker 1: s as you know, and in the E T F strategies.
Speaker 1: In the last few days, we've had three rounds of
Speaker 1: selling and we have raised cash. And as we sit
Speaker 1: here today in our US Exchange Traded funds portfolio today
Speaker 1: we are in case. So you only got to go
Speaker 1: to get to where I am. Well, I the rest
Speaker 1: is in a mix, and that mix has overweight characteristics
Speaker 1: in healthcare and in defense, and for good reasons justified
Speaker 1: by the defense budget, by the complexities of the world
Speaker 1: geopolitical risk, and healthcare is the insulated sector eight percent
Speaker 1: of the US GDP. We own three TS to get
Speaker 1: to the space, and that is domestic US. It has
Speaker 1: insular qualities against trade war effects, and the rest of
Speaker 1: the world wants to buy American healthcare results, whether it's
Speaker 1: in biotech, it's a cure, whatever it happens to be.
Speaker 1: So that's how we've repositioned here. David Kotak for US
Speaker 1: A couple of advices. Thanks for listening to the Bloomberg
Speaker 1: Savel podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio