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Speaker 1: This is Bloomberg surveillance. As long as GDP growth is

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Speaker 1: what it is or isn't, the credit markets are basically accommodating,

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Speaker 1: there's gonna be m and at. What we need in

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Speaker 1: the developed world is a re leveraging of the private jector.

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Speaker 1: That is what more Pods is trying to do, but

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Speaker 1: higher spending on the pulate side. I don't think that

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Speaker 1: that is something that we can better. I think there

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Speaker 1: are ample reasons to be at least a little nervous

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Speaker 1: about what's going on. Bloomberg Surveillance your link to the

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Speaker 1: world of economics, finance, and investment on Bloomberg Radio. Good morning,

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Speaker 1: Michael McKee along with Tom Keene. It is seven am

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Speaker 1: on Wall Street and in Augusta, Georgia, where one Daniel

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Speaker 1: Willett is waking up in green pajamas this morning. Mr

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Speaker 1: Willett winning the Masters is the Bloomberg headline so aptly

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Speaker 1: puts it after Jordan's speech imploded. I mean he played

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Speaker 1: like I play. He played like Tom Keene plays golf.

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Speaker 1: There's a Master's hangover in the markets this morning. By

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Speaker 1: and large, green on the screen. The markets put on

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Speaker 1: the green jacket today in Europe, the stocks six hundred

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Speaker 1: is up by three points eight tents of eight percent,

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Speaker 1: the docks up a hundred and fifteen one point two percent.

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Speaker 1: Even the foot seas turned green now it was down

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Speaker 1: earlier in the day, six points higher a tenth of

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Speaker 1: eight percent. David Cameron's troubles over the Panama papers continue.

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Speaker 1: He's got to answer questions in Parliament today. The year

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Speaker 1: a one thirteen ninety, the pound one forty two thirty four.

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Speaker 1: The pound a little bit stronger today, the euro just

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Speaker 1: a touch weaker. In the US, futures decidedly higher and

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Speaker 1: moving up over the last hour. SMP evening futures eight

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Speaker 1: points higher, four tents. Dow E mean he's sixties seven

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Speaker 1: points higher, four tents, and it's a half percent gain.

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Speaker 1: For nastacning futures, they're up twenty points right now. The

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Speaker 1: dollar index is at ninety four point one seven seven,

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Speaker 1: a touch weaker again. Bond yields are hire in the

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Speaker 1: US one point seven three for your ten year, five year,

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Speaker 1: one one seven, and so many one basis points for

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Speaker 1: the two years. The one trouble spot out there today Japan.

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Speaker 1: The nick down four tenth the end fluctuating around the

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Speaker 1: one oh eight one oh seven mark right now the

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Speaker 1: end at one oh eight point one nine, hedge funds

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Speaker 1: other large speculators, boosting bullish end wagers to the highest

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Speaker 1: since nineteen ninety two. More talk of intervention by Japanese

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Speaker 1: officials overnight at G seven meeting this weekend. The Bank

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Speaker 1: of Japan meets April twenty eight, So something to watch

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Speaker 1: in Asia. Man Favor is a chief investment officer of

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Speaker 1: Cambria Investment Management. And you do like to look overseas,

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Speaker 1: so I'd like to start with Japan. I mean, for

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Speaker 1: somebody who's got money to invest right now, would Japan

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Speaker 1: be dead money unless what you want to do is

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Speaker 1: make short term long short bets because it's just so unpredictable.

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Speaker 1: You know, we have a lot of buckets that will

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Speaker 1: look at equity and bond markets and and there's times

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Speaker 1: when they're incredibly cheap, there's times when they're incredibly expensive,

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Speaker 1: and those are the fat pitches that we look for

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Speaker 1: to avoid or to invest in. In Japan is kind

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Speaker 1: of in that not that interesting bucket right now, which

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Speaker 1: is where most markets spend most of the time. It's

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Speaker 1: in that kind of reasonably value to overvalued markets, so

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Speaker 1: we'll find a lot more opportunity elsewhere right now. But um,

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Speaker 1: the end is an example of something that's been universally

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Speaker 1: hated for the past four or five years. So we

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Speaker 1: think there's probably some opportunity in the short run for

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Speaker 1: the end. But but as far as the equities, UM,

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Speaker 1: it's not something we're we're too excited about. Well, obviously,

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Speaker 1: what's going on in Japan influenced tremendously by the Bank

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Speaker 1: of Japan and what it's doing with monetary policy. Same

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Speaker 1: thing with of course the European center banking. It's negative

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Speaker 1: interest rates, German two year going for negative fifty two

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Speaker 1: basis points this morning. Um, how much negative interest rates

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Speaker 1: and what these central banks are doing play into where

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Speaker 1: you want to look and what you find value. One

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Speaker 1: of my all time favorite investment books was written by

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Speaker 1: a couple of British professors called Triumph of the Optimists,

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Speaker 1: and they do a lot of historical studies showing stock

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Speaker 1: bond bill returns for the last fifteen years. One of

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Speaker 1: their studies looks at investing in markets based on what

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Speaker 1: the real yield is, so the yield after inflation of

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Speaker 1: both the equities and the bonds and historically they find

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Speaker 1: the steeper the yield, the better that market is to

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Speaker 1: invest in. And so even if you have countries, for example,

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Speaker 1: like a Brazil where um, you know, the bonds are

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Speaker 1: yielding in the teens, but inflation is still ten percent,

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Speaker 1: that's a steep real yield. So a lot of europe

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Speaker 1: um doesn't have that quality. You know, you have these

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Speaker 1: bonds that are yielding nothing, So if you have any

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Speaker 1: inflation at all, you're looking at negative yields. And so

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Speaker 1: a lot of the European bonds we don't find that

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Speaker 1: attractive because they're so low. But a lot of the

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Speaker 1: European equities, on the other hand, we think are incredibly cheap.

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Speaker 1: Eastern Europe, Emerging Europe, we think are wonderful buying opportunities.

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Speaker 1: Tom Keane triumph of the pessimist here um, I bet

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Speaker 1: that I bet one of the middle daughters on Jordan's

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Speaker 1: speak winning. I'm short a daughter this morning. I didn't

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Speaker 1: know you could short children. Well, we were, we were

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Speaker 1: thinking about it. This weekend. Bloomberg Surveillance brought you buy Investco.

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Speaker 1: Good morning, everyone, were brought you buy Investo. Explore what

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Speaker 1: high conviction investing means to investcos, value equity managers, watch

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Speaker 1: just did a really smart piece at investco dot com

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Speaker 1: slash interactive. I was able to participate on vail you

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Speaker 1: and this new phrase which scares it, but jeepers on him.

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Speaker 1: Deep value met favor with us from Cambria. What's deep value?

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Speaker 1: You're the engineer, I mean, like you know, down, that's value.

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Speaker 1: Deep value means why you really went down. Deep value

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Speaker 1: is something no one else wants to buy. Value. You

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Speaker 1: can at least explain deep value. There's no sane person

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Speaker 1: that would buy that investment you're talking about. And we

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Speaker 1: were talking a little bit earlier about places like Greece,

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Speaker 1: in Brazil where the headlines are so universally terrible, Russia,

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Speaker 1: most of Europe. Still, Um, that's the deep value when

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Speaker 1: you have to really just put down some pepto bismol

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Speaker 1: for the nausea even thinking about buying those markets. Um,

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Speaker 1: you know, that's that's as deep as a game. From

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Speaker 1: a math standpoint. Teleb's answer is okay, buy a little bit.

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Speaker 1: He's iconic for saying, okay, participate, but just with a

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Speaker 1: little bit. With a high payout if you get it right.

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Speaker 1: And and investors consistently always want to think in binary terms.

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Speaker 1: They want to think of I'm I'm buying this, I'm in,

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Speaker 1: it's gonna go up, or I'm selling it and I'm out.

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Speaker 1: But we always say to people, look, you sell or

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Speaker 1: buy to your sleeping point. So, yeah, you can have

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Speaker 1: some exposure to farm markets Brazil if you want. If

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Speaker 1: it's too much for you you can't stomach it, fine,

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Speaker 1: sell a little bit of let's have a little bit more.

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Speaker 1: We think it's a wonderful opportunity. But on the flip side,

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Speaker 1: it's not just important to be buying the cheapest stuff,

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Speaker 1: but also avoiding the most expensive and that almost always

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Speaker 1: in investing is equally important to the future success as

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Speaker 1: just buying the cheap stuff. What's the cheap stuff these days?

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Speaker 1: So you know, we look at long term valuation metrics

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Speaker 1: and most of the good news is most of the

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Speaker 1: world is reasonably priced, um, so forign developed, totally reasonable

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Speaker 1: for and emerging cheap. But the cheapest bucket so let's

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Speaker 1: say that the cheapest countries is the cheapest has been

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Speaker 1: since oh eight oh nine, um, and then all the

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Speaker 1: way back to the early eighties, and so you can

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Speaker 1: buy this basket. You know, it's got a few one

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Speaker 1: off names like Brazil and Russia, a lot of Europe,

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Speaker 1: a lot of Eastern European equities, and then on the

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Speaker 1: bond side, it's almost all emerging. But for the but

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Speaker 1: of the the equities, you get a nice and nice blend.

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Speaker 1: And and there's a lot of countries that are sitting

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Speaker 1: in that low double digit p as well. Did they

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Speaker 1: did did the emerging equities become more attractive with the

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Speaker 1: dollar falling back? To get to kind of circle back

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Speaker 1: to where we began this, you know, you know, one

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Speaker 1: of one of the biggest and simplest ways these countries

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Speaker 1: get cheap is simply how much they've declined. And so

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Speaker 1: almost always when you're investing the cheap ones, it's stuff

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Speaker 1: that's already down fifty and a lot of that will

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Speaker 1: coincide with terrible currency returns as well. And so you know,

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Speaker 1: this U. S Dollar has had a great run um

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Speaker 1: finally starting to seeing inflection point. Maybe this year, same

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Speaker 1: thing happened last year, So who knows, Let's go the

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Speaker 1: other way right now, price to perfection or dividend growth Americans,

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Speaker 1: I'm called staple stocks, I mean consumer stocks. Whatever do

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Speaker 1: you do? You buy them and hold them knowing you're

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Speaker 1: gonna enjoy a markdown at things fall apart, or do

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Speaker 1: you just have to say no, I can't on these.

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Speaker 1: I think you sprint away from them and let The

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Speaker 1: reason why is that you have an investing approach that

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Speaker 1: historically works great. Dividend investing one of the most classic

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Speaker 1: investing approaches. But that becomes the problem is so much

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Speaker 1: money has flowed into dividend stocks that if you look

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Speaker 1: at dividend stock high yielders right now relative to the

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Speaker 1: market over their entire history, you go back to the fifties,

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Speaker 1: it's the most expensive they've ever been. You don't and

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Speaker 1: you don't have to believe me. Go you go pull

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Speaker 1: up a dividen et F ticker on morning Star. Look

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Speaker 1: at the valuation across the board, more expensive than the

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Speaker 1: broad market. You know. Let's come back. My father with

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Speaker 1: thrilled met favor with us from l A. He's usually

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Speaker 1: up at like four or three am or something. He's

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Speaker 1: coming in from his nightlife when he's usually talking to

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Speaker 1: us in our studio today, I want to come back

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Speaker 1: and not only talk to him about the equity markets,

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Speaker 1: but talking to him about you v A engineering as

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Speaker 1: well out of the University of Virginia. Futures up eight down,

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Speaker 1: Future is up sixty two, the yield one point seven

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Speaker 1: four percent. Oil elevated. This has been a quiet story

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Speaker 1: last week with all the nuanced gloom out there. It

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Speaker 1: is something to see American oil forty dollars a barrel

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Speaker 1: Brent crude rounding it up to forty two dollars at

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Speaker 1: barrel as well the yeng one O a twent some

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Speaker 1: of the angst of to three hours it goes evaporated

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Speaker 1: away here. The President will meet with Cherry yelling. We're

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Speaker 1: told three pm. UH this afternoon there's a special meeting

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Speaker 1: of the FED, which Michael McKee has made clear is

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Speaker 1: no big deal, but there it is changes to the

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Speaker 1: FED schedule. UH this morning with Cherry yelling, with the

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Speaker 1: Board of Governors meeting as well. Again, Futures up eight down,

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Speaker 1: futures up sixty five, and gold fifty one the ounce

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Speaker 1: like a bar with news headlines. Mike Tom, thank you

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Speaker 1: very much public and presidential candidate Donald Trump says choosing

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Speaker 1: a presidential nominee should be a lot more cut and dry.

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Speaker 1: The person with the most votes wins. Trump, speaking in Rochester,

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Speaker 1: New York, says the current system, where the rules are

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Speaker 1: basically made at the convention, is corrupt and crooked. Hillary

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Speaker 1: Clinton says she's the presidential candidate tough enough to stop Trump.

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Speaker 1: A new ad by the Democratic front runner steps up

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Speaker 1: her criticism of Trump. Soul officials say a senior North

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Speaker 1: Korean military intelligence officer has defected to South Korea. Soul's

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Speaker 1: four hours a day, powered by our twenty four hundred

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Speaker 1: journalists more than a hundred fifty news bureaus from around

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Speaker 1: the world. Michael Michael, I'm trying to figure Donald Trump it,

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Speaker 1: Nick Tows and Rochester having the acclaimed garbage plate of

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Speaker 1: red hots, white hots, home fries, French fries, baked beans,

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Speaker 1: and as side order, Genesee creaml That's awesome, Donald Trump

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Speaker 1: and Rochester. Lumberg Surveillance is brought to you by Land

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Speaker 1: Act and on your radio. This is a Bloomberg Business

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Speaker 1: Flash and I'm Karen Moscow. This updates brought to you

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Speaker 1: by National Realty Returns on cash and rented real Estate

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Speaker 1: fund them at n r I a dot net. European

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Speaker 1: inequities are rising as Italian banks climb before I'm meeting

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Speaker 1: to discuss cleaning up the financial system. Emerging markets are

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Speaker 1: advancing after signs about pickup in Chinese industrial demand, while

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Speaker 1: the Swiss Frank weekends with government bonds. We checked the

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Speaker 1: markets every fifteen minutes throughout the trading day on Bloomberg

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Speaker 1: US dot Index futures higher, with SNP E Mini Future

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Speaker 1: is up seven points, DOWI Many Future is up fifty

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Speaker 1: eight and nasdach e Many Future is up eighteen. That

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Speaker 1: acts in Germany's up one point one percent ten Your

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Speaker 1: treasury down five thirty seconds. The yield one point seven

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Speaker 1: three percent yield on the two year point seven one

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Speaker 1: percent nim X scrude oil. It'll change now at thirty

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Speaker 1: seventy two a barrel Comics gold is up seven ten

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Speaker 1: percent or eight dollars eighty cents to twelve fifty two

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Speaker 1: seventy announced the euro a dollar fourteen oh five agin

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Speaker 1: one oh eight point one three. That's a Bloomberg business flash.

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Speaker 1: Tom and Mike, and as many of you know, Karen,

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Speaker 1: thank you so much. I barely participated for the last

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Speaker 1: eighteen minutes twenty nine seconds of the show. Mike Vanessa,

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Speaker 1: official dessert maker for Surveillance, comes in with a vanilla

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Speaker 1: chocolate cake today with the Alex Olvetchkin Washington Capital's frosting. Yeah.

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Speaker 1: I mean you can't beat that. No, I mean we

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Speaker 1: are very fortunate that Ms Felio is supplying us, supplying

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Speaker 1: us with the appropriate A. Carl h. We're going to

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Speaker 1: need to after the show today. Um, and if you

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Speaker 1: want to see Tom and running, no, never mind, Um

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Speaker 1: favors with his camera investment management. While you two were chatting,

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Speaker 1: I was noticing here this is interesting time take this

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Speaker 1: in a rip up the script time. If I might hear,

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Speaker 1: we have the meeting of the President and the FED

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Speaker 1: Chair this afternoon, which you and I were talking earlier,

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Speaker 1: is no big deal. They do meet. But now I'm

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Speaker 1: beginning to wonder if there isn't something more going on

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Speaker 1: in the administration in its efforts to push back against

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Speaker 1: the presidential candidates who are talking down the economy. Because

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Speaker 1: just moments ago, the UH Foreign Affairs magazine released an

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Speaker 1: essay published in the in the magazine by Jack lou

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Speaker 1: the Treasury Secretary, very long article which I've been reading through,

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Speaker 1: in which he argues at length for the strength of

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Speaker 1: the United State AIDS and the need for the United

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Speaker 1: States to take a global leadership role. He does get

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Speaker 1: down into some of the weeds here talking about currency manipulation, saying, uh,

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Speaker 1: it's okay to manage your currency, but for competitive advantage,

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Speaker 1: it's unacceptable. He argues for the TPP trade Agreement, UH,

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Speaker 1: that sort of thing, a very long defense of the

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Speaker 1: Obama administration's policies. Basically, let me ask uh meb favor um.

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Speaker 1: He's the chief investment officer of Cambria Investment Management, and

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Speaker 1: you do spend a lot of time looking at what's

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Speaker 1: going on overseas. The administration makes the argument that yeah,

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Speaker 1: there's a global slowdown out there, but we are in

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Speaker 1: better shape than the rest of the world from an

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Speaker 1: investment perspective, would you agree with the administration's sentiments as

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Speaker 1: expressed by UH Secretary Loeu that UM, we're not so bad,

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Speaker 1: but we need to keep on top of it. Two

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Speaker 1: quick comments there. One, is it an incredibly strong predictor

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Speaker 1: of what political party UM wins the election? Is the

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Speaker 1: stock market returns the six months prior to the election,

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Speaker 1: and if the market's up, the incumbent party usually stays

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Speaker 1: in power. And if the markets down, it's usually a flip.

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Speaker 1: So that's this is some of the conversation probably going on.

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Speaker 1: Some has some little influence there. But but talking about

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Speaker 1: the US versus the rest of the world, the US

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Speaker 1: has vastly outperformed the rest of the world since the

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Speaker 1: eight o nine crisis. And historically, if you look at stocks, economy, whatever,

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Speaker 1: but stocks in particular, it's a coin flip us versus

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Speaker 1: foreign It's it's basically fifty fifty which which outperforms in

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Speaker 1: a given year. And this is one of the biggest

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Speaker 1: divergences we've ever seen UM in particular for USA, European

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Speaker 1: stock market valuations, stock market performance UM because really most

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Speaker 1: of the foreign countries have not kept up whatsoever since

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Speaker 1: oh eight o nine has been much more of a

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Speaker 1: basket case. Um. But that's usually when you want to

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Speaker 1: be doing the opposite with the investing side. UM. I

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Speaker 1: would have said the same thing last year, uh and

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Speaker 1: probably been been wrong. But UM, we we think there's

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Speaker 1: much more opportunity in in UH across our across our shores,

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Speaker 1: across our shores, UM. I mean so across across the ocean,

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Speaker 1: looking at looking looking at U to Europe, to South America,

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Speaker 1: to UH to Asia. But but based on a price

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Speaker 1: basis as opposed to UM the economic outlook correct. So

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Speaker 1: you know, we we also invest based on trends and momentum.

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Speaker 1: You know, I hold both sides of the investment coin

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Speaker 1: very very dear. You know, I'm very strong believer invaluation,

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Speaker 1: but respect the trend and momentum as well. And the

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Speaker 1: trend and momentum has not been in the favor of

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Speaker 1: the cheap stuff for the past eight years. You're starting

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Speaker 1: to see that shift this year. Uh. You know, you're

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Speaker 1: seeing all the really cheap stuff. You know, Brazil best

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Speaker 1: performing stock market in the world, Russia's up. You know,

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Speaker 1: a lot of the beaten down markets and this includes

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Speaker 1: the sovereign bonds as well. Um. But you know, hopefully

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Speaker 1: those trends are changing because that's the favorite setup for me,

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Speaker 1: value and momentum. Um. I want to talk a little

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Speaker 1: bit about the mathewness here. It's math one day here, folks,

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Speaker 1: and with my favor, we can do this um at

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Speaker 1: the lawn at UVA, which everybody in the world knows,

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Speaker 1: that gorgiosity of Jefferson's lawn. If you wander down McCormick Road,

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Speaker 1: there's the Engineering school Thornton Hall. You you are a

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Speaker 1: manufactured product of Engineering University of Virginia. What's the number

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Speaker 1: one math thing investors get wrong? To me? It's thet

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Speaker 1: I'm always on the X axis. People misjudge the timeline

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Speaker 1: of whatever you're discussing. For you, what's the mathewiness we

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Speaker 1: screw up every day when we don't even getting me

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Speaker 1: started on on charts? Um, the nerdiest part would be

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Speaker 1: log access. But when we're not gonna we're not gonna

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Speaker 1: even go there. We're not gonna go there. But you know,

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Speaker 1: but the answer is we should be looking at log

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Speaker 1: charts a lot more, which is what we do with

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Speaker 1: surveillance and drives It drives me nuts. That's that's a

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Speaker 1: pet peeve. That's the nerdiest pet peeve I probably have. UM.

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Speaker 1: They by the I used to live on the lawn

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Speaker 1: when I when I was there one year on facing

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Speaker 1: away what they call the range. Um. You got to

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Speaker 1: walk to the bathroom in a in a robe. Are

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Speaker 1: the beer checks outside permanent? Are they like a permanent fixture?

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Speaker 1: We had a tab hooked up with the sink. Its

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Speaker 1: like hot water, cold water beer. Um. But talking about

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Speaker 1: math and investors, they get the easy stuff wrong, which

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Speaker 1: is the saddest part. They pay way too much in fees.

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Speaker 1: And then the second part is they react emotionally and

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Speaker 1: the sexy part of the exciting part, whether marcus are

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Speaker 1: going up and down? What's cheapest? What we spend our

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Speaker 1: time talking about, you know, is what they focus on.

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Speaker 1: But then they go out and pay two percent for

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Speaker 1: for a mutual fund another um hunter based points for

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Speaker 1: financial advisor. And then the blocking tackling most important man,

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Speaker 1: thank you so much, mad favorite with camera there with

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Speaker 1: investment was the mic you've got headlines have the secretary? Yeah,

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Speaker 1: the secretary is uh Secretary of the Treasury out with

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Speaker 1: a very long piece on foreign affairs. If you subscribe,

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Speaker 1: check that out. We're gonna look at those thirty outlines

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Speaker 1: and come back with the summary worldwide Bloomberg Surveillance. Bloomberg

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Speaker 1: Surveillance is brought to by Fordham University, the Gabelly School

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