1 00:00:09,720 --> 00:00:12,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 2 00:00:13,560 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,239 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,320 --> 00:00:33,960 Speaker 1: on the Bloomberg Christopher Grassanti joins us now. He's the 6 00:00:34,000 --> 00:00:36,360 Speaker 1: owner and founder Grassanti Capital Management's great to have you 7 00:00:36,640 --> 00:00:39,000 Speaker 1: with us here in Bloomberg and leven three oh students, 8 00:00:39,040 --> 00:00:41,000 Speaker 1: Let's talk a bit about the Trump Trade. We had 9 00:00:41,000 --> 00:00:43,600 Speaker 1: a lot of conversations yesterday in which guests said, whither 10 00:00:43,680 --> 00:00:47,360 Speaker 1: the Trump Trade? It's over done and gone? Uh you 11 00:00:47,080 --> 00:00:51,200 Speaker 1: you you indicated that decide what does the Trump trade? Men? 12 00:00:51,320 --> 00:00:53,199 Speaker 1: Because some extent it still exist at the least to 13 00:00:53,320 --> 00:00:54,920 Speaker 1: the last note you wrote back at April, what's your 14 00:00:54,920 --> 00:00:57,160 Speaker 1: sense of worth things stand that the role that Washington's 15 00:00:57,200 --> 00:01:00,240 Speaker 1: playing here in the markets, in the economy right now, well, David, 16 00:01:00,280 --> 00:01:01,639 Speaker 1: if I had told you that he would be able 17 00:01:01,680 --> 00:01:04,839 Speaker 1: to get no meaningful legislation passed, and he'd go through 18 00:01:05,040 --> 00:01:08,680 Speaker 1: chiefs of staff and he'd go through communications directors, you'd say, wow, 19 00:01:08,720 --> 00:01:11,360 Speaker 1: the market will have real trouble going up. But obviously 20 00:01:11,400 --> 00:01:13,679 Speaker 1: that's not been the case. I think what's really gonna 21 00:01:13,720 --> 00:01:15,800 Speaker 1: matter as we go into the fall is what happens 22 00:01:15,840 --> 00:01:18,400 Speaker 1: with tax relief or tax reform, at least especially on 23 00:01:18,440 --> 00:01:21,080 Speaker 1: the corporate side for the market. And so I think 24 00:01:21,080 --> 00:01:24,000 Speaker 1: the market remains hopeful and Minuchin coming to the fore 25 00:01:24,120 --> 00:01:25,920 Speaker 1: saying this is what's going to happen. We finally have 26 00:01:26,000 --> 00:01:27,800 Speaker 1: a plan. I think that's part of the reason the 27 00:01:27,840 --> 00:01:31,319 Speaker 1: futures are up this morning. So I'm optimistic that the 28 00:01:31,400 --> 00:01:34,840 Speaker 1: rally has legs to continue. Steven Manuchan saying he has 29 00:01:34,880 --> 00:01:36,959 Speaker 1: a plan. There was that a joint statement for members 30 00:01:36,959 --> 00:01:39,720 Speaker 1: of the Congress and the White House, just over a 31 00:01:39,760 --> 00:01:42,400 Speaker 1: page long. Do we have enough information here? You disappointed 32 00:01:42,400 --> 00:01:44,759 Speaker 1: on what we've seen thus far? And as an investor, 33 00:01:45,040 --> 00:01:47,199 Speaker 1: would you like to see more meat on the bone? Right? Well, 34 00:01:47,240 --> 00:01:48,920 Speaker 1: it's kind of a double edged sword because the more 35 00:01:48,960 --> 00:01:53,160 Speaker 1: information they give, the more they're gonna upset certain constituencies. 36 00:01:53,200 --> 00:01:56,120 Speaker 1: So I think there's a purposeful vagueness to what they're 37 00:01:56,160 --> 00:01:58,000 Speaker 1: putting out now, and of course the devil will be 38 00:01:58,000 --> 00:02:00,720 Speaker 1: in the details as you get down to to September. 39 00:02:00,800 --> 00:02:03,720 Speaker 1: So I suspect we're gonna start seeing headlines about corporate 40 00:02:03,760 --> 00:02:05,920 Speaker 1: tax relief, and at least at the beginning, that will 41 00:02:05,960 --> 00:02:08,520 Speaker 1: spur the market. The real question is will they be 42 00:02:08,600 --> 00:02:10,880 Speaker 1: able to push things through committees in both the House 43 00:02:10,880 --> 00:02:13,400 Speaker 1: in the Center. How do you see the interplay between 44 00:02:14,320 --> 00:02:15,920 Speaker 1: the turmoil? I think we can call it that if 45 00:02:15,919 --> 00:02:17,960 Speaker 1: you have you have the communications structories on the job 46 00:02:18,000 --> 00:02:19,839 Speaker 1: for five or six days and at least uh and 47 00:02:19,960 --> 00:02:22,400 Speaker 1: the markets are we seeing it reflect what's happening in 48 00:02:22,440 --> 00:02:24,480 Speaker 1: Washington at all? Or do you get a sensor that 49 00:02:24,520 --> 00:02:27,320 Speaker 1: the market is becoming more near to what's happening. Well, 50 00:02:27,360 --> 00:02:29,080 Speaker 1: maybe one of the good news is for the market 51 00:02:29,160 --> 00:02:31,480 Speaker 1: for with the Scaramuci stuff, has it happened during earning 52 00:02:31,520 --> 00:02:34,880 Speaker 1: seasons and their earnings have been relatively benign. We've we've 53 00:02:34,919 --> 00:02:39,079 Speaker 1: started seeing either UH, solid makes or even some nice 54 00:02:39,120 --> 00:02:41,880 Speaker 1: beats from tech companies like Facebook. So I think that's 55 00:02:41,880 --> 00:02:44,560 Speaker 1: really what the markets focused on, rather than the relative 56 00:02:44,680 --> 00:02:48,160 Speaker 1: short tenure of Scarls. Were this in a good time 57 00:02:48,200 --> 00:02:51,560 Speaker 1: to speak to him? Futures again, Uh, just lost my 58 00:02:52,160 --> 00:02:55,680 Speaker 1: here there they are futures dred three up hundred three. 59 00:02:55,720 --> 00:02:58,840 Speaker 1: We didn't print twenty two thousand on the futures market 60 00:02:58,880 --> 00:03:00,760 Speaker 1: this morning. Just check that, Chris, I want to talk 61 00:03:00,800 --> 00:03:04,839 Speaker 1: about us of cash. The theory is, I mean, thank 62 00:03:04,880 --> 00:03:08,519 Speaker 1: you Mr Winberg of Golden sax Fame Fame. Trees don't 63 00:03:08,560 --> 00:03:11,520 Speaker 1: grow to the sky. But the basic idea is there's 64 00:03:11,520 --> 00:03:13,919 Speaker 1: got to be a point where you don't buy back 65 00:03:14,160 --> 00:03:18,960 Speaker 1: shares because they're just too rich. Are we there? I 66 00:03:19,000 --> 00:03:21,079 Speaker 1: think we? I mean, obviously, Tom, it's a case by 67 00:03:21,120 --> 00:03:24,040 Speaker 1: case basis, but but I think we are kind of 68 00:03:24,080 --> 00:03:27,760 Speaker 1: there for the folks that are typically in growth companies 69 00:03:27,800 --> 00:03:31,560 Speaker 1: that have been buying back stock. So uh, I would 70 00:03:31,639 --> 00:03:34,040 Speaker 1: stop now. Having said that, it's the part of the 71 00:03:34,080 --> 00:03:36,760 Speaker 1: ethos of certain companies that they buy back to three 72 00:03:37,440 --> 00:03:39,920 Speaker 1: the shares each year, and I think that's a mistake. 73 00:03:39,920 --> 00:03:42,000 Speaker 1: I think Warren Buffett put it pretty well. You'll you'll 74 00:03:42,000 --> 00:03:43,600 Speaker 1: take a look, you'll do the numbers, and if your 75 00:03:43,600 --> 00:03:45,720 Speaker 1: stock is a good investment, you'll buy it, and if 76 00:03:45,720 --> 00:03:47,600 Speaker 1: it's not, you want so where's diving and growth? And 77 00:03:47,680 --> 00:03:49,720 Speaker 1: I just looked at the stock. I'm not gonna mention folks. 78 00:03:49,760 --> 00:03:52,240 Speaker 1: It's not a name. A lot of people know. It's 79 00:03:52,240 --> 00:03:56,120 Speaker 1: a great American success story. They're up eighteen percent per 80 00:03:56,200 --> 00:03:59,800 Speaker 1: year off the Lehman Low Bottoms of oh nine, they've 81 00:03:59,800 --> 00:04:03,640 Speaker 1: got huge dividend growth. Do you just keep doing dividend growth? 82 00:04:03,880 --> 00:04:06,760 Speaker 1: I mean, it's Mario Gabelly one on one. Yeah, I 83 00:04:06,760 --> 00:04:10,160 Speaker 1: think you do. One of the probably v major question 84 00:04:10,200 --> 00:04:13,560 Speaker 1: we ask we're analyzing companies is what is the company 85 00:04:13,560 --> 00:04:15,240 Speaker 1: going to do with the cash that they produce? And 86 00:04:16,240 --> 00:04:18,400 Speaker 1: it's not the same for each company. Is no right answer. 87 00:04:18,400 --> 00:04:21,320 Speaker 1: If you're a growing company, have great markets that are growing, 88 00:04:21,480 --> 00:04:23,960 Speaker 1: you reinvest in your own business. But if you're not 89 00:04:24,080 --> 00:04:26,320 Speaker 1: a growing company, you give that back to shareholders and 90 00:04:26,360 --> 00:04:29,160 Speaker 1: buy backs. And you know the noise of media, you 91 00:04:29,240 --> 00:04:31,600 Speaker 1: have discovery scripts, which is you know, we're all trying 92 00:04:31,600 --> 00:04:34,039 Speaker 1: to sort that out right now. I believe it's twenty 93 00:04:34,520 --> 00:04:39,160 Speaker 1: of advertising revenue and cable TV something uh like that. 94 00:04:39,240 --> 00:04:44,039 Speaker 1: Are you seeing constructive m and a creating value or 95 00:04:44,120 --> 00:04:46,560 Speaker 1: is it the beginning of an exuberance. No, I think 96 00:04:46,560 --> 00:04:48,719 Speaker 1: it's even what it's it's it's even later than the 97 00:04:48,720 --> 00:04:50,440 Speaker 1: beginning of an exuberance. I think we're kind of in 98 00:04:50,440 --> 00:04:53,240 Speaker 1: the middle innings of exuberance were in late cycle. So 99 00:04:53,320 --> 00:04:56,240 Speaker 1: you're starting to see deals that make sense for the bankers, 100 00:04:56,720 --> 00:05:01,120 Speaker 1: for um, for the executives that are getting compensated on 101 00:05:01,520 --> 00:05:04,560 Speaker 1: share appreciation things like that, but don't necessarily mean that 102 00:05:04,600 --> 00:05:07,440 Speaker 1: you're going to see higher earnings as a result with 103 00:05:07,440 --> 00:05:10,279 Speaker 1: the combined companies, and and and so they're betting on 104 00:05:10,320 --> 00:05:12,039 Speaker 1: a lot of things going right in order for these 105 00:05:12,040 --> 00:05:14,560 Speaker 1: deals to to really justify themselves. What does that deal, 106 00:05:14,600 --> 00:05:17,440 Speaker 1: that Discovery Scripts deal tell you about that part of 107 00:05:17,480 --> 00:05:23,880 Speaker 1: the market, the economy, and in particularly your vicom They 108 00:05:23,960 --> 00:05:27,560 Speaker 1: didn't win that deal. Um, what it is I think 109 00:05:27,680 --> 00:05:30,760 Speaker 1: is a desperation not to be left behind. Because clearly 110 00:05:30,800 --> 00:05:34,080 Speaker 1: in the content side of things, there are winners and losers, 111 00:05:34,080 --> 00:05:36,800 Speaker 1: and so far, at least Discovery has been, you know, 112 00:05:36,839 --> 00:05:39,039 Speaker 1: on the losing side of the ledger. And you have 113 00:05:39,120 --> 00:05:42,040 Speaker 1: companies like Time Warner with HBO, of course Disney with ESPN. 114 00:05:42,160 --> 00:05:44,919 Speaker 1: Stuff stuff that delivers content that people who are really 115 00:05:45,320 --> 00:05:47,400 Speaker 1: want and of course the test there are they willing 116 00:05:47,440 --> 00:05:49,719 Speaker 1: to pay more for it? And for HBO and ESPN 117 00:05:49,760 --> 00:05:52,719 Speaker 1: the answers yes, and for the Discovery Channel maybe not. 118 00:05:53,240 --> 00:05:55,440 Speaker 1: So they're desperately trying to get big enough, and I 119 00:05:55,480 --> 00:05:57,680 Speaker 1: think the endgame there is to get a critical mass 120 00:05:57,720 --> 00:06:00,440 Speaker 1: of that then they can be acquired and they can 121 00:06:00,480 --> 00:06:04,279 Speaker 1: be taken out without just Languishing and Viacoma were shareholders. 122 00:06:04,279 --> 00:06:06,920 Speaker 1: They're simply because it's too cheap. They have some good content, 123 00:06:06,960 --> 00:06:09,400 Speaker 1: we think it's worth considerably more. It sells for less 124 00:06:09,839 --> 00:06:12,240 Speaker 1: than one tempt the market cap of Disney, for example, 125 00:06:12,279 --> 00:06:14,080 Speaker 1: so we just think that's too low. How old are 126 00:06:14,120 --> 00:06:17,400 Speaker 1: you about desperation as a motivating fact here in the 127 00:06:17,480 --> 00:06:20,919 Speaker 1: TMT space in others? How problematic is that to be 128 00:06:21,000 --> 00:06:23,800 Speaker 1: motivated by concern or worry that maybe you're going to 129 00:06:23,839 --> 00:06:26,400 Speaker 1: be left? But you know, it's funny being a value guy. 130 00:06:26,440 --> 00:06:29,000 Speaker 1: We have the luxury of really looking at industries that 131 00:06:29,040 --> 00:06:32,960 Speaker 1: are our old fashioned industry. TMT is tough media right now. 132 00:06:33,200 --> 00:06:35,440 Speaker 1: It's obviously it looks nothing like it looked even five 133 00:06:35,520 --> 00:06:38,160 Speaker 1: years ago. So you have to be so dynamic there. 134 00:06:38,200 --> 00:06:41,000 Speaker 1: You can't settle for the status quo like you could 135 00:06:41,040 --> 00:06:43,440 Speaker 1: if you were an iron or company or something like that. 136 00:06:43,880 --> 00:06:46,600 Speaker 1: So you know, if if you're not it's the shark. 137 00:06:46,640 --> 00:06:48,520 Speaker 1: If you're not moving, you're dying in the media business. 138 00:06:48,560 --> 00:06:50,479 Speaker 1: And so that's that's a tough way to go. I 139 00:06:50,520 --> 00:06:52,800 Speaker 1: want to go back to what we talked about before. 140 00:06:52,839 --> 00:06:58,760 Speaker 1: You said on television you're an eighteen. That's very sequis 141 00:06:59,640 --> 00:07:04,120 Speaker 1: can you say that a focused portfolio. I remember the 142 00:07:04,279 --> 00:07:09,320 Speaker 1: uproar over the Fidelity fifty fund years ago uh Mercenel 143 00:07:09,400 --> 00:07:12,360 Speaker 1: and the crew up in Boston. Fifty was I was 144 00:07:12,440 --> 00:07:16,640 Speaker 1: outrageous focusing concentration. So here are you running virtually a 145 00:07:16,680 --> 00:07:21,000 Speaker 1: hedge fund with eighteen stocks? Have you what's the downside? 146 00:07:21,000 --> 00:07:24,360 Speaker 1: What's the ugliness? We push back? I mean when I 147 00:07:24,400 --> 00:07:26,880 Speaker 1: think hedge fund, I think faster money, and and in 148 00:07:26,880 --> 00:07:29,160 Speaker 1: our holding periods are really three or four years, so 149 00:07:29,560 --> 00:07:32,800 Speaker 1: we go narrow and deep. Tom. So we're buying Apple 150 00:07:32,840 --> 00:07:36,240 Speaker 1: at eleven times because nobody was buying the iPhone six 151 00:07:36,280 --> 00:07:40,160 Speaker 1: and a half or seven complete failure, right, and so 152 00:07:40,240 --> 00:07:41,920 Speaker 1: we know over the three years there's gonna be a 153 00:07:41,960 --> 00:07:44,760 Speaker 1: good product cycle and things like that. We're we're buying 154 00:07:44,800 --> 00:07:49,080 Speaker 1: Wells Fargo during the credit card debacle because they have 155 00:07:49,320 --> 00:07:51,960 Speaker 1: a deep management team. They have a biggest mortgage franchise 156 00:07:51,960 --> 00:07:53,720 Speaker 1: in the United States, and that will come back again 157 00:07:53,880 --> 00:07:56,720 Speaker 1: over three years in a quarter or two who knows so, 158 00:07:57,160 --> 00:07:59,480 Speaker 1: And we feel that's better than taking a ride in 159 00:07:59,560 --> 00:08:02,920 Speaker 1: a mark It. That's certainly uh more expensive than very 160 00:08:02,960 --> 00:08:05,600 Speaker 1: quickly you're all pull I had from steel from Christopher Whalen, 161 00:08:05,640 --> 00:08:08,400 Speaker 1: which is always a constructive thing. Is there something about 162 00:08:08,400 --> 00:08:10,680 Speaker 1: preferreds here? Do you want to go to convertibles or 163 00:08:10,720 --> 00:08:13,920 Speaker 1: preferred and pick up a bigger dividend? You know you don't. 164 00:08:14,160 --> 00:08:15,800 Speaker 1: I don't think some time, I I think you can 165 00:08:15,800 --> 00:08:20,080 Speaker 1: do things like buying We've been buying Verizon lately because 166 00:08:20,160 --> 00:08:22,000 Speaker 1: everybody is so down on them because they've done the 167 00:08:22,080 --> 00:08:24,760 Speaker 1: unlimited data. So the stock is dropping the mid fifties 168 00:08:24,800 --> 00:08:27,160 Speaker 1: to the low forties a week or two ago, and 169 00:08:27,160 --> 00:08:30,360 Speaker 1: then point eight percent yield at four point and and 170 00:08:30,400 --> 00:08:31,920 Speaker 1: two weeks ago, when it was in the low forties, 171 00:08:31,920 --> 00:08:34,360 Speaker 1: the yield was in the mid five So I'd rather 172 00:08:34,520 --> 00:08:37,240 Speaker 1: own that with the prospect of if things were turned 173 00:08:37,280 --> 00:08:39,360 Speaker 1: to normal, they don't have to be gangbusters. You'll get 174 00:08:39,360 --> 00:08:42,319 Speaker 1: ten percent appreciation on the stock and the five percent 175 00:08:42,520 --> 00:08:45,200 Speaker 1: we'll come back and do some investment theory here with 176 00:08:45,280 --> 00:08:49,640 Speaker 1: Christopher Gersanti. Always important to do that, uh as as 177 00:08:49,760 --> 00:08:52,480 Speaker 1: well Chris Krossani with us. And that's a well timed thing. 178 00:08:52,520 --> 00:08:55,360 Speaker 1: I'm assuming you don't own under armor. You do not 179 00:08:57,400 --> 00:09:00,440 Speaker 1: on no retail at all. Actually, well, within that, what 180 00:09:00,480 --> 00:09:02,120 Speaker 1: do you do when you screw up? What do you do? 181 00:09:02,559 --> 00:09:04,480 Speaker 1: You know? You've got a four year plan on the stock. 182 00:09:04,520 --> 00:09:06,720 Speaker 1: How do you figure out you made a mistake and 183 00:09:06,800 --> 00:09:08,720 Speaker 1: what do you do? How do you that's a great question. 184 00:09:08,720 --> 00:09:11,520 Speaker 1: That's actually the hardest thing that we do is when 185 00:09:11,520 --> 00:09:13,240 Speaker 1: do we give up because we don't have an automatic 186 00:09:13,280 --> 00:09:16,360 Speaker 1: it's down five percent or tempercent kick it out. In fact, 187 00:09:16,480 --> 00:09:18,400 Speaker 1: often when it's down five or temper cent, that's our 188 00:09:18,400 --> 00:09:21,240 Speaker 1: opportunity to really load up on a on a position. 189 00:09:21,360 --> 00:09:24,080 Speaker 1: So so the tough thing is we have a thesis 190 00:09:24,160 --> 00:09:27,000 Speaker 1: going in and whether it's an analyst that works for 191 00:09:27,040 --> 00:09:30,280 Speaker 1: me or it's me, we write it down and that's 192 00:09:30,280 --> 00:09:32,080 Speaker 1: the thesis we have to stick with. So if they 193 00:09:32,120 --> 00:09:35,800 Speaker 1: reports something different, um, there's a tendency for folks to 194 00:09:35,800 --> 00:09:37,640 Speaker 1: come in and say, well, it's still gonna work even 195 00:09:37,679 --> 00:09:40,199 Speaker 1: though our original thesis didn't work out. And that's when 196 00:09:40,400 --> 00:09:42,319 Speaker 1: the yellow lights go off and we sell the stock. 197 00:09:42,480 --> 00:09:46,600 Speaker 1: David grow Yes, I'm going to pounce on that and 198 00:09:46,600 --> 00:09:51,959 Speaker 1: give some wisdom. Write it down. There's no substitute. This 199 00:09:52,080 --> 00:09:56,200 Speaker 1: goes back to Gene Perroni, who was a wonderful technician. 200 00:09:56,240 --> 00:09:59,839 Speaker 1: Off of his father's historic work. Eugene Peruni said the same, 201 00:10:01,000 --> 00:10:02,920 Speaker 1: you gotta write it you gotta plot the chart with 202 00:10:02,960 --> 00:10:07,240 Speaker 1: a pencil. There's just something about writing it down which 203 00:10:07,280 --> 00:10:10,679 Speaker 1: clarifies thoughts right right. And on our analysts meeting, everybody's 204 00:10:10,720 --> 00:10:12,800 Speaker 1: required to have a memo, even though with the electronic 205 00:10:12,840 --> 00:10:15,440 Speaker 1: communications it's so easy to send emails and but we 206 00:10:15,480 --> 00:10:17,120 Speaker 1: have to have something in writing, and it's got to 207 00:10:17,160 --> 00:10:19,640 Speaker 1: have numbers in it, and it can't be conceptual. It's 208 00:10:19,679 --> 00:10:23,280 Speaker 1: got to be data driven. Um. And so that's something 209 00:10:23,320 --> 00:10:26,760 Speaker 1: we can return to when things are going going awry, 210 00:10:26,840 --> 00:10:29,240 Speaker 1: as they always do in a three or four years 211 00:10:29,280 --> 00:10:31,880 Speaker 1: suggesting the digital world, David, write it down as it 212 00:10:31,960 --> 00:10:36,720 Speaker 1: lost as a cursive but they don't have to write 213 00:10:37,880 --> 00:10:40,640 Speaker 1: all day. Could go all day on a lack of 214 00:10:40,720 --> 00:10:43,400 Speaker 1: cursive in schools. Chris, a few minutes ago you mentioned, 215 00:10:43,440 --> 00:10:44,760 Speaker 1: well as far ago you said you bought a lot 216 00:10:44,800 --> 00:10:46,960 Speaker 1: during that first scandal. We had another one this week 217 00:10:47,000 --> 00:10:50,880 Speaker 1: and involving these sort of fake insurance schemes. How do 218 00:10:50,880 --> 00:10:52,319 Speaker 1: you how do you react to that? Is that another 219 00:10:52,320 --> 00:10:55,319 Speaker 1: opportunity to to buy How confident in the leadership to 220 00:10:55,360 --> 00:10:59,880 Speaker 1: push back a little? I don't think this this one 221 00:11:00,160 --> 00:11:02,680 Speaker 1: that they really were buying insurance for folks at car Loans, 222 00:11:02,720 --> 00:11:05,280 Speaker 1: which they're allowed to do. They just I think they 223 00:11:05,360 --> 00:11:08,560 Speaker 1: just screwed up, and and I don't think anyone's more 224 00:11:08,600 --> 00:11:10,840 Speaker 1: embarrassed about it than they are. And they're gonna spend 225 00:11:10,840 --> 00:11:13,079 Speaker 1: a bunch of money, but it'll be behind them, I think, 226 00:11:13,200 --> 00:11:15,840 Speaker 1: relatively quickly, because I don't think there was kind of fraud. 227 00:11:15,880 --> 00:11:18,200 Speaker 1: I think it was just a bad systems management issue. 228 00:11:19,320 --> 00:11:20,920 Speaker 1: Are you worried about a recession? At this point of 229 00:11:21,000 --> 00:11:23,200 Speaker 1: stepping back and looking at the economy broadly, there any 230 00:11:23,200 --> 00:11:27,080 Speaker 1: indications to you that things are about to turn No. 231 00:11:27,160 --> 00:11:30,640 Speaker 1: I'm always scared to say no, no, But I have 232 00:11:30,679 --> 00:11:32,880 Speaker 1: to say the indicators that we look at, you know, 233 00:11:33,080 --> 00:11:35,079 Speaker 1: a weekly job claims, which is kind of the most 234 00:11:35,080 --> 00:11:39,880 Speaker 1: coincident indicator um our average hourly earning and things like that. 235 00:11:40,280 --> 00:11:44,719 Speaker 1: There's no yellow lights flashing terribly brightly um And so 236 00:11:44,800 --> 00:11:47,360 Speaker 1: the other thing I would say is, obviously it would 237 00:11:47,360 --> 00:11:49,600 Speaker 1: be too late when they're all flashing brightly. And I 238 00:11:49,640 --> 00:11:53,600 Speaker 1: do think we're obviously this this recovery is long in 239 00:11:53,640 --> 00:11:56,040 Speaker 1: the tooth. But we went down so far in oh 240 00:11:56,040 --> 00:11:57,760 Speaker 1: eight oh nine. So I'm one of the guys who 241 00:11:57,760 --> 00:12:00,360 Speaker 1: thinks it should take longer to come back, because because 242 00:12:00,360 --> 00:12:02,120 Speaker 1: we went down so far, so I'm not troubled by 243 00:12:02,120 --> 00:12:04,760 Speaker 1: the length of the of the recovery. What's the biggest 244 00:12:04,760 --> 00:12:08,120 Speaker 1: misunderstanding about value investing when you talk to people about it? 245 00:12:08,880 --> 00:12:12,120 Speaker 1: You know, I think the big mistakes value investors make, 246 00:12:12,240 --> 00:12:15,000 Speaker 1: even good ones, are to be too dogmatic. I mean, 247 00:12:15,000 --> 00:12:16,720 Speaker 1: there's an old saying by Oscar Wild which I love, 248 00:12:16,760 --> 00:12:19,200 Speaker 1: which is I'm I'm not young enough to know everything. 249 00:12:19,679 --> 00:12:21,640 Speaker 1: And and the longer you go in this business you 250 00:12:21,679 --> 00:12:24,440 Speaker 1: realize that you have to be adaptable to make money. 251 00:12:24,520 --> 00:12:26,400 Speaker 1: So when folks say, oh, well tech is too expensive, 252 00:12:26,400 --> 00:12:29,280 Speaker 1: there's going to be a huge crash, maybe, but maybe 253 00:12:29,320 --> 00:12:31,960 Speaker 1: that crash doesn't come for two or three years. And meanwhile, 254 00:12:32,080 --> 00:12:35,160 Speaker 1: buying companies that look expensive, leg Oracle, which is at 255 00:12:35,160 --> 00:12:37,240 Speaker 1: the higher end of its range, which is but still 256 00:12:37,280 --> 00:12:40,360 Speaker 1: only eighteen times next year's number. So stuff like that. 257 00:12:40,400 --> 00:12:42,319 Speaker 1: There are compromises I think you make in this kind 258 00:12:42,320 --> 00:12:45,439 Speaker 1: of environment that I don't apologize for. Chris, Thank you, 259 00:12:45,600 --> 00:12:49,080 Speaker 1: very valuable. Christomers scienty always valuable, but particularly here. The 260 00:12:49,200 --> 00:12:57,679 Speaker 1: future is a four closing in on SMP. Wow, the 261 00:12:57,760 --> 00:13:00,200 Speaker 1: vix ten point three zero, that's a good time to 262 00:13:00,240 --> 00:13:16,920 Speaker 1: speak to Chris Chrissante His research is definitive in its 263 00:13:17,120 --> 00:13:21,080 Speaker 1: detail on where we're going. What's great about Chuck Gabriel 264 00:13:21,679 --> 00:13:25,319 Speaker 1: is he doesn't hide away from the sausage making of 265 00:13:25,320 --> 00:13:29,000 Speaker 1: what cometh in Washington. Of course, David Grew, you know 266 00:13:29,080 --> 00:13:34,200 Speaker 1: it's busy, Charles Gabriel, Capital Partners joining US Center Phone Linel, David, 267 00:13:34,200 --> 00:13:36,800 Speaker 1: why don't you bring in handsome Chuck Gabriel. He knows 268 00:13:37,240 --> 00:13:41,599 Speaker 1: everything there's to know about the path from budget reform 269 00:13:41,640 --> 00:13:48,480 Speaker 1: and budget passing to tax reform and tax reform passing. Chuck, Chuck, 270 00:13:48,559 --> 00:13:51,040 Speaker 1: let me start by asking you what members of the 271 00:13:51,040 --> 00:13:53,000 Speaker 1: House have left behind here. There was a vote on 272 00:13:53,600 --> 00:13:55,920 Speaker 1: a budget before they before they left town. Where do 273 00:13:55,960 --> 00:13:57,640 Speaker 1: things stand when it comes to the budget in particularly, 274 00:13:57,640 --> 00:13:58,920 Speaker 1: what are they gonna face when they get back? I 275 00:13:58,920 --> 00:14:01,520 Speaker 1: guess on September the fifth. I mean, they've got a 276 00:14:01,559 --> 00:14:06,000 Speaker 1: healthy vacation here. Yeah, it's the ambient air quality improves 277 00:14:06,080 --> 00:14:09,800 Speaker 1: mightily down in Washington around now. The Senate will be 278 00:14:09,800 --> 00:14:13,240 Speaker 1: here at least another week, but they that is the 279 00:14:13,400 --> 00:14:15,760 Speaker 1: must do business. Even though they didn't pass the budget 280 00:14:15,800 --> 00:14:18,720 Speaker 1: for in most of two thousand seventeen, so they do 281 00:14:18,840 --> 00:14:21,800 Speaker 1: have to pass the budget for the fiscal years the 282 00:14:21,800 --> 00:14:26,520 Speaker 1: twelve months. It begins October one, and they've passed a 283 00:14:26,520 --> 00:14:30,880 Speaker 1: budget resolution in the House Budget Committee, but it has 284 00:14:30,920 --> 00:14:33,360 Speaker 1: not yet gone to the floor, and there's evidence that 285 00:14:33,440 --> 00:14:36,720 Speaker 1: it's uh, it faces a very high hurdles on the 286 00:14:36,760 --> 00:14:38,800 Speaker 1: House floor, so it might not pass on the House floor, 287 00:14:38,840 --> 00:14:41,840 Speaker 1: and the House budget would be indigestible in the Senate. So, 288 00:14:42,520 --> 00:14:45,200 Speaker 1: you know, just not to belabor it day. We're starting 289 00:14:45,240 --> 00:14:49,360 Speaker 1: a messy process that's going to all be pushed to 290 00:14:49,480 --> 00:14:51,240 Speaker 1: the end of the month, at which point we might 291 00:14:51,280 --> 00:14:53,800 Speaker 1: have a little bit of a of a little skirmish 292 00:14:53,840 --> 00:14:57,920 Speaker 1: or government a little suspense about a government shutdown this 293 00:14:57,960 --> 00:15:01,320 Speaker 1: time with the dead ceiling attached and all you know, 294 00:15:01,320 --> 00:15:04,880 Speaker 1: with Wall Street really mostly focused on the tax cuts. UH, 295 00:15:05,200 --> 00:15:08,880 Speaker 1: this whole story really has to play through before they 296 00:15:08,880 --> 00:15:11,240 Speaker 1: can pass a budget resolution that both the House and 297 00:15:11,240 --> 00:15:14,640 Speaker 1: the Senate can accept. Probably a shell budget resolution will 298 00:15:14,640 --> 00:15:17,280 Speaker 1: allow them to move a tax bill through the Senate, 299 00:15:17,320 --> 00:15:20,440 Speaker 1: and that probably won't come through October November. So, you know, 300 00:15:21,240 --> 00:15:23,440 Speaker 1: not backing this all into what you'll be talking about 301 00:15:23,440 --> 00:15:25,520 Speaker 1: all day to day. You know, we've got a new 302 00:15:25,600 --> 00:15:29,880 Speaker 1: chief of staff, uh, and the Legislative Director is pivoting 303 00:15:30,000 --> 00:15:32,240 Speaker 1: right off the excitement that you're having a reboot of 304 00:15:32,280 --> 00:15:35,720 Speaker 1: the White House is already sort of exhorting the Congress 305 00:15:35,760 --> 00:15:40,120 Speaker 1: to begin marking up tax reform in September October. And 306 00:15:40,160 --> 00:15:44,040 Speaker 1: that's just a laughable idea. So that's that's where we 307 00:15:44,080 --> 00:15:46,760 Speaker 1: are down here. We had a Senator Jeff Flake here, 308 00:15:46,800 --> 00:15:49,200 Speaker 1: the junior senator from Arizona, on the show yesterday, and 309 00:15:49,520 --> 00:15:52,360 Speaker 1: he said that if he's going to be a realist, 310 00:15:52,360 --> 00:15:54,880 Speaker 1: healthcare is now solidly behind the Senate. They've got to 311 00:15:54,920 --> 00:15:56,720 Speaker 1: move on to two other things. That seems to run 312 00:15:56,800 --> 00:15:59,520 Speaker 1: counter that opinion. Seems to run counter to what we're 313 00:15:59,520 --> 00:16:02,320 Speaker 1: hearing from from the White House, both through official and 314 00:16:02,320 --> 00:16:06,560 Speaker 1: nonofficial channels. Three statements and tweets. Uh, do you think 315 00:16:06,600 --> 00:16:10,000 Speaker 1: that it's dead for the time being, Yeah, you know, 316 00:16:10,720 --> 00:16:14,080 Speaker 1: you know, Channel Princess Bride. It's mostly dead, you know. 317 00:16:14,320 --> 00:16:17,400 Speaker 1: And there there's the problem is that you still have 318 00:16:17,560 --> 00:16:23,240 Speaker 1: an imploding set of private insurance exchanges that are going 319 00:16:23,280 --> 00:16:25,880 Speaker 1: to have to make some very key decisions also in September. 320 00:16:25,880 --> 00:16:29,400 Speaker 1: I mean basically, you keep drawing lines towards you know, 321 00:16:29,480 --> 00:16:32,680 Speaker 1: a sort of concentric circles that point to you know, 322 00:16:32,800 --> 00:16:36,680 Speaker 1: Ghostbusters type clouds over the Ansonia Building, you know in Washington, 323 00:16:36,800 --> 00:16:41,720 Speaker 1: you know, in September, UM and UM. So they can't 324 00:16:41,840 --> 00:16:44,360 Speaker 1: just walk away from it. They can walk away from 325 00:16:44,400 --> 00:16:48,720 Speaker 1: making it, you know, their their their sole pursuit. Uh. 326 00:16:48,760 --> 00:16:50,520 Speaker 1: And they can try to move on to a fiscal 327 00:16:50,600 --> 00:16:53,600 Speaker 1: eighteen budge of resolution to move tax reform, but you 328 00:16:53,600 --> 00:16:55,520 Speaker 1: know they're going to have to deal with things like 329 00:16:55,600 --> 00:17:00,160 Speaker 1: the contribution sharing reimbursements, you know, to bail out the insurers. 330 00:17:00,200 --> 00:17:02,200 Speaker 1: They'll probably have to do that in an appropriations bill 331 00:17:02,320 --> 00:17:04,680 Speaker 1: later this year. And if they do move to tax 332 00:17:04,680 --> 00:17:08,840 Speaker 1: reform in a fiscal eighteen budget resolution, they can keep 333 00:17:08,880 --> 00:17:12,880 Speaker 1: a place keeper in there to allow for you know, 334 00:17:13,119 --> 00:17:17,440 Speaker 1: for health reform to be attached to you know that 335 00:17:17,440 --> 00:17:21,119 Speaker 1: that bus whenever. So they aren't yet really fully done, 336 00:17:21,160 --> 00:17:24,200 Speaker 1: but for the most part, you can drive a stake 337 00:17:24,200 --> 00:17:26,320 Speaker 1: in the idea of skinny repeal. Wanted to drag it 338 00:17:26,359 --> 00:17:29,080 Speaker 1: back A chuck to your expertise, which is the sequence 339 00:17:29,080 --> 00:17:33,560 Speaker 1: of all this our our budget discussions and tax reform 340 00:17:33,800 --> 00:17:37,560 Speaker 1: in tandem, or is the horse before the cart with 341 00:17:37,640 --> 00:17:43,679 Speaker 1: the budget reform. They we've had discussions and you know, 342 00:17:43,720 --> 00:17:47,920 Speaker 1: initial hearings and uh. Now a mark up and passage 343 00:17:47,920 --> 00:17:49,960 Speaker 1: of a House Budget resolution in the in the House 344 00:17:50,000 --> 00:17:53,240 Speaker 1: Budget Committee, Tom. But you know, meanwhile, you know, at 345 00:17:53,240 --> 00:17:56,680 Speaker 1: the same time, of course, they have had the rollout 346 00:17:56,800 --> 00:18:02,160 Speaker 1: of the Early Better Way Ryan tax Bill, and now 347 00:18:02,400 --> 00:18:05,199 Speaker 1: you know sort of principles from the tax of the 348 00:18:05,240 --> 00:18:08,040 Speaker 1: Big Six, so to speak. So you know, they're they're 349 00:18:08,080 --> 00:18:12,680 Speaker 1: they're on separate big tops. They're running simultaneous. But again, 350 00:18:12,760 --> 00:18:15,600 Speaker 1: the one thing that is as a given every year, 351 00:18:15,720 --> 00:18:19,159 Speaker 1: like death and taxes, is September thirty and having to 352 00:18:19,200 --> 00:18:22,240 Speaker 1: fund the government after after at the beginning of the 353 00:18:22,240 --> 00:18:24,119 Speaker 1: fiscal year that's coming, and this time we have a 354 00:18:24,160 --> 00:18:27,800 Speaker 1: debt ceiling extension to attach to it, and we have 355 00:18:27,880 --> 00:18:31,240 Speaker 1: to get through that before we can lock in a 356 00:18:31,280 --> 00:18:34,480 Speaker 1: new budget resolution and just called eighteen budget resolution that 357 00:18:34,520 --> 00:18:37,040 Speaker 1: will allow them to move tax reform through the Senate. 358 00:18:37,040 --> 00:18:41,600 Speaker 1: With that's what's ahead of Let me ask you, Scoop Jackson, question, 359 00:18:41,640 --> 00:18:45,200 Speaker 1: I guess is the definitive fiscal conservative who's going to 360 00:18:45,280 --> 00:18:50,160 Speaker 1: pay for all this? Well, it'll be interesting if they 361 00:18:50,560 --> 00:18:53,080 Speaker 1: you know, I think there are many who would love 362 00:18:53,119 --> 00:18:56,200 Speaker 1: to just do tax relief, but there are a lot 363 00:18:56,200 --> 00:18:59,679 Speaker 1: of barriers to that based on you know, this ongoing 364 00:19:00,200 --> 00:19:04,560 Speaker 1: sort of dialectic we've had in Washington about deficits and budgets, 365 00:19:04,560 --> 00:19:07,800 Speaker 1: and Republicans made such a big deal obviously, and it 366 00:19:07,880 --> 00:19:10,160 Speaker 1: helped them to retake the House in in two thousand 367 00:19:10,240 --> 00:19:13,040 Speaker 1: ten and the cent in you know, with the Tea 368 00:19:13,080 --> 00:19:15,600 Speaker 1: Party movement. So you know, there was a lot of 369 00:19:15,600 --> 00:19:19,879 Speaker 1: pressure on President Obama to put uh, you know, um 370 00:19:20,960 --> 00:19:24,800 Speaker 1: sort of provisions in place to guard against deficits, and 371 00:19:24,840 --> 00:19:27,640 Speaker 1: so he signed a bill in two thousand and ten 372 00:19:28,320 --> 00:19:32,080 Speaker 1: that really guards against what we call statutory pago. It 373 00:19:32,359 --> 00:19:36,320 Speaker 1: actually will force a sequester on things like Medicare if 374 00:19:36,359 --> 00:19:39,240 Speaker 1: you add to deficits within a five or a ten 375 00:19:39,320 --> 00:19:43,480 Speaker 1: year window. It's something that's really geeky, almost totally forgotten 376 00:19:43,480 --> 00:19:46,159 Speaker 1: in Washington. But there as a result of this, the 377 00:19:46,200 --> 00:19:50,160 Speaker 1: reality is, well, you know, all the most analysts talk 378 00:19:50,240 --> 00:19:54,000 Speaker 1: about is adding to deafits outside of a ten year window. 379 00:19:54,720 --> 00:19:57,840 Speaker 1: There is this really sort of unseen, sort of nasty 380 00:19:57,920 --> 00:20:01,919 Speaker 1: embedded problem there that really does take the notion of 381 00:20:02,000 --> 00:20:05,439 Speaker 1: tax relief largely off the table. And if you're not 382 00:20:05,480 --> 00:20:08,080 Speaker 1: talking tax relief, you're talking about having to broaden the 383 00:20:08,119 --> 00:20:11,639 Speaker 1: base and you know, deal with things like eliminating or 384 00:20:11,720 --> 00:20:15,520 Speaker 1: haircutting the state and local tax deduction, making people take 385 00:20:15,560 --> 00:20:19,040 Speaker 1: their I ra A uh four own K contributions on 386 00:20:19,080 --> 00:20:21,639 Speaker 1: an after tax roth the basis, you know, instead of 387 00:20:21,640 --> 00:20:25,280 Speaker 1: a pre tax basis. We call that for authentication. A 388 00:20:25,320 --> 00:20:27,760 Speaker 1: lot of these ideas to raise revenues in order to 389 00:20:27,800 --> 00:20:31,919 Speaker 1: broaden the base and lower rates really are quite roiling 390 00:20:32,000 --> 00:20:34,560 Speaker 1: for a number of major constituencies like the you know, 391 00:20:34,600 --> 00:20:37,880 Speaker 1: the mortgage interest deduction might not be directly at risk, 392 00:20:38,359 --> 00:20:41,120 Speaker 1: but if they double the standard deduction, that could hurt 393 00:20:41,160 --> 00:20:43,520 Speaker 1: the realtors and the builders as well. So we're gonna 394 00:20:43,680 --> 00:20:45,320 Speaker 1: you know, we're gonna go through a really kind of 395 00:20:45,880 --> 00:20:49,000 Speaker 1: very worrisome September October. When we find do get to 396 00:20:49,040 --> 00:20:51,239 Speaker 1: tax reform. It's not going to be all, you know, 397 00:20:51,320 --> 00:20:57,280 Speaker 1: all joys you are. I'm completely depressed. Yeah, maybe, Tom, 398 00:20:57,359 --> 00:20:59,680 Speaker 1: maybe the good news would be, you know, if we 399 00:20:59,760 --> 00:21:04,600 Speaker 1: if really are provoked by Kim Jong un and the Koreans, 400 00:21:04,640 --> 00:21:06,440 Speaker 1: that would unite us and then we'd see the real 401 00:21:06,480 --> 00:21:10,000 Speaker 1: strength of the Trump cabinet with McMaster and Madison and 402 00:21:10,240 --> 00:21:12,040 Speaker 1: now General Kelly. I'm just trying to get the Red 403 00:21:12,080 --> 00:21:16,840 Speaker 1: Sox to win six of the something, Chuck, help me 404 00:21:16,920 --> 00:21:19,120 Speaker 1: understand this This OpEd that ran in the wall Street 405 00:21:19,160 --> 00:21:22,399 Speaker 1: Journal a little earlier this week, centering on the issue 406 00:21:22,400 --> 00:21:24,760 Speaker 1: of scoring and tax reform of force has been this 407 00:21:24,800 --> 00:21:27,800 Speaker 1: big debate over the CBO, and we've had a number 408 00:21:27,840 --> 00:21:31,240 Speaker 1: of folks in the administration questioned the value of the 409 00:21:31,280 --> 00:21:34,240 Speaker 1: efficacy of the Congressional Budget Office. What was the argument 410 00:21:34,280 --> 00:21:35,919 Speaker 1: being made in the Wall Street Journal? Explain that to 411 00:21:35,960 --> 00:21:39,080 Speaker 1: us if you wouldn't, Yeah, if you know the you know, 412 00:21:39,160 --> 00:21:43,760 Speaker 1: obviously the CBO has generated a lot of of antagonism, 413 00:21:43,800 --> 00:21:47,320 Speaker 1: particularly among Republicans, in the way it's scored these these 414 00:21:47,320 --> 00:21:50,960 Speaker 1: healthcare reform plans. So it's a antagonism towards the CBO, 415 00:21:51,000 --> 00:21:55,119 Speaker 1: particularly among Republicans, is at all time high. And you know, 416 00:21:55,440 --> 00:21:58,520 Speaker 1: the CBO and the Joint Committee on Taxation have been 417 00:21:58,560 --> 00:22:01,800 Speaker 1: the officials score key person, if you will, with regard 418 00:22:01,880 --> 00:22:06,080 Speaker 1: to how, um, you know, the depths of tax reductions 419 00:22:06,119 --> 00:22:09,280 Speaker 1: are are scored or analyzed. And if you're talking about 420 00:22:09,320 --> 00:22:12,880 Speaker 1: revenue neutral tax reform, it's very important about how they 421 00:22:12,920 --> 00:22:15,959 Speaker 1: score it. And so you know, you have efforts on 422 00:22:16,240 --> 00:22:20,240 Speaker 1: about two or three fronts to try to two compel 423 00:22:20,640 --> 00:22:24,000 Speaker 1: the parliamentarian in the Senate uh to to for instance, 424 00:22:24,000 --> 00:22:27,440 Speaker 1: to allow dynamic scoring to have more positive economic feedback 425 00:22:27,960 --> 00:22:30,800 Speaker 1: you know, if you will, from the early years of 426 00:22:30,880 --> 00:22:35,760 Speaker 1: broadening the tax base, generating more productivity. Uh. And and 427 00:22:35,840 --> 00:22:38,280 Speaker 1: as a results, sort of assuming that, you know, tax 428 00:22:38,280 --> 00:22:41,399 Speaker 1: reform will pay for itself over a longer period. So 429 00:22:41,440 --> 00:22:45,359 Speaker 1: there's this effort towards dynamic scoring. There's efforts, uh, you know, 430 00:22:45,400 --> 00:22:48,240 Speaker 1: towards maybe extending the budget window to fifteen or twenty 431 00:22:48,280 --> 00:22:50,080 Speaker 1: years that you can get more bang for the buck 432 00:22:50,119 --> 00:22:52,639 Speaker 1: in the first ten. But the newest idea was from 433 00:22:52,680 --> 00:22:55,240 Speaker 1: the Journal. It's not a brand new idea, but it's 434 00:22:55,240 --> 00:22:59,280 Speaker 1: just basically that instead of using CBO Joint Committee on 435 00:22:59,280 --> 00:23:03,440 Speaker 1: Taxation warring that Republicans should just take a score from 436 00:23:03,480 --> 00:23:06,760 Speaker 1: the Department of the of the Treasury or o MB. 437 00:23:07,480 --> 00:23:10,040 Speaker 1: And of course OMB is projecting two point six percent 438 00:23:10,160 --> 00:23:14,480 Speaker 1: growth with the Trump budget instead of one growth under 439 00:23:14,520 --> 00:23:17,720 Speaker 1: the uh you know, under the CBO. And if you're 440 00:23:17,720 --> 00:23:20,720 Speaker 1: assuming bigger growth, you get you know, even bigger sort 441 00:23:20,720 --> 00:23:23,800 Speaker 1: of feedback loop, if you will, and as a result, 442 00:23:23,840 --> 00:23:25,520 Speaker 1: it would you know, tax you can have a bigger 443 00:23:25,520 --> 00:23:27,800 Speaker 1: measure of tax relief that would pay for itself over 444 00:23:27,840 --> 00:23:30,880 Speaker 1: the budget window. That's what this is about. Check, Thank 445 00:23:30,920 --> 00:23:33,600 Speaker 1: you so much. Check Gabriel with Capital Awful partners with 446 00:23:33,720 --> 00:23:36,760 Speaker 1: the sausage. I love you know. It's great, David Girl. 447 00:23:36,800 --> 00:23:39,600 Speaker 1: That we have a mix of people on watching it. 448 00:23:39,720 --> 00:23:43,280 Speaker 1: Some are really hyper focused on policy, like Chuck long 449 00:23:43,400 --> 00:23:46,720 Speaker 1: lengthy notes, uh, sort of wank wank one oh one. 450 00:23:47,320 --> 00:23:49,480 Speaker 1: And then a guy like Stan Collinder who's got the 451 00:23:49,480 --> 00:23:53,080 Speaker 1: whole political thing worked out. Greg Villier publishes this morning 452 00:23:53,080 --> 00:23:58,480 Speaker 1: and it's not that it's gloomy, it's just realistic about time. 453 00:23:58,720 --> 00:24:01,840 Speaker 1: It's August one. What are you within the politics, David Girl, 454 00:24:01,880 --> 00:24:04,440 Speaker 1: that you do better than me? What is August first 455 00:24:04,440 --> 00:24:08,240 Speaker 1: signal to you? You know, the start of vacation for 456 00:24:08,240 --> 00:24:10,120 Speaker 1: a lot of these lawmakers. As Chuck was saying, Sene, 457 00:24:10,119 --> 00:24:12,040 Speaker 1: it's going to stay in session for a little while, 458 00:24:12,119 --> 00:24:14,720 Speaker 1: longer than than usual. But you know, as we listen 459 00:24:14,760 --> 00:24:16,800 Speaker 1: to the president today, I think it's important to keep 460 00:24:17,359 --> 00:24:20,439 Speaker 1: some realism at the front of our mind. Here you 461 00:24:20,480 --> 00:24:23,080 Speaker 1: have legislators who are leaving town and uh, I think 462 00:24:23,080 --> 00:24:24,880 Speaker 1: there's been a lot of disappointed with what the White 463 00:24:24,880 --> 00:24:26,920 Speaker 1: House has produced thus far when it comes to tax reform. 464 00:24:27,040 --> 00:24:29,600 Speaker 1: Is Chuck mentioned there was this one page statement of 465 00:24:29,600 --> 00:24:33,960 Speaker 1: principles from White House officials and Republican members of Congress. 466 00:24:33,960 --> 00:24:35,480 Speaker 1: Not a whole lot longer than the first set of 467 00:24:35,760 --> 00:24:37,600 Speaker 1: principles that we got. Of course, this one says the 468 00:24:37,800 --> 00:24:41,920 Speaker 1: border adjusted taxes firmly off the table. Interestingly, I talked 469 00:24:41,920 --> 00:24:44,640 Speaker 1: with Tim Phillips, who's the president of Americans Are Prosperity. 470 00:24:44,640 --> 00:24:46,920 Speaker 1: That's a Koch Brothers backed group, big conservative group that's 471 00:24:46,920 --> 00:24:49,000 Speaker 1: also pushing for tax re form. He said he was happy, 472 00:24:49,480 --> 00:24:52,040 Speaker 1: uh not to have a huge amount of detail here, 473 00:24:52,040 --> 00:24:55,840 Speaker 1: that helps with the negotiations going forward. Interesting to talk 474 00:24:55,880 --> 00:24:58,879 Speaker 1: to him, in part because Americans Are Prosperity was not 475 00:24:58,960 --> 00:25:00,639 Speaker 1: as all in on health care as you as you 476 00:25:00,720 --> 00:25:02,439 Speaker 1: might have thought. This is something they've wanted to have 477 00:25:02,520 --> 00:25:05,280 Speaker 1: happened for a while, this debate over TAXI for him. So, uh, 478 00:25:05,480 --> 00:25:06,960 Speaker 1: you know, I think we're gonna take a little pause 479 00:25:07,000 --> 00:25:09,560 Speaker 1: here over the month of August September is check mentioned. 480 00:25:09,560 --> 00:25:11,719 Speaker 1: I think the focus is going to be on issues 481 00:25:11,720 --> 00:25:14,680 Speaker 1: of the budget, the dead ceiling. Uh, and then we'll 482 00:25:14,720 --> 00:25:17,120 Speaker 1: see if this full court press can extend through that 483 00:25:17,440 --> 00:25:19,520 Speaker 1: into into October when maybe it can be picked up 484 00:25:19,560 --> 00:25:22,560 Speaker 1: once again. Yeah. I just we're here. The way I 485 00:25:22,600 --> 00:25:25,240 Speaker 1: look at August first is and you know, David, you 486 00:25:25,280 --> 00:25:27,640 Speaker 1: look out at the trees changing color. We're not there yet. 487 00:25:27,640 --> 00:25:31,200 Speaker 1: The summer is still going full tilt. But in three 488 00:25:31,280 --> 00:25:34,879 Speaker 1: or four weeks, which is like tomorrow for Washington, believe you, 489 00:25:35,920 --> 00:25:41,679 Speaker 1: and is both Valier and Gabriel mentioned this budget discussion 490 00:25:41,960 --> 00:25:45,040 Speaker 1: isn't a normal discussion now, Chuck, sorry, Greg value A 491 00:25:45,119 --> 00:25:47,479 Speaker 1: calling that a train wreck looming train wreck. Yeah, and 492 00:25:48,400 --> 00:25:50,480 Speaker 1: you know, forget about the surprises that we could see 493 00:25:50,480 --> 00:25:52,280 Speaker 1: in the drama coming out of the White House. And 494 00:25:53,480 --> 00:25:56,400 Speaker 1: that I just what I would suggest folks within US 495 00:25:56,480 --> 00:26:01,680 Speaker 1: covering economics, finance, investment, that this thiss cold ballet isn't 496 00:26:01,800 --> 00:26:05,480 Speaker 1: the normal discussion that you have when you launch into August. 497 00:26:17,520 --> 00:26:21,000 Speaker 1: I rarely do this. I'm looking at the futures to 498 00:26:21,080 --> 00:26:28,160 Speaker 1: get the downy two Dow future. Is this morning amy 499 00:26:28,200 --> 00:26:33,120 Speaker 1: one in our ute? Neither I or David Harrowd ever 500 00:26:33,280 --> 00:26:36,520 Speaker 1: thought we would get in the twenty thousand was like 501 00:26:36,680 --> 00:26:41,320 Speaker 1: really and here we are knocking on Dow. Uh and 502 00:26:41,680 --> 00:26:44,800 Speaker 1: that door? David, wonderful to have you back with us. 503 00:26:44,880 --> 00:26:49,680 Speaker 1: Is it a comfortable time to be an international equities 504 00:26:49,760 --> 00:26:54,800 Speaker 1: because you see the Dow just race race race ever higher. Well, 505 00:26:54,880 --> 00:26:58,160 Speaker 1: the fact that the Dow race scene is probably give 506 00:26:58,320 --> 00:27:02,320 Speaker 1: giving all the spill over effect to global equities equities everywhere, 507 00:27:03,320 --> 00:27:06,760 Speaker 1: but clearly one of the reasons why these markets are 508 00:27:07,320 --> 00:27:10,879 Speaker 1: increasing is because the profit growth is going up faster 509 00:27:10,960 --> 00:27:14,159 Speaker 1: than I think people expected probably six nine months a 510 00:27:14,240 --> 00:27:17,359 Speaker 1: year ago. And what we're finally starting to see happen 511 00:27:17,440 --> 00:27:23,440 Speaker 1: in Europe is all the various economic maladies and political 512 00:27:23,440 --> 00:27:26,199 Speaker 1: maladies seem to be more in the rear view mirror. 513 00:27:26,280 --> 00:27:28,800 Speaker 1: And and where we're starting to see a better growth 514 00:27:28,880 --> 00:27:33,240 Speaker 1: rates out of Europe, greater than two percent growth, falling unemployment, 515 00:27:33,320 --> 00:27:35,960 Speaker 1: lower loan losses. You're finally starting to see a little 516 00:27:36,000 --> 00:27:38,879 Speaker 1: spark in the European economy. And when you combine that 517 00:27:38,960 --> 00:27:42,440 Speaker 1: with low valuations, is that it gives people a bit 518 00:27:42,520 --> 00:27:46,840 Speaker 1: of to be enthusiastic about European stocks in particular. To 519 00:27:47,280 --> 00:27:48,840 Speaker 1: give you an idea of folks. If I look at 520 00:27:48,840 --> 00:27:50,720 Speaker 1: the CAC forty when it ken Prue, it's a late 521 00:27:50,720 --> 00:27:56,200 Speaker 1: great Prud's favorite um French indusicries CACK forty up sixteen 522 00:27:56,960 --> 00:28:02,000 Speaker 1: in euros, up twenty based in US dollars. I mean, 523 00:28:02,400 --> 00:28:04,760 Speaker 1: that's David, where you're getting almost a play on it, 524 00:28:04,800 --> 00:28:08,680 Speaker 1: aren't you? You're getting a currency play as well. Yeah, 525 00:28:08,720 --> 00:28:11,399 Speaker 1: there was a time not too long ago, you know, 526 00:28:11,480 --> 00:28:14,680 Speaker 1: a few months ago before the year bounced a little bit, 527 00:28:15,280 --> 00:28:18,600 Speaker 1: that you were really buying not only cheap stocks, but 528 00:28:18,720 --> 00:28:22,679 Speaker 1: you're buying cheap currencies. And another way this manifested itself. 529 00:28:22,720 --> 00:28:25,600 Speaker 1: If you look at what an international index has done 530 00:28:25,640 --> 00:28:31,840 Speaker 1: in the last five years, substantially substantially underperforming SMP five hundred, 531 00:28:31,840 --> 00:28:35,440 Speaker 1: why because of the dollar strength. Now, finally, what's happened 532 00:28:35,480 --> 00:28:37,840 Speaker 1: in the last three or four months. The dollar rally 533 00:28:38,000 --> 00:28:40,800 Speaker 1: is kind of stalled a little bit, and this has 534 00:28:40,960 --> 00:28:45,840 Speaker 1: added propulsion to the returns of international equities. So you 535 00:28:45,920 --> 00:28:49,440 Speaker 1: finally see today what's happened in the last five years. 536 00:28:49,480 --> 00:28:52,720 Speaker 1: Recently is starting to turn a little bit as the 537 00:28:52,800 --> 00:28:56,240 Speaker 1: dollar is in fact weakened against the euro in particular. 538 00:28:56,320 --> 00:28:58,640 Speaker 1: Remember it was only a year or so ago when 539 00:28:58,640 --> 00:29:01,040 Speaker 1: people were predicting the ero was going to go to 540 00:29:01,120 --> 00:29:04,440 Speaker 1: a dollar, you know, one to one even below, you know, 541 00:29:04,520 --> 00:29:07,760 Speaker 1: and here we are at one sixteen. Yeah. Well, I 542 00:29:07,760 --> 00:29:10,560 Speaker 1: mean BNP Perry bout just the dominant French bank, and 543 00:29:10,560 --> 00:29:13,080 Speaker 1: I know that's something you've talked about for years. They 544 00:29:13,080 --> 00:29:15,720 Speaker 1: pay a much more ample dividend. Let me compare and 545 00:29:15,760 --> 00:29:20,520 Speaker 1: contrast folks, JP Morrigan uh dividan. JP Morgan's yield is 546 00:29:20,560 --> 00:29:25,000 Speaker 1: two point two and BNP Perry about four point one, 547 00:29:25,520 --> 00:29:28,160 Speaker 1: so you get twice the yield. Can you model in 548 00:29:28,240 --> 00:29:34,400 Speaker 1: an Anglo American dividend growth for from the basis of 549 00:29:34,480 --> 00:29:38,760 Speaker 1: where they're both starting, you should see better earnings growth 550 00:29:38,760 --> 00:29:41,320 Speaker 1: from B and P than JP Morgan going forward down 551 00:29:41,360 --> 00:29:44,840 Speaker 1: the last year, it was different because the US economy, 552 00:29:45,280 --> 00:29:47,760 Speaker 1: the recovery was a little bit stronger and a little 553 00:29:47,760 --> 00:29:51,640 Speaker 1: bit earlier. Now we're just starting to see the European 554 00:29:51,680 --> 00:29:55,760 Speaker 1: economy recover to acceptable levels. And B and in particular 555 00:29:55,840 --> 00:29:59,280 Speaker 1: is also exposed to Italy with a small explosion in 556 00:29:59,280 --> 00:30:01,720 Speaker 1: the United State eates. But more importantly than that dividing 557 00:30:01,800 --> 00:30:04,520 Speaker 1: yield of almost four and a half percent is you 558 00:30:04,600 --> 00:30:06,680 Speaker 1: know how it's just trading it just over ten times 559 00:30:06,680 --> 00:30:11,120 Speaker 1: earnings UM and you know just above you know book values, 560 00:30:11,240 --> 00:30:16,719 Speaker 1: so actually below total book book just around tangible book values, 561 00:30:16,760 --> 00:30:20,200 Speaker 1: so you know you are seeing very very good valuation. 562 00:30:20,240 --> 00:30:22,600 Speaker 1: It's something that should be able to grow earnings at 563 00:30:22,680 --> 00:30:25,800 Speaker 1: least mid single digits. Let me ask you if I could, 564 00:30:25,840 --> 00:30:27,960 Speaker 1: David just the degree to which personality matters when we 565 00:30:27,960 --> 00:30:30,520 Speaker 1: talk about these these big banks. So we had HSBC 566 00:30:30,680 --> 00:30:33,040 Speaker 1: reporting yesterday saying it's going to buy back up to 567 00:30:33,040 --> 00:30:35,400 Speaker 1: two billion dollars in shares, and so much of the 568 00:30:35,440 --> 00:30:37,720 Speaker 1: focus was on the outgoing ahead of that bank. On 569 00:30:37,800 --> 00:30:40,160 Speaker 1: Stewart Gulliver, I wonder when you when you look at 570 00:30:40,160 --> 00:30:41,720 Speaker 1: a bank, when you assess whether or not to invest 571 00:30:41,720 --> 00:30:43,920 Speaker 1: in the bank, the degree to what you're you're thinking 572 00:30:43,920 --> 00:30:48,360 Speaker 1: about who's running it. Well, that's important because who's running 573 00:30:48,360 --> 00:30:51,680 Speaker 1: the bank establishes the culture of the bank. And I 574 00:30:51,720 --> 00:30:53,840 Speaker 1: think in order for banks to make money, this is 575 00:30:53,920 --> 00:30:56,840 Speaker 1: one business where you want them to be somewhat risk averse. 576 00:30:57,320 --> 00:30:59,200 Speaker 1: And there's two or three things they have to really 577 00:30:59,200 --> 00:31:01,760 Speaker 1: be focused on. One is make sure you have good 578 00:31:01,800 --> 00:31:05,760 Speaker 1: credit standards and lending standards. Two is make sure you're 579 00:31:05,800 --> 00:31:09,640 Speaker 1: able to control costs, which means putting the right people 580 00:31:09,640 --> 00:31:12,240 Speaker 1: in the right jobs and spending money on I team 581 00:31:12,280 --> 00:31:15,840 Speaker 1: the right places, so lending costs. And then you have 582 00:31:15,920 --> 00:31:19,320 Speaker 1: to think about product development and be able to offer 583 00:31:19,400 --> 00:31:21,760 Speaker 1: your clients what they want. And if you're a good 584 00:31:21,760 --> 00:31:24,840 Speaker 1: management team, and if you focus on those three things, 585 00:31:25,080 --> 00:31:28,440 Speaker 1: probably in that order, by the way, you're gonna make 586 00:31:28,520 --> 00:31:31,760 Speaker 1: money over time. Banks are, as we know, a little 587 00:31:31,880 --> 00:31:36,600 Speaker 1: warrant on the economy. As economies expand, credit expands and 588 00:31:36,840 --> 00:31:40,480 Speaker 1: the economies are healthy of lower credit losses, etcetera. So 589 00:31:41,320 --> 00:31:44,280 Speaker 1: these are conduits of the economy. You want someone stirring 590 00:31:44,360 --> 00:31:47,760 Speaker 1: the ship who could really focus on those three factors 591 00:31:48,240 --> 00:31:52,400 Speaker 1: a good credit underwriting, low cost, and good product development. 592 00:31:53,080 --> 00:31:55,320 Speaker 1: I'll get you to react to the Lady Strings report 593 00:31:55,320 --> 00:31:57,200 Speaker 1: from Intessas and Palla that was out there this morning. 594 00:31:57,200 --> 00:31:59,520 Speaker 1: I know you've been an investor in that bank as well. 595 00:31:59,560 --> 00:32:01,960 Speaker 1: Looks like that profit fell a little bit here, but 596 00:32:02,040 --> 00:32:05,480 Speaker 1: came in above analysts expectations. What's your what's your read 597 00:32:05,560 --> 00:32:08,440 Speaker 1: on how that that bank is doing? Yeah, this is 598 00:32:08,480 --> 00:32:11,600 Speaker 1: a very very solid European bank, and for years it 599 00:32:11,680 --> 00:32:15,080 Speaker 1: was punished because it was a bank in Italy. And 600 00:32:15,160 --> 00:32:19,320 Speaker 1: everyone thought four or five years ago that perhaps perhaps 601 00:32:19,360 --> 00:32:22,880 Speaker 1: Italy was even gonna default on their debt. Remember the 602 00:32:22,880 --> 00:32:25,520 Speaker 1: whole pig thing. I mean, we kind of forget these things. 603 00:32:25,520 --> 00:32:28,560 Speaker 1: But four or five years ago I remember standing up 604 00:32:28,600 --> 00:32:31,720 Speaker 1: at a conference listening to someone from PIMCO saying that 605 00:32:33,000 --> 00:32:36,719 Speaker 1: Portugal is gonna default, Italy is gonna default, maybe Spain 606 00:32:36,800 --> 00:32:39,440 Speaker 1: and could possibly be friends, and I thought, this is 607 00:32:39,480 --> 00:32:42,320 Speaker 1: just really a bunch of bunk. But you know, and 608 00:32:42,320 --> 00:32:44,720 Speaker 1: and it never happened. But there was a police in 609 00:32:44,760 --> 00:32:49,440 Speaker 1: the markets, and as a result, these bank stocks were 610 00:32:49,480 --> 00:32:52,040 Speaker 1: priced as such you could get them for fifty five 611 00:32:52,160 --> 00:32:56,320 Speaker 1: sixty cents on the dollar book value per share, and 612 00:32:56,800 --> 00:32:59,600 Speaker 1: in testas Paul, even though being one of the better 613 00:32:59,760 --> 00:33:03,320 Speaker 1: run in European banks, was caught up being in that 614 00:33:03,400 --> 00:33:09,080 Speaker 1: whole windstorm, and it really became a great buying opportunity. 615 00:33:09,120 --> 00:33:12,480 Speaker 1: And I still think it is substantially undervalued. Now the 616 00:33:12,480 --> 00:33:15,680 Speaker 1: stock is tripled or quadrupled from those days, but it's 617 00:33:15,720 --> 00:33:20,520 Speaker 1: still trading extremely evaluation. I mean, look at it's dividend yield, Tom, 618 00:33:20,560 --> 00:33:22,600 Speaker 1: if you want if you want a good dividend stock, 619 00:33:23,160 --> 00:33:26,560 Speaker 1: I mean this, this company yields seven percent and we 620 00:33:26,640 --> 00:33:32,240 Speaker 1: believe it is a very safe yield. David yield huge 621 00:33:32,440 --> 00:33:34,320 Speaker 1: To come back with Mr Harrow, he needs to look 622 00:33:34,320 --> 00:33:37,320 Speaker 1: at the h the Chicago Tribune this morning and notice 623 00:33:37,360 --> 00:33:39,440 Speaker 1: that the Cubs are two and a half games in 624 00:33:39,520 --> 00:33:43,280 Speaker 1: front of his Milwaukee Brewers brewers as well. Maybe you'll 625 00:33:43,280 --> 00:33:46,360 Speaker 1: come back after he digests that information. Wh is David 626 00:33:46,440 --> 00:33:52,120 Speaker 1: Harrow with Harris associates and with just really sporting performance 627 00:33:52,840 --> 00:33:56,480 Speaker 1: in the international area. I can honestly say, folks, and 628 00:33:56,520 --> 00:33:59,880 Speaker 1: there's there's years where David has an off year, maybe 629 00:34:00,040 --> 00:34:02,080 Speaker 1: you know, one year out of five, when year out 630 00:34:02,120 --> 00:34:03,960 Speaker 1: of eight, I'll let him tell us. But when you 631 00:34:04,000 --> 00:34:07,320 Speaker 1: look at the Bloomberg screen, I can honestly say, there's 632 00:34:07,480 --> 00:34:15,520 Speaker 1: nobody running major money with the nine scond percentile UH 633 00:34:15,719 --> 00:34:20,560 Speaker 1: performance across many many areas. Why does so many active 634 00:34:20,719 --> 00:34:25,600 Speaker 1: managers David Harrold underperform Is that they're over diversified. Is 635 00:34:25,640 --> 00:34:28,440 Speaker 1: that there are squared is so close to a benchmark? 636 00:34:28,840 --> 00:34:31,040 Speaker 1: Is it because they don't root for the Milwaukee Brewers? 637 00:34:31,080 --> 00:34:34,120 Speaker 1: What is it? Most of them are not packer fans 638 00:34:34,160 --> 00:34:39,480 Speaker 1: of those underperforming, and they criticize Aaron Rodgers and this 639 00:34:39,719 --> 00:34:43,879 Speaker 1: leads to the defeat no and all seriousness. I think 640 00:34:43,920 --> 00:34:48,600 Speaker 1: one of the keys to investment success is sticking to 641 00:34:48,719 --> 00:34:53,920 Speaker 1: your investment philosophy and style, even though in certain periods 642 00:34:53,920 --> 00:34:56,160 Speaker 1: of time, as you mentioned, it may be out of favor. 643 00:34:56,800 --> 00:34:59,920 Speaker 1: And what you can't do is like clients and conser 644 00:35:00,000 --> 00:35:03,960 Speaker 1: bolts and whoever talk you out of a sound If 645 00:35:03,960 --> 00:35:08,000 Speaker 1: you have a sound philosophy, which is the foundation of 646 00:35:08,440 --> 00:35:11,960 Speaker 1: an investment process is a philosophy, and he had Harris 647 00:35:11,960 --> 00:35:15,959 Speaker 1: Associates were value investors, and we define values low price 648 00:35:16,000 --> 00:35:19,239 Speaker 1: in high quality, and you stick to that. You know. 649 00:35:19,239 --> 00:35:21,719 Speaker 1: Our belief is that a company is valuable because the 650 00:35:21,800 --> 00:35:25,240 Speaker 1: cash it generates, and so just because stocks are going 651 00:35:25,440 --> 00:35:28,759 Speaker 1: up in price doesn't mean they're more valuable. And what 652 00:35:28,880 --> 00:35:33,360 Speaker 1: happens to professional investors is they get fixated by price 653 00:35:33,480 --> 00:35:37,000 Speaker 1: movement and they let price movement dictate their decision making. 654 00:35:37,120 --> 00:35:40,560 Speaker 1: They don't have the courage to tell people that, well, okay, 655 00:35:40,600 --> 00:35:42,920 Speaker 1: we're not buying it because it's not doesn't fit our 656 00:35:42,960 --> 00:35:46,839 Speaker 1: invest investment style. Same thing on the way down. When 657 00:35:46,840 --> 00:35:51,680 Speaker 1: share prices fall, often professional investors lose their nerve, and 658 00:35:51,760 --> 00:35:55,520 Speaker 1: despite the fact that it would be acceptable and the 659 00:35:55,640 --> 00:35:58,080 Speaker 1: right thing to do from an economic perspective to keep 660 00:35:58,120 --> 00:36:00,839 Speaker 1: buying the stock, they actually sell the stock because they 661 00:36:00,840 --> 00:36:03,640 Speaker 1: don't want to have to explain to the others, to 662 00:36:03,719 --> 00:36:07,719 Speaker 1: their clients, to consultants why they're holding losers. And I 663 00:36:07,719 --> 00:36:11,960 Speaker 1: think that's what really separates successful investment management from unsuccessful 664 00:36:12,120 --> 00:36:15,960 Speaker 1: is the ability to stick to your knitting. First, you know, 665 00:36:16,000 --> 00:36:17,600 Speaker 1: the knitting has to be good, and then you have 666 00:36:17,640 --> 00:36:20,480 Speaker 1: to stick to it. Uh, And I think that second 667 00:36:20,480 --> 00:36:22,799 Speaker 1: part is what a lot of managers have problems with. 668 00:36:22,960 --> 00:36:26,600 Speaker 1: They just don't want to go through the exercise of 669 00:36:26,760 --> 00:36:30,720 Speaker 1: explaining why you own something that's fallen. And I, personally, 670 00:36:30,800 --> 00:36:32,640 Speaker 1: I think this is what we get paid to do. 671 00:36:32,960 --> 00:36:36,840 Speaker 1: This is why we get an investment management fee, is 672 00:36:36,840 --> 00:36:40,120 Speaker 1: to explain ourselves. And a good case for us was 673 00:36:40,160 --> 00:36:42,840 Speaker 1: a few years ago with Glencore. I mean the first 674 00:36:43,080 --> 00:36:46,680 Speaker 1: twenty minutes to thirty minutes of every meeting, of every interview, 675 00:36:46,680 --> 00:36:50,760 Speaker 1: of every call was why do you own Glencore Now? 676 00:36:50,840 --> 00:36:53,120 Speaker 1: Instead of just punting it because you don't want to 677 00:36:53,120 --> 00:36:55,879 Speaker 1: answer the question five times a day, you just keep 678 00:36:55,920 --> 00:36:57,960 Speaker 1: answering it. This is what you get paid to do, 679 00:36:58,280 --> 00:37:00,680 Speaker 1: is to answer that question. Let me put a question 680 00:37:00,680 --> 00:37:02,560 Speaker 1: to you. David the Tom put to Chris Krossant at 681 00:37:02,600 --> 00:37:05,239 Speaker 1: the top of the show. He asked, Chris, when you 682 00:37:05,280 --> 00:37:07,719 Speaker 1: decide to get out of an investment? And I look 683 00:37:07,760 --> 00:37:10,640 Speaker 1: at your investment Honda Motors, for instance. He stuck with 684 00:37:10,680 --> 00:37:13,200 Speaker 1: that one for a while and openly, UH got rid 685 00:37:13,239 --> 00:37:15,480 Speaker 1: of that that position. How do you decide to do it? 686 00:37:15,520 --> 00:37:18,040 Speaker 1: How do you decide when when enough is enough? By 687 00:37:18,080 --> 00:37:20,720 Speaker 1: the way, That is a very very good question, because 688 00:37:20,719 --> 00:37:24,600 Speaker 1: in the particular case of Honda, it wasn't because our 689 00:37:24,760 --> 00:37:29,000 Speaker 1: measurement of intrinsic value coincided with price. And that's usually 690 00:37:29,040 --> 00:37:31,600 Speaker 1: when we sell a stock. That is a victory when 691 00:37:31,680 --> 00:37:35,960 Speaker 1: price reaches our measurement of intrinsic value. But there's another 692 00:37:35,960 --> 00:37:38,640 Speaker 1: reason why we might sell a stock if we believe 693 00:37:38,719 --> 00:37:42,120 Speaker 1: we were wrong, if we believe that we were not 694 00:37:42,520 --> 00:37:47,080 Speaker 1: in fact investing with a value creative management team. And 695 00:37:47,120 --> 00:37:50,240 Speaker 1: to us, value creation is what causes price and value 696 00:37:50,239 --> 00:37:53,080 Speaker 1: to converge, and if there's no slope on that value 697 00:37:53,080 --> 00:37:55,360 Speaker 1: per share curve, then you're wrong and you have to 698 00:37:55,400 --> 00:37:59,920 Speaker 1: get out. And in our we believe our assessments of Honda, 699 00:38:00,280 --> 00:38:04,520 Speaker 1: we made a mistake. Um, we were having a great 700 00:38:04,600 --> 00:38:07,640 Speaker 1: deal of difficulty of getting answers out of management, and 701 00:38:07,680 --> 00:38:11,240 Speaker 1: in fact the chairman left, they didn't replace the chairman, 702 00:38:11,280 --> 00:38:14,160 Speaker 1: the president wouldn't meet with us. We thought nuts that okay, 703 00:38:14,680 --> 00:38:17,040 Speaker 1: just because of time, David, that's such an important statement. 704 00:38:17,040 --> 00:38:18,719 Speaker 1: I want to get to it. Have you seen the 705 00:38:18,840 --> 00:38:23,440 Speaker 1: change in Japanese management's plural to more Anglo American dialogue 706 00:38:23,440 --> 00:38:26,759 Speaker 1: with shareholders? I haven't seen it. I would love to 707 00:38:26,800 --> 00:38:30,080 Speaker 1: say yes, but Tom, you are right. If it's small, 708 00:38:30,280 --> 00:38:34,239 Speaker 1: it's that is a huge problem in Japan. They just 709 00:38:34,480 --> 00:38:36,800 Speaker 1: do not want to run the companies for the owners. 710 00:38:36,960 --> 00:38:42,040 Speaker 1: There's so many other constituencies. The boards, the suppliers, the employees. 711 00:38:42,200 --> 00:38:45,120 Speaker 1: These are all important constituencies. Don't get me wrong. The 712 00:38:45,239 --> 00:38:48,480 Speaker 1: major companies are the major constituents supposed to be. We 713 00:38:48,600 --> 00:38:53,800 Speaker 1: the shareholder instituencies. Culture. I mean, it's all honest. Okay, David, 714 00:38:53,840 --> 00:38:55,520 Speaker 1: thanks so much. Come back when the Brewers are in 715 00:38:55,600 --> 00:38:59,600 Speaker 1: first place. Because it ain't happened Chicago resurge in Chicago clubs, 716 00:38:59,640 --> 00:39:03,239 Speaker 1: research ent swarting David Harrow with Harris Associates. Check out 717 00:39:03,280 --> 00:39:05,560 Speaker 1: his track record. You know, I'm a fan, but he's 718 00:39:05,600 --> 00:39:10,680 Speaker 1: been on fire for eighteen months, two years. To say 719 00:39:10,760 --> 00:39:14,839 Speaker 1: it's it's so important, David Gura, how um you can 720 00:39:15,000 --> 00:39:18,920 Speaker 1: you can catch up quickly with International when they finally 721 00:39:19,560 --> 00:39:35,160 Speaker 1: move a brief into always too brief conversation with Yakum 722 00:39:35,160 --> 00:39:39,480 Speaker 1: Fell's of Pimco. Yakum, How new normal are we right now? 723 00:39:39,800 --> 00:39:43,960 Speaker 1: I mean we've got Alan Greenspan telling Bloomberg that that 724 00:39:44,160 --> 00:39:48,759 Speaker 1: he would call for secular stagnation, the idea of inflation dynamics, 725 00:39:48,760 --> 00:39:51,920 Speaker 1: growth dynamics. What's the stories you see it. Are we 726 00:39:51,960 --> 00:39:56,400 Speaker 1: in a time of recovering economic growth or not? Well, Tom, 727 00:39:56,400 --> 00:39:58,560 Speaker 1: I think we are in a time of recovery for 728 00:39:58,640 --> 00:40:02,200 Speaker 1: global growth, definitely, But I also think we're still very 729 00:40:02,280 --> 00:40:04,600 Speaker 1: much in the new normal and the new neutral that 730 00:40:04,920 --> 00:40:07,680 Speaker 1: you know, we've been talking about for years here at PIMCO. 731 00:40:08,120 --> 00:40:10,520 Speaker 1: So the new normal and the new neutral is really 732 00:40:10,560 --> 00:40:14,560 Speaker 1: about low potential output growth, and I see no signs 733 00:40:14,600 --> 00:40:17,920 Speaker 1: that trend growth is picking up. What we are seeing 734 00:40:17,920 --> 00:40:21,759 Speaker 1: as a global cyclical recovery, but not a recovery in 735 00:40:21,840 --> 00:40:26,040 Speaker 1: productivity growth or underlying trend growth. We're definitely still in 736 00:40:26,040 --> 00:40:29,239 Speaker 1: the new normal new neutral with respect to low inflation. 737 00:40:29,320 --> 00:40:31,640 Speaker 1: Central banks are still struggling to get inflation back to 738 00:40:31,719 --> 00:40:36,040 Speaker 1: target um and that all translates into a very low 739 00:40:36,120 --> 00:40:40,520 Speaker 1: neutral or equilibrium interest rate. And I think that's fully 740 00:40:40,560 --> 00:40:43,680 Speaker 1: reflected both in the bond market but also in the 741 00:40:43,719 --> 00:40:46,960 Speaker 1: stock market, because stocks wouldn't be up here if interest 742 00:40:47,040 --> 00:40:50,360 Speaker 1: rates were not down there. Yacham Fells are correspondent on 743 00:40:50,400 --> 00:40:52,879 Speaker 1: the front lines of the Cold currency war that's that's 744 00:40:52,880 --> 00:40:55,719 Speaker 1: taking place here. You file a dispatch here from those 745 00:40:55,760 --> 00:40:58,200 Speaker 1: from those front lines. Yeahcum give us a sense of 746 00:40:58,000 --> 00:41:01,960 Speaker 1: of who's winning with we have this weekly dollar. Well, 747 00:41:02,080 --> 00:41:06,480 Speaker 1: clearly the Trump administration is winning that cold currency war. 748 00:41:06,600 --> 00:41:09,120 Speaker 1: You know, it's a it's a cold currency war, not 749 00:41:09,239 --> 00:41:12,359 Speaker 1: a hot one, because it's fought with words and with 750 00:41:12,400 --> 00:41:17,640 Speaker 1: covert actions. And I think markets FX markets clearly listened 751 00:41:17,680 --> 00:41:20,720 Speaker 1: to the verbal intervention that we got from President Trump, 752 00:41:20,880 --> 00:41:25,840 Speaker 1: from Treasury Secretary Minuchin, from Peter Navarro, trumpstraight advisor h 753 00:41:26,400 --> 00:41:28,479 Speaker 1: late last year and early this year, when the dollar 754 00:41:28,680 --> 00:41:31,960 Speaker 1: was ten percent higher than it is now, they were 755 00:41:31,960 --> 00:41:35,040 Speaker 1: pushing back. They were saying the strong dollar is killing us. 756 00:41:35,120 --> 00:41:38,920 Speaker 1: They were accusing Europe and China of manipulating their currencies. 757 00:41:39,480 --> 00:41:43,520 Speaker 1: Markets clear listened to that. The dollar has declined because 758 00:41:43,640 --> 00:41:47,400 Speaker 1: there was an implicit and sometimes even an explicit threat 759 00:41:47,640 --> 00:41:50,839 Speaker 1: of protectionist action. So so what we've seen this year 760 00:41:50,880 --> 00:41:54,600 Speaker 1: is China has stabilized its currency against the dollar. The 761 00:41:54,680 --> 00:41:57,800 Speaker 1: euro is the euro is stronger, the end is stronger, 762 00:41:58,480 --> 00:42:02,640 Speaker 1: and there is very little pushback from your both Europe 763 00:42:02,640 --> 00:42:07,120 Speaker 1: and Japan to their currency strength, even though it threatens 764 00:42:07,160 --> 00:42:10,720 Speaker 1: to perpetuate very low inflation. So I think Trump is winning. 765 00:42:10,880 --> 00:42:14,240 Speaker 1: At that time, there was criticism of that cacophony of voices. 766 00:42:14,280 --> 00:42:16,480 Speaker 1: We had the Reuben Strung dollar policy, and then you had, 767 00:42:17,000 --> 00:42:19,560 Speaker 1: as you mentioned, many members of this administration commenting on 768 00:42:19,600 --> 00:42:22,000 Speaker 1: the strength or weakness of the dollar. Do you do 769 00:42:22,000 --> 00:42:25,600 Speaker 1: you see this as happenstance that they've won by by 770 00:42:25,600 --> 00:42:27,600 Speaker 1: anything more than just good luck here in light of 771 00:42:27,600 --> 00:42:30,640 Speaker 1: what was was playing out earlier on in the administration's tenure. Yeah, 772 00:42:30,640 --> 00:42:33,080 Speaker 1: I think I think it's a mix, uh, David, So, 773 00:42:33,440 --> 00:42:35,880 Speaker 1: I think what happened was, first of all, the verbal 774 00:42:35,920 --> 00:42:39,120 Speaker 1: intervention left some impression because again there was the fear 775 00:42:39,200 --> 00:42:42,799 Speaker 1: of protectionist action, So you don't push back against your 776 00:42:42,800 --> 00:42:46,919 Speaker 1: currency appreciating because you hope that this will prevent protectionist 777 00:42:46,960 --> 00:42:49,879 Speaker 1: action from the US. And then the other important part 778 00:42:49,920 --> 00:42:52,120 Speaker 1: of the dollar weakness we've seen this year is clearly 779 00:42:52,160 --> 00:42:55,480 Speaker 1: the deflation of the Trump trade, because while Trump is 780 00:42:55,520 --> 00:42:59,040 Speaker 1: winning the cold currency war, he hasn't managed to push 781 00:42:59,239 --> 00:43:01,799 Speaker 1: many other the se ancients through. We haven't seen any 782 00:43:01,800 --> 00:43:04,320 Speaker 1: progress on taxes, for example. Yeah, in the time we 783 00:43:04,400 --> 00:43:06,400 Speaker 1: got left, I'm gonna go back to a Matthew Tracy 784 00:43:06,480 --> 00:43:10,160 Speaker 1: Yarkham Fell's piece in May that was exquisite and it 785 00:43:10,200 --> 00:43:15,920 Speaker 1: was completely pushing against the productivity is dead. View. What 786 00:43:16,120 --> 00:43:19,760 Speaker 1: will be the catalysts to give us the green spanning 787 00:43:19,840 --> 00:43:24,959 Speaker 1: and mystery of better productivity that we saw in the nineties. Well, 788 00:43:25,000 --> 00:43:28,000 Speaker 1: that's tough to say, Tom, but I think it could 789 00:43:28,040 --> 00:43:31,200 Speaker 1: just be the passage of time. Because what we highlighted 790 00:43:31,200 --> 00:43:35,120 Speaker 1: in the piece, Matt and I highlighted the widening gap 791 00:43:35,320 --> 00:43:41,160 Speaker 1: between the leaders on productivity in each industry and the laggert's. 792 00:43:41,600 --> 00:43:45,080 Speaker 1: That gap has never been wider than it's been in history. 793 00:43:45,120 --> 00:43:48,480 Speaker 1: I wrote another piece this weekend on superstar firms, the 794 00:43:48,480 --> 00:43:52,760 Speaker 1: emergence of superstar firms highly productive companies. Think of the Fangs, 795 00:43:52,840 --> 00:43:56,840 Speaker 1: the Google's, the Apples, um, the facebooks of this world 796 00:43:57,160 --> 00:44:01,520 Speaker 1: who have had extraordinary productivity growth, and then you look 797 00:44:01,560 --> 00:44:05,440 Speaker 1: at other companies who have really been lagging, and you know, 798 00:44:05,560 --> 00:44:09,000 Speaker 1: I think this gap will have to close. Uh. And 799 00:44:09,120 --> 00:44:12,279 Speaker 1: the most likely way how it closes over time is 800 00:44:12,320 --> 00:44:15,759 Speaker 1: that the less productive companies will will leave, they will 801 00:44:15,800 --> 00:44:18,600 Speaker 1: have to exit, or they will have to adopt new 802 00:44:18,640 --> 00:44:22,480 Speaker 1: technologies themselves to bring productivity up. The timing of that 803 00:44:22,600 --> 00:44:25,480 Speaker 1: is highly uncertain, but I'm pretty convinced that overall secular 804 00:44:25,520 --> 00:44:28,760 Speaker 1: horizon next three to five years, we will see a pickup, 805 00:44:28,880 --> 00:44:31,319 Speaker 1: and maybe it's Jumpertian just clearing of the markets and 806 00:44:31,400 --> 00:44:34,759 Speaker 1: moving the laggards out. You cite in your article two 807 00:44:34,840 --> 00:44:38,400 Speaker 1: of our frequent guests, professors Bryn Jolson and McAfee of 808 00:44:38,560 --> 00:44:43,000 Speaker 1: the Massachusetts Institute of Technology and the Use of Technology. 809 00:44:43,200 --> 00:44:46,600 Speaker 1: How do you get their technology to benefit a huge 810 00:44:46,719 --> 00:44:51,680 Speaker 1: part of America that's not in the crucible of this revolution. 811 00:44:51,760 --> 00:44:55,239 Speaker 1: If they're outside the revolution, how do we get them 812 00:44:55,360 --> 00:44:59,919 Speaker 1: into the revolution? Well, I think that's that's a very 813 00:45:00,000 --> 00:45:03,200 Speaker 1: tough question. I mean, first of all, we are all users. 814 00:45:03,320 --> 00:45:06,880 Speaker 1: Large parts of America are users of the new technologies. 815 00:45:06,960 --> 00:45:10,759 Speaker 1: The problem is many of the users of technology of 816 00:45:10,800 --> 00:45:14,080 Speaker 1: new technologies these days don't show up in GDP. We 817 00:45:14,200 --> 00:45:17,640 Speaker 1: use it in our leisure time. So partly I think 818 00:45:17,680 --> 00:45:21,200 Speaker 1: this is a measurement problem. So consumers welfare rises, the 819 00:45:21,200 --> 00:45:24,359 Speaker 1: consumer surplus is increasing, but this is not showing up 820 00:45:24,400 --> 00:45:27,399 Speaker 1: anywhere in the GDP numbers. So in that sense, we've 821 00:45:27,440 --> 00:45:31,480 Speaker 1: already seen diffusion of technology. But what I do worry 822 00:45:31,480 --> 00:45:36,440 Speaker 1: about is that as the productivity laggers are leaving our 823 00:45:36,560 --> 00:45:41,400 Speaker 1: exiting uh their their respective industries, you will see technological 824 00:45:41,480 --> 00:45:44,640 Speaker 1: unemployment rising. So in that sense, I think we should 825 00:45:44,640 --> 00:45:47,560 Speaker 1: be careful what we wish for. If we were to 826 00:45:47,600 --> 00:45:50,680 Speaker 1: see a pickup in productivity growth, it would probably be 827 00:45:50,840 --> 00:45:54,680 Speaker 1: accompanied by higher technological unemployment, and that could be quite 828 00:45:54,680 --> 00:45:57,920 Speaker 1: disruptive and it could lead to a political backlash. How 829 00:45:58,000 --> 00:46:00,440 Speaker 1: much of this is being reflected in the the jobs 830 00:46:00,440 --> 00:46:02,920 Speaker 1: reports that we get here month? We're looking ahead to 831 00:46:02,920 --> 00:46:05,400 Speaker 1: another one on front of of of this week is 832 00:46:05,440 --> 00:46:08,960 Speaker 1: the issue of productivity? Are being adequately reflecting those numbers 833 00:46:09,000 --> 00:46:11,600 Speaker 1: that we see? Yeah, I think you know, that's the 834 00:46:11,640 --> 00:46:15,719 Speaker 1: mirror image of weak productivity growth. The mirror image of 835 00:46:15,719 --> 00:46:19,640 Speaker 1: weak productivity growth is stronger job growth. So to produce 836 00:46:19,719 --> 00:46:22,480 Speaker 1: the same level of output, we need more people or 837 00:46:22,600 --> 00:46:26,239 Speaker 1: to you know. So what's happening is we're seeing very 838 00:46:26,280 --> 00:46:28,960 Speaker 1: decent job growth, but most of the job growth is 839 00:46:29,040 --> 00:46:33,600 Speaker 1: in low productivity and low wage sectors, largely in the 840 00:46:33,640 --> 00:46:39,000 Speaker 1: service sector. This is where we are sucking in UH workers. 841 00:46:39,560 --> 00:46:42,400 Speaker 1: That's good because you know, even low page jobs are 842 00:46:42,440 --> 00:46:46,440 Speaker 1: better than no jobs. But this perpetuates the low productivity 843 00:46:46,520 --> 00:46:50,400 Speaker 1: environment because we are creating a lot of low productive 844 00:46:50,560 --> 00:46:53,359 Speaker 1: and low wage jobs. Off script, one final question, how 845 00:46:53,360 --> 00:46:56,480 Speaker 1: I compels if we could for your Germany, the idea 846 00:46:56,640 --> 00:47:00,560 Speaker 1: of what UH what Germany needs to do. There's a 847 00:47:00,600 --> 00:47:04,440 Speaker 1: primal scream for a better, more buoyant consumer in Germany. 848 00:47:04,520 --> 00:47:08,439 Speaker 1: Is it out there or just a cultural reticence? Well, 849 00:47:08,480 --> 00:47:12,560 Speaker 1: I think partly it's cultural. Partly it's demographic, because Germany 850 00:47:12,680 --> 00:47:18,399 Speaker 1: is aging very rapidly um and so what what can 851 00:47:18,440 --> 00:47:21,680 Speaker 1: be done? I think, you know, tax cuts would clearly help. 852 00:47:21,920 --> 00:47:24,920 Speaker 1: And I think after the election, which is scheduled for September, 853 00:47:24,960 --> 00:47:27,520 Speaker 1: you will see a mix of higher government spending on 854 00:47:27,600 --> 00:47:31,359 Speaker 1: infrastructure but also on on welfare spending, and you will 855 00:47:31,400 --> 00:47:34,360 Speaker 1: also see tax cuts. So so I think that could 856 00:47:34,400 --> 00:47:36,919 Speaker 1: help a little bit. But by and large, I think 857 00:47:37,040 --> 00:47:40,600 Speaker 1: this high savings rate that we're seeing the low consumption 858 00:47:40,760 --> 00:47:44,640 Speaker 1: in Germany is a structural phenomenon. It won't go away 859 00:47:44,640 --> 00:47:48,560 Speaker 1: anytime soon, and that's why the current account surplus, which 860 00:47:48,680 --> 00:47:51,600 Speaker 1: is more than eight percent of GDP, is likely to 861 00:47:51,680 --> 00:47:54,719 Speaker 1: stay here for quite a long time. Yeah, Concise, thank 862 00:47:54,719 --> 00:47:56,560 Speaker 1: you so much, Never enough time, and when you're in 863 00:47:56,560 --> 00:47:59,000 Speaker 1: New York again, we'll be honored to have you in 864 00:47:59,320 --> 00:48:12,840 Speaker 1: untelevision in radio as uh well, thanks for listening to 865 00:48:12,880 --> 00:48:17,560 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 866 00:48:17,760 --> 00:48:23,359 Speaker 1: Apple podcasts. SoundCloud, or whichever podcast platform you prefer. I'm 867 00:48:23,360 --> 00:48:27,160 Speaker 1: on Twitter at Tom Keene. David Gura is at David Gura. 868 00:48:27,600 --> 00:48:31,520 Speaker 1: Before the podcast, you can always catch us worldwide. I'm 869 00:48:31,520 --> 00:48:32,400 Speaker 1: Bloomberg Radio