WEBVTT - Ciocca on Relationship Between D.C. and Wall Street (Audio)

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<v Speaker 1>Global business news twenty four hours a day. It's Bloomberg

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<v Speaker 1>This is a Bloomberg business flag from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pallet. Stocks continue to trade, Laura, thirteen minutes

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<v Speaker 1>to go ahead of the close, the Dow, the SMP,

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<v Speaker 1>NESNAK all trading down. We have got the SMP five

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<v Speaker 1>hundred index down three tenths of one percent, looking like

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<v Speaker 1>an up week though for the SMP five hundred index,

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<v Speaker 1>the SMP dropping six points now to forty down in

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<v Speaker 1>dust Reels down seventy also a drop of four tenths

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<v Speaker 1>of one percent, naz stank is down three, a drop

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<v Speaker 1>there of one tenth of one percent, Tenure up one

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<v Speaker 1>thirty second yield one point six nine percent, Gold down

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<v Speaker 1>five seventy, the out oh eight a drop of four

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<v Speaker 1>tenths of one percent. And crude oil West Texas Intermediate

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<v Speaker 1>down one and a half percent forty three twenty three

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<v Speaker 1>for barrel of West Texas Teremedia Crude. I'm Charlie Pallett,

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<v Speaker 1>and that's a Bloomberg Business flash. You're listening to taking

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<v Speaker 1>stock with Kathleen Hays and pim Box on Bloomberg Radio

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<v Speaker 1>Partest Time Now for the e t F report, and

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<v Speaker 1>is brought to you by Herko, an American industrial technology

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<v Speaker 1>company with global reach and a long history of disruptive innovation.

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<v Speaker 1>To learn more about her COO, visit h u r

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<v Speaker 1>CEO dot com, slash Investors NASDAC ticker symbol hu r C.

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<v Speaker 1>Let's go to Catherine Calgary for the exchange traded fund report.

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<v Speaker 1>The Federal Reserve is giving some gold investors a case

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<v Speaker 1>of the jitters. Over the past week, investors have pulled

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<v Speaker 1>six D ninety million dollars from Spider Gold Shares or

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<v Speaker 1>g l D. It's the largest e t F backed

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<v Speaker 1>by the medal. Coen and Steers Capital Management was overweight

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<v Speaker 1>on gold until last week, when comments from some FETE

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<v Speaker 1>officials boosted speculation that the Central Bank will raise interest

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<v Speaker 1>rates as soon as this month. That would make gold

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<v Speaker 1>less competitive as an asset class compared to interest sparing investments.

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<v Speaker 1>Cohen and Steers decided to play it safe and lower

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<v Speaker 1>it's gold allocation. Overall holdings and GLD have dropped from

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<v Speaker 1>a three year high that was reached in July. The

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<v Speaker 1>gold rally has stumbled after the medal posted his best

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<v Speaker 1>first half in almost four decades. There's increasing caution over

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<v Speaker 1>interest rates and the rising dollar. Gold has given up

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<v Speaker 1>its second half price game. That's your Bloomberg etfy for

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<v Speaker 1>I'm Catherine Cowdery. You're listening to Taking Stock with Kathleen

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<v Speaker 1>Hayes and Pim Fox on Bloomberg Radio. The Election and

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<v Speaker 1>your investments. Doug Sioca is the chief executive officer and

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<v Speaker 1>partner of Cavart Capital Partners, helping to manage nearly half

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<v Speaker 1>a billion dollars. He's based in Leawood, Kansas. He can

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<v Speaker 1>be followed on Twitter at Doug Cioca. CEE I O

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<v Speaker 1>C c A. Alright, Doug Sioco, what is the relationship

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<v Speaker 1>between presidential elections and market cycles? Ay, Pim, Good afternoon,

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<v Speaker 1>Thanks for having me on. I think that, um, there

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<v Speaker 1>are myriad correlations or correllaries that are drawn between the

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<v Speaker 1>election and the markets, and I think the implications for

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<v Speaker 1>the investor are probably more intense than they are for

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<v Speaker 1>the markets. Right, This is a much more emotional than

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<v Speaker 1>it is an economic consideration. Elections themselves by virtue of

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<v Speaker 1>the design our binary events, but the influence of their outcome.

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<v Speaker 1>I mean it's very very progressive. So people are are

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<v Speaker 1>are considering what there's got to be another erosion of

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<v Speaker 1>confidence in this market, which has been thin to begin

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<v Speaker 1>with because the margin of victory of this election it

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<v Speaker 1>could be historically small. Then we look at congressional alignment

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<v Speaker 1>and is that the prospect of persistent gridlock. Then we're

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<v Speaker 1>finally experiencing something that we should have expected in an

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<v Speaker 1>election year. All along is an elevation of market volatility.

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<v Speaker 1>So the confluence of rising rates and this ambiguous presidential

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<v Speaker 1>election results, I think that is what's making a current

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<v Speaker 1>environment somewhat combustible. But again, a lot of this is

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<v Speaker 1>very short term in nature, and a long term implications

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<v Speaker 1>that we are trying to share in preach to our

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<v Speaker 1>clients have a lot of the performance is gonna have

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<v Speaker 1>a lot more to do with the state of the economy,

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<v Speaker 1>the evaluation of equity markets, the current cost of capital.

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<v Speaker 1>That is going to have anything to do with the

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<v Speaker 1>next occupant of the Oval office. All right, So having

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<v Speaker 1>said that, where are you suggesting that investors put their money? Yeah,

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<v Speaker 1>I mean, if you think of the world right within

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<v Speaker 1>which we have opportunities to invest, you can characterize it

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<v Speaker 1>by kind of three uh traits. You've got slow growth,

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<v Speaker 1>you've got flat yield curves and flat I guess it

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<v Speaker 1>would be an implication of a positive component of a

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<v Speaker 1>yield curve, which is not the case all around the world,

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<v Speaker 1>but it is. It is steepening just to hang on there.

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<v Speaker 1>But when you talk about the yield curve, right, I mean,

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<v Speaker 1>haven't we seen a steepening in the yield curve for

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<v Speaker 1>US treasuries a little bit? And I think it's very

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<v Speaker 1>you know, watch just this week, right, we saw and

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<v Speaker 1>and absolute sell off on a long end, and we

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<v Speaker 1>saw a little bit of a rally and the short end.

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<v Speaker 1>And this was on Lal bernard Brainer's comments on Monday

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<v Speaker 1>and the CPI this morning that came out. We've seen

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<v Speaker 1>a little bit of back up on the long end

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<v Speaker 1>and we've seen a little tightening on the short end.

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<v Speaker 1>Is it it raises the prospect of UM at least

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<v Speaker 1>maybe consideration of putting September back on the table, which

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<v Speaker 1>we think is very unlikely. But historically, speaking of him,

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<v Speaker 1>we're talking about pretty flat curves because we do have

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<v Speaker 1>even though may see a little bit of thought into

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<v Speaker 1>the winter, we have a frozen said if they do anything,

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<v Speaker 1>I think it will be in the title of being

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<v Speaker 1>symbolic than it is impactful if it's a quarter, and

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<v Speaker 1>it's even of a point that takes place going into

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<v Speaker 1>the your end, but slow growth flat curve. Frozen said,

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<v Speaker 1>we think expected returns higher away from the US than

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<v Speaker 1>in the US, and we're thinking about places for capital

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<v Speaker 1>that have more of an economic than an interst rate

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<v Speaker 1>sensitivity to that, such so healthcare stocks. Some they're just

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<v Speaker 1>talking global healthcare then correct, absolutely, absolutely, and again but

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<v Speaker 1>if you think about companies that sell products or offer

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<v Speaker 1>services that have very high any elasticity of demand, that

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<v Speaker 1>will always tend towards healthcare, particularly now in evaluations, become

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<v Speaker 1>more attractive given the political punching bag that that sector is.

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<v Speaker 1>Could that be an example like Johnson and Johnson, and

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<v Speaker 1>they just announced today the purchase of Abbot's eye surgery

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<v Speaker 1>unit more than four and a quarter billion dollars, which

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<v Speaker 1>is we absolutely think that the healthcare sector has is

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<v Speaker 1>kind of that that proverbial coiled spring of consolidation that

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<v Speaker 1>awaits in whether they need some clearance because of the

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<v Speaker 1>legislative clouds they were still coming off of the anti

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<v Speaker 1>inversion regime, that Feiser was whacked down with. We've got

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<v Speaker 1>the EpiPen public relations in pricing tobacco, we've got Martin

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<v Speaker 1>Scarelli that's still in people's vernacular. And healthcare has been

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<v Speaker 1>absolutely underspult and not every case undeservedly so. But I

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<v Speaker 1>think when J and J who after making that today

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<v Speaker 1>stock is very stable, we're seeing a rally and Abbot

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<v Speaker 1>because that unlocking of value in a depressed sector is

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<v Speaker 1>an invariability for profit seeking opportunists. Well, I our irony

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<v Speaker 1>of ironies that you know, the Abbot eye surgery unit,

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<v Speaker 1>Abbot Labs Medical Optics, it was it was at one

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<v Speaker 1>point owned by Allergan. UM. Turn your attention now to

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<v Speaker 1>all right, so we talked about healthcare, global healthcare. What

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<v Speaker 1>else outside the United States? Consumer staples con staples sectors? UM.

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<v Speaker 1>You know you and I have spoken in the past

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<v Speaker 1>about our company's pension for the proverbial sin stocks. Right,

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<v Speaker 1>Companies that sell self indulgent products, be they tobacco or alcohol,

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<v Speaker 1>fast food, caffeine, things of that nature that it in

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<v Speaker 1>have the high elasticity of demand that could be beneficiaries

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<v Speaker 1>of strange currency meanderings. But they're seeing elevation of their

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<v Speaker 1>cash flows. One of the things that's been fascinating over

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<v Speaker 1>the last eighteen months has been the success of these

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<v Speaker 1>low volatility ets. Right. I'm sure you've spoken to people

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<v Speaker 1>in your program about boy, this is a comforting spot

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<v Speaker 1>and an otherwise ambiguous market. Low volvo val and lo

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<v Speaker 1>val has a connotation of high free cash FI, which

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<v Speaker 1>is high dividends, which backs into those sectors that I

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<v Speaker 1>just mentioned. Internationally, it has not been the case. And internationally,

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<v Speaker 1>if you have low valve, because you've got brand franchises

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<v Speaker 1>that have this kind of values, they are bound to

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<v Speaker 1>attract some capital, particularly when you get a little more

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<v Speaker 1>extraction of the benefits of monetary policy, which are far

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<v Speaker 1>more in their infancy overseas than they are here. And

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<v Speaker 1>what we learned from Mario drag You last week is

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<v Speaker 1>he may not take it beyond that that that Kanzie endpoint, right.

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<v Speaker 1>They may actually eliminate that super account dative, super accommodative

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<v Speaker 1>monetary policy before it does more harm than good. Would

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<v Speaker 1>Starbucks fall into this category you mentioned caffeine and it's

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<v Speaker 1>global and I understand they're going to be opening four

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<v Speaker 1>stores in China this year Like that would be a

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<v Speaker 1>great example. Absolutely. What about looking for dividends, I think

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<v Speaker 1>that's critical, right, And again, the only thing that that

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<v Speaker 1>leaves its um less desirable is it's been so popular

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<v Speaker 1>because the yield curve has been so weak for so

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<v Speaker 1>long that that income starved investors have taken a little

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<v Speaker 1>more more risk and move money exactly otherwise would be

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<v Speaker 1>allocated to fixed income. But I think dividends have to

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<v Speaker 1>be critical as evidence of financial security of companies. The

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<v Speaker 1>best thing you want to do if you're looking for

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<v Speaker 1>dividend paying companies here or overseas is be sure they

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<v Speaker 1>are not lever dividends that have payout ratio that are

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<v Speaker 1>not sustainable. So we're screening for that with activity, So

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<v Speaker 1>we can look for balance and we can look for focus.

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<v Speaker 1>And focus is a kind of atan of active management

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<v Speaker 1>that we think is this market and the investor sort

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<v Speaker 1>of traverses this tight rope between Washington and Wall Street

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<v Speaker 1>between economic ambiguity and interest rate ambiguity. You need to

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<v Speaker 1>have the balance and you also have that focus. That

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<v Speaker 1>would be active management with high free cashal investments. Hey, Doug,

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<v Speaker 1>all right, so we did healthcare. You talked about the

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<v Speaker 1>dividend aspect of investing as well as giving your thoughts

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<v Speaker 1>on you know, the the global nature, what about investing

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<v Speaker 1>in UH defense stocks and that they certainly are global,

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<v Speaker 1>they're globally and again I mean that that would have

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<v Speaker 1>to fit a quant screen that for US is not

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<v Speaker 1>often identified companies in that sector as attractive. So I

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<v Speaker 1>I do think that if you were going to play

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<v Speaker 1>that based on the outcome of the election would be difficult.

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<v Speaker 1>If you go back to win Obama one in two

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<v Speaker 1>thousand and eight, right, there were search sectors that the

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<v Speaker 1>world was assuming was gonna We're going to perform terribly.

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<v Speaker 1>Just the opposite has happened to gun company like Stewant Servant.

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<v Speaker 1>Ruger is a great example. Got it all right, Thanks

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<v Speaker 1>very much, We gotta run. Doug Sioca is the chief

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<v Speaker 1>executive officer and partner of Cavar Capital Partners based in Leewood, Kansas.

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<v Speaker 1>This is Bloomberg