1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa Brahma Waits. Each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,960 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,360 Speaker 1: at Bloomberg dot com. This week really was driven by bonds, 8 00:00:23,440 --> 00:00:26,239 Speaker 1: the yield curve, the gap between two year and ten 9 00:00:26,320 --> 00:00:29,320 Speaker 1: year treasury yields inverting for the first time briefly of 10 00:00:29,440 --> 00:00:32,879 Speaker 1: it UH since two thousand and seven, adding to this 11 00:00:33,080 --> 00:00:36,600 Speaker 1: gloom and doom that was pervasive throughout all markets. But 12 00:00:36,640 --> 00:00:39,239 Speaker 1: the question is where do we go from here? And 13 00:00:39,400 --> 00:00:42,560 Speaker 1: our bonds really sending that barish of a signal. John 14 00:00:42,600 --> 00:00:45,720 Speaker 1: Authors is joining us now senior editor for Bloomberg Markets, 15 00:00:45,840 --> 00:00:49,520 Speaker 1: fabulous columnist for Bloomberg Opinion. I recommend you read his work. 16 00:00:50,000 --> 00:00:52,720 Speaker 1: It is tremendous. John, Thank you so much for being here. 17 00:00:53,159 --> 00:00:56,880 Speaker 1: What's your take on the message being sent from bond 18 00:00:56,880 --> 00:01:00,560 Speaker 1: markets this week? Well, the message is plainly negative, ridiculous 19 00:01:00,560 --> 00:01:04,600 Speaker 1: to try to argue any way other than that. Less 20 00:01:04,640 --> 00:01:07,800 Speaker 1: perhaps the inversion. We've been inverted on the three months 21 00:01:07,840 --> 00:01:10,039 Speaker 1: ten years for quite a while anyway, and we were 22 00:01:10,040 --> 00:01:12,120 Speaker 1: only inverted on the two years to tenure for a 23 00:01:12,120 --> 00:01:15,560 Speaker 1: matter of minutes. So that's actually, I think, less important 24 00:01:15,600 --> 00:01:18,760 Speaker 1: than the show publicized minutes. Though. Yeah, well yes exactly. 25 00:01:18,840 --> 00:01:21,440 Speaker 1: I I got to I gave an interview for I 26 00:01:21,600 --> 00:01:24,280 Speaker 1: gave an interview for Bloomberg Radio in my pj's and 27 00:01:24,440 --> 00:01:26,560 Speaker 1: the moment it happened, more or less, that's how we 28 00:01:26,640 --> 00:01:30,120 Speaker 1: do it. Yes, so we we we we were there 29 00:01:30,160 --> 00:01:31,880 Speaker 1: and we were not the only ones there on on 30 00:01:31,959 --> 00:01:36,400 Speaker 1: that story. But but what has been more important, plainly 31 00:01:36,640 --> 00:01:40,200 Speaker 1: is the remarkable falling yields, the remarkable moved to buy 32 00:01:40,600 --> 00:01:44,520 Speaker 1: bonds therefore, and that has not really been reversed in 33 00:01:44,640 --> 00:01:50,680 Speaker 1: any meaningful way during the week. Plainly, that can only 34 00:01:50,720 --> 00:01:54,360 Speaker 1: be negative. The interesting question and the reasonable question, is 35 00:01:54,440 --> 00:01:57,600 Speaker 1: whether the bond market tends to be wrong less of 36 00:01:57,600 --> 00:01:59,640 Speaker 1: the time than the stock market tends to be. But 37 00:01:59,680 --> 00:02:02,520 Speaker 1: it's not as though the bond market is infallible. The 38 00:02:02,600 --> 00:02:05,200 Speaker 1: question is whether the bond market could be wrong about this, 39 00:02:05,320 --> 00:02:10,240 Speaker 1: whether we've got into um the inverse and anti bubble 40 00:02:10,520 --> 00:02:14,440 Speaker 1: where negativity takes over in the same way that optimism 41 00:02:14,440 --> 00:02:16,519 Speaker 1: takes over in the top of a stock market. Yeah, 42 00:02:16,520 --> 00:02:19,000 Speaker 1: I mean, and I'd like to dig into that. But 43 00:02:19,240 --> 00:02:21,359 Speaker 1: before we do that, I mean, I guess I hate 44 00:02:21,360 --> 00:02:23,120 Speaker 1: to be the person to say this time is different, 45 00:02:23,160 --> 00:02:26,000 Speaker 1: because I think that I'd rather shoot myself than than 46 00:02:26,680 --> 00:02:29,280 Speaker 1: commit to that kind of statement and say that everybody 47 00:02:29,280 --> 00:02:31,919 Speaker 1: else is wrong. But you know, people are talking about 48 00:02:31,919 --> 00:02:35,239 Speaker 1: the change in demographics. They're talking about the change in 49 00:02:35,240 --> 00:02:38,080 Speaker 1: inflation regime, the fact that the population isn't growing as 50 00:02:38,160 --> 00:02:40,480 Speaker 1: quickly in developed markets, the fact that you know, all 51 00:02:40,520 --> 00:02:44,120 Speaker 1: of these types of factors leading to lower inflation, slower growth, 52 00:02:44,320 --> 00:02:46,799 Speaker 1: and just lower natural yields, not to mention just the 53 00:02:46,800 --> 00:02:49,839 Speaker 1: amount of dead outstanding. So you know, isn't that enough 54 00:02:49,880 --> 00:02:52,079 Speaker 1: to send yields lower? Despite the fact that we may 55 00:02:52,120 --> 00:02:54,720 Speaker 1: not be headed toward recession, right, all of those things 56 00:02:54,880 --> 00:02:57,800 Speaker 1: certainly help send the yields lower. I would I would 57 00:02:58,040 --> 00:03:00,840 Speaker 1: add the sheer technical factor of liabilar team matching, which 58 00:03:00,880 --> 00:03:04,240 Speaker 1: is much more of an issue than it was even 59 00:03:04,240 --> 00:03:06,320 Speaker 1: ten or eleven years ago when we had twelve years 60 00:03:06,360 --> 00:03:10,200 Speaker 1: ago now, when we had the last inversion that said 61 00:03:10,600 --> 00:03:16,240 Speaker 1: that said, okay, from the war through to at least, 62 00:03:16,240 --> 00:03:19,000 Speaker 1: the turn of the millennium was a historically great time 63 00:03:19,520 --> 00:03:21,960 Speaker 1: to be holding both stocks and bonds. And you could 64 00:03:22,040 --> 00:03:24,519 Speaker 1: argue that that that we're now into a you know, 65 00:03:24,880 --> 00:03:28,280 Speaker 1: argued into different period given the level of the demographics. 66 00:03:28,919 --> 00:03:34,200 Speaker 1: It's only twelve months since all the logic, all the narrative, 67 00:03:34,720 --> 00:03:38,720 Speaker 1: all the great bond gurus said that the direction for 68 00:03:38,800 --> 00:03:45,760 Speaker 1: bonds was naturally up. Um, that the secular ballmarketing bonds 69 00:03:45,880 --> 00:03:50,000 Speaker 1: was over, that pension funds as as we saw the 70 00:03:50,000 --> 00:03:54,480 Speaker 1: demographics shift to people actually retiring selling their bonds as 71 00:03:54,520 --> 00:03:56,880 Speaker 1: part of the process of drawing their pensions and so on. 72 00:03:57,240 --> 00:04:02,440 Speaker 1: That those demographic forces might tell you something about the economics, 73 00:04:02,520 --> 00:04:06,640 Speaker 1: but in terms of the technically impact on the bond market, 74 00:04:06,840 --> 00:04:11,000 Speaker 1: they would still actually drive yields up. That argument is 75 00:04:11,040 --> 00:04:12,720 Speaker 1: true as far as it goes, just as the one, 76 00:04:13,000 --> 00:04:14,680 Speaker 1: just as the bullish argument for the bonds you just 77 00:04:14,720 --> 00:04:17,640 Speaker 1: gave me is is true. Um, people seem to have 78 00:04:17,640 --> 00:04:19,920 Speaker 1: put too much credence in one of them twelve months ago, 79 00:04:20,040 --> 00:04:22,880 Speaker 1: and I suspect may still be putting too much greetenance 80 00:04:22,920 --> 00:04:24,240 Speaker 1: to the other at the moment. So that's that's where 81 00:04:24,240 --> 00:04:27,200 Speaker 1: I wanted ahead with it. So basically, are the positions 82 00:04:27,279 --> 00:04:32,640 Speaker 1: Are the long bond positions crowded and overcrowded except for reversal? Yes? 83 00:04:32,839 --> 00:04:35,320 Speaker 1: I think so. I mean there was a I did 84 00:04:35,320 --> 00:04:37,360 Speaker 1: a column earlier this week where you if you take 85 00:04:37,360 --> 00:04:40,839 Speaker 1: a look at Kindleberger's famous definitions of the guy wote 86 00:04:40,839 --> 00:04:45,880 Speaker 1: this wonderful Manias, Panics and crashes book on uh investment manias, 87 00:04:45,960 --> 00:04:49,360 Speaker 1: mostly stock market manias because stocks are where things really 88 00:04:49,400 --> 00:04:51,920 Speaker 1: go hey why most of the time. But it could 89 00:04:51,920 --> 00:04:55,239 Speaker 1: apply to two bonds. What he was talking about there 90 00:04:55,480 --> 00:05:00,880 Speaker 1: was his valuation obviously extreme, which is is there a 91 00:05:00,960 --> 00:05:03,719 Speaker 1: narrative to back it that makes people think that it 92 00:05:03,760 --> 00:05:06,279 Speaker 1: will carry on like this, that they can justify it? Yes, 93 00:05:06,320 --> 00:05:11,160 Speaker 1: there is? Is there cheap money available to fund it? Well? Duh? 94 00:05:11,200 --> 00:05:15,600 Speaker 1: And perhaps the only questionable one is is investment in 95 00:05:16,200 --> 00:05:20,760 Speaker 1: this market being funded by leverage? Which arguably there's I'm 96 00:05:20,800 --> 00:05:23,800 Speaker 1: not sure how much leveraged money is pouring into the 97 00:05:23,839 --> 00:05:28,440 Speaker 1: bond market, um, but plainly there's a good argument that 98 00:05:28,480 --> 00:05:31,359 Speaker 1: what we have here is a bubble like condition that 99 00:05:31,480 --> 00:05:34,360 Speaker 1: people in many cases, really if you're buying a bond 100 00:05:34,360 --> 00:05:38,600 Speaker 1: with a negative yield, presumably you're at least thinking in 101 00:05:38,680 --> 00:05:40,720 Speaker 1: terms of sending it to somebody else for an even 102 00:05:40,760 --> 00:05:45,880 Speaker 1: more negative yield rather than happily losing some capital by 103 00:05:46,040 --> 00:05:50,599 Speaker 1: holding it until maturity. That's again bubble behavior. So it 104 00:05:50,680 --> 00:05:54,719 Speaker 1: does look to me as though the markets overcrowded. And similarly, 105 00:05:54,720 --> 00:05:56,680 Speaker 1: if you take a look at the performance that you've 106 00:05:57,000 --> 00:05:59,240 Speaker 1: also seen all the patterns that you see in the 107 00:05:59,320 --> 00:06:01,960 Speaker 1: stock market kits that have been caused by people trying 108 00:06:01,960 --> 00:06:04,279 Speaker 1: to deal with the bond market, you can see plenty 109 00:06:04,279 --> 00:06:07,480 Speaker 1: of signs of overcrowding there. That you're talking about the 110 00:06:07,480 --> 00:06:09,719 Speaker 1: bond proxies, right, yes, to talk a little bit about 111 00:06:09,760 --> 00:06:12,760 Speaker 1: what we're talking about, that's utilities and reads, real estate 112 00:06:12,839 --> 00:06:16,040 Speaker 1: investment trusts, etcetera. Those are the most obvious bond proxies. 113 00:06:16,040 --> 00:06:19,480 Speaker 1: Companies that are boring are unlikely to give you amazing 114 00:06:19,680 --> 00:06:23,479 Speaker 1: capital growth, but will actually pay you quite a well supported, 115 00:06:23,960 --> 00:06:28,799 Speaker 1: predictable yield in the case of utilities from regulated Harris 116 00:06:28,800 --> 00:06:34,520 Speaker 1: and reads from the from the rental yield, but it 117 00:06:34,640 --> 00:06:38,320 Speaker 1: actually goes beyond there. Obviously, those companies have been doing 118 00:06:38,600 --> 00:06:42,080 Speaker 1: well of late in the stock market. But I had 119 00:06:42,120 --> 00:06:43,880 Speaker 1: a look at some research from sock Gen which was 120 00:06:43,920 --> 00:06:47,680 Speaker 1: fascinating that they looked at this in a sector neutral fashion. 121 00:06:47,800 --> 00:06:51,240 Speaker 1: So for each sector, even if it's biotech, which were 122 00:06:51,240 --> 00:06:54,680 Speaker 1: the ones that were most correlated to bonds and which 123 00:06:54,680 --> 00:06:59,479 Speaker 1: were the ones least correlated to bonds? Over time, and 124 00:06:59,680 --> 00:07:02,800 Speaker 1: in the last year or so, the last couple of years, 125 00:07:02,839 --> 00:07:07,680 Speaker 1: even on a sector neutral basis, the bonds proxies have 126 00:07:07,960 --> 00:07:13,480 Speaker 1: suddenly become vastly more overvalued just using p ratio standard 127 00:07:13,960 --> 00:07:17,000 Speaker 1: valuation measures, while the ones that the least like bonds 128 00:07:17,000 --> 00:07:21,440 Speaker 1: have become startling lee under valued. People are so if 129 00:07:21,440 --> 00:07:24,840 Speaker 1: you're more like a bond, people will buy your stock 130 00:07:24,880 --> 00:07:30,120 Speaker 1: more than your closest competitor. That really does reek of um. 131 00:07:30,800 --> 00:07:35,240 Speaker 1: Obviously we've people brainlessly blamed algois and so on, which 132 00:07:35,280 --> 00:07:37,400 Speaker 1: can often be rather a tired way of doing these things. 133 00:07:37,400 --> 00:07:40,320 Speaker 1: But plainly, lots of people are looking for yield, they're 134 00:07:40,320 --> 00:07:42,960 Speaker 1: looking for bond substitutes. If they're in some kind of 135 00:07:42,960 --> 00:07:46,480 Speaker 1: a market neutral strategy or whatever. That means they're buying 136 00:07:46,680 --> 00:07:50,680 Speaker 1: the most bond like tech stock and shorten the least 137 00:07:50,680 --> 00:07:53,520 Speaker 1: bond like tech stock. And that means we've got some 138 00:07:53,640 --> 00:07:57,280 Speaker 1: weirdly overcrowded positions that are only there in the stock market, 139 00:07:57,480 --> 00:07:59,320 Speaker 1: that are only there because of the weird conditions in 140 00:07:59,320 --> 00:08:01,760 Speaker 1: the bond market. John Authors, thank you so much for 141 00:08:01,760 --> 00:08:04,080 Speaker 1: taking the time. I love speaking with you. It's great insight, 142 00:08:04,240 --> 00:08:07,480 Speaker 1: and uh, it's sort of an interesting time to be 143 00:08:07,800 --> 00:08:11,920 Speaker 1: not necessarily bullish. But at the same time, it does 144 00:08:11,920 --> 00:08:15,680 Speaker 1: seem like the bearishness is getting crowded, so uh, you 145 00:08:15,720 --> 00:08:18,000 Speaker 1: know that's gonna be something that we're gonna be keeping 146 00:08:18,000 --> 00:08:20,280 Speaker 1: an eye on. John Author's a senior editor for Bloomberg 147 00:08:20,280 --> 00:08:22,680 Speaker 1: Markets and a Bloomberg Opinion columnist. You can read his 148 00:08:22,800 --> 00:08:26,040 Speaker 1: columns O P. I N Go on the Bloomberg, Bloomberg 149 00:08:26,120 --> 00:08:40,400 Speaker 1: dot com slash Opinion on the web. It is about 150 00:08:40,440 --> 00:08:42,959 Speaker 1: ten thirty on Wall Street. That means it is time 151 00:08:43,000 --> 00:08:45,480 Speaker 1: to get some opinions from Bloomberg Opinion. We are so 152 00:08:45,559 --> 00:08:48,680 Speaker 1: lucky to have Brook Sutherland here with us, a columnist 153 00:08:48,960 --> 00:08:52,160 Speaker 1: for US covering the deals in industrial sectors. And Brooke, 154 00:08:52,520 --> 00:08:54,920 Speaker 1: it really is about GE today. I know DearS in 155 00:08:55,000 --> 00:08:57,040 Speaker 1: the headlines and we're going to get there. But GE 156 00:08:57,080 --> 00:08:59,719 Speaker 1: is really fascinating because yesterday it was accused of being 157 00:08:59,720 --> 00:09:02,800 Speaker 1: a Zi scheme by someone who called out the burning 158 00:09:02,800 --> 00:09:06,400 Speaker 1: made off Ponzi scheme, or he called it basically, someone 159 00:09:06,400 --> 00:09:11,200 Speaker 1: said that the accounting issues there were were highly problematic. 160 00:09:11,480 --> 00:09:13,400 Speaker 1: Today we're seeing a bit of a bounce back in 161 00:09:13,440 --> 00:09:17,960 Speaker 1: the shares. Why. I think part of it is because 162 00:09:18,160 --> 00:09:21,520 Speaker 1: Larry cold said yesterday that he bought two million worth 163 00:09:21,559 --> 00:09:24,439 Speaker 1: of shares UM. So that is a vote of confidence 164 00:09:24,480 --> 00:09:26,559 Speaker 1: by the CEO, sort of putting your money where your 165 00:09:26,640 --> 00:09:30,440 Speaker 1: your mouth is. UM. He is required by the proxy 166 00:09:30,480 --> 00:09:33,720 Speaker 1: to own ten times this salary in stock over the 167 00:09:33,760 --> 00:09:36,560 Speaker 1: course of five years, he's supposed to build that up. UM. 168 00:09:36,600 --> 00:09:40,280 Speaker 1: So clearly he's trying to incentivize the CEO to do 169 00:09:40,360 --> 00:09:44,679 Speaker 1: the right thing for shareholders. UM. But you know that 170 00:09:44,840 --> 00:09:47,440 Speaker 1: you also had some analysts come out and say, you know, 171 00:09:47,520 --> 00:09:51,520 Speaker 1: they're not all of the report necessarily makes sense to them, 172 00:09:51,559 --> 00:09:54,120 Speaker 1: and that it may be going over the top. But 173 00:09:54,200 --> 00:09:56,480 Speaker 1: you also have city groups saying, you know, look, this 174 00:09:56,640 --> 00:10:00,600 Speaker 1: builds on existing ongoing concerns. And that's sort of where 175 00:10:00,600 --> 00:10:04,760 Speaker 1: I fall on the spectrum is, particularly with the insurance business, 176 00:10:04,800 --> 00:10:07,280 Speaker 1: it is impossible to know how much money they're going 177 00:10:07,320 --> 00:10:09,440 Speaker 1: to have to put into this. Give us a sense 178 00:10:09,440 --> 00:10:12,120 Speaker 1: of what the report said, who did it, etcetera. Sure, 179 00:10:12,480 --> 00:10:16,480 Speaker 1: So it was Harry Marcopolis, who is a whistleblower on 180 00:10:16,640 --> 00:10:19,600 Speaker 1: Bernie made Off, was ignored by the SEC for years 181 00:10:19,600 --> 00:10:22,920 Speaker 1: and then ultimately proven correct in his analysis there. So 182 00:10:23,000 --> 00:10:26,520 Speaker 1: we published this report on GE accusing them of sort 183 00:10:26,520 --> 00:10:28,679 Speaker 1: of a couple of main things. So the biggest is 184 00:10:28,720 --> 00:10:32,000 Speaker 1: that he thinks that they are significantly under reserved and 185 00:10:32,040 --> 00:10:34,520 Speaker 1: their long term care insurance business. Now remember this is 186 00:10:34,559 --> 00:10:37,520 Speaker 1: where they had to disclose of fifteen billion dollars shortfall 187 00:10:38,040 --> 00:10:41,760 Speaker 1: last year. He thinks that they ultimately need thirty eight 188 00:10:41,760 --> 00:10:44,280 Speaker 1: billion dollars more there, and part of that is an 189 00:10:44,280 --> 00:10:47,760 Speaker 1: eighteen point five billion immediate cash inflex and then a 190 00:10:47,840 --> 00:10:52,120 Speaker 1: ten point five billion non cash gap charged in order 191 00:10:52,160 --> 00:10:54,800 Speaker 1: to sort of respond to tougher accounting rules that are 192 00:10:54,840 --> 00:10:58,200 Speaker 1: going to be coming out regulating this business. Um that 193 00:10:58,520 --> 00:11:01,240 Speaker 1: is a very big number to put on it. And 194 00:11:01,280 --> 00:11:05,000 Speaker 1: again it's this is such a black box of a 195 00:11:05,040 --> 00:11:08,640 Speaker 1: business and it's entirely dependent on assumption. So it matters 196 00:11:08,920 --> 00:11:10,880 Speaker 1: what you think interest rates are going to do, what 197 00:11:10,920 --> 00:11:13,360 Speaker 1: are healthcare costs going to do, how many people are 198 00:11:13,360 --> 00:11:15,640 Speaker 1: going to get all timers, are they going to get healthy? 199 00:11:15,679 --> 00:11:18,400 Speaker 1: When are they going to die? There's so many different 200 00:11:18,520 --> 00:11:22,360 Speaker 1: variables here that you can make assumptions and come up 201 00:11:22,440 --> 00:11:25,840 Speaker 1: with sort of whatever number that you want. But I 202 00:11:25,880 --> 00:11:29,640 Speaker 1: do agree that g E is not being conservative enough 203 00:11:29,679 --> 00:11:32,160 Speaker 1: when it comes to the long term care insurance business. Um. 204 00:11:32,200 --> 00:11:34,520 Speaker 1: You know, I wrote about this in February when they 205 00:11:34,520 --> 00:11:37,000 Speaker 1: sort of laid out more details in their ten K 206 00:11:37,320 --> 00:11:39,959 Speaker 1: of the various assumptions that they were making. And when 207 00:11:39,960 --> 00:11:42,720 Speaker 1: you look at companies like Prudential, it does seem that 208 00:11:42,840 --> 00:11:45,800 Speaker 1: g E is slightly on the more optimistic side. Um. 209 00:11:46,120 --> 00:11:48,600 Speaker 1: So how much they're gonna have to put in there 210 00:11:48,720 --> 00:11:51,040 Speaker 1: is still a question work. But this is certainly something 211 00:11:51,080 --> 00:11:54,480 Speaker 1: that investors have been watching and are aware of. All right, 212 00:11:54,520 --> 00:11:56,640 Speaker 1: so we'll keep watching GE and I know you will 213 00:11:56,720 --> 00:11:58,920 Speaker 1: as well. I do want to shift gears to dear. 214 00:11:58,960 --> 00:12:02,120 Speaker 1: Do you reported earnings today and they're uh. They cut 215 00:12:02,160 --> 00:12:05,800 Speaker 1: their full year forecast, which sounded bad, And when I 216 00:12:05,880 --> 00:12:09,800 Speaker 1: came in, shares were down ahead of the open. Currently 217 00:12:09,840 --> 00:12:14,600 Speaker 1: they're up three point six. What happened? I think it 218 00:12:14,760 --> 00:12:19,680 Speaker 1: might be an issue of expectations versus reality. I think 219 00:12:19,720 --> 00:12:22,480 Speaker 1: expectations were very low for Deer, and you did have 220 00:12:22,520 --> 00:12:24,920 Speaker 1: a Goldman report out this morning saying, you know, they 221 00:12:24,960 --> 00:12:27,920 Speaker 1: were not that bad, particularly when you look at the 222 00:12:27,920 --> 00:12:31,440 Speaker 1: profit margin ringing endorsement. I know, but I think but 223 00:12:31,559 --> 00:12:34,560 Speaker 1: it is sort of you know, demonstrative of what investors 224 00:12:34,600 --> 00:12:36,840 Speaker 1: are going to be focusing on for industrial companies over 225 00:12:36,880 --> 00:12:39,960 Speaker 1: the coming years. Is as you know, we've now established 226 00:12:39,960 --> 00:12:42,280 Speaker 1: that we're in a slowdown. There's nothing that I'm seeing 227 00:12:42,320 --> 00:12:45,240 Speaker 1: that's going to arrest this slowdown, particularly when you have 228 00:12:45,280 --> 00:12:49,240 Speaker 1: the ongoing trade war uncertainty. So assuming this continues, where 229 00:12:49,240 --> 00:12:50,840 Speaker 1: do you put your money? And so I think the 230 00:12:50,920 --> 00:12:54,480 Speaker 1: focus is now on what companies can sustain their profit 231 00:12:54,520 --> 00:12:58,160 Speaker 1: margins when their sales are falling um. And you have 232 00:12:58,240 --> 00:13:01,120 Speaker 1: Deer also talking about changes to its cost structure, so 233 00:13:01,240 --> 00:13:04,760 Speaker 1: clearly it's concerned about that is trying to protect its profitability. 234 00:13:04,920 --> 00:13:06,520 Speaker 1: But but this is, this is this is what was 235 00:13:06,559 --> 00:13:09,520 Speaker 1: struck me this morning. When you start talking about cost cutting, 236 00:13:09,520 --> 00:13:12,360 Speaker 1: which is essentially that cost cutting and raising prices for 237 00:13:12,400 --> 00:13:14,400 Speaker 1: the customers that you do have. You can only do 238 00:13:14,480 --> 00:13:16,640 Speaker 1: that so much, right, And I mean, does that sort 239 00:13:16,640 --> 00:13:20,440 Speaker 1: of indicate is something bigger that is concerning to you? 240 00:13:21,280 --> 00:13:24,120 Speaker 1: It does? I mean, I will say, so, You're You're 241 00:13:24,120 --> 00:13:26,160 Speaker 1: absolutely right, there's only so much you can cut. But 242 00:13:26,200 --> 00:13:29,760 Speaker 1: the idea is that these companies are becoming more efficient, 243 00:13:29,840 --> 00:13:31,720 Speaker 1: more productive. Now a big part of that is a 244 00:13:31,760 --> 00:13:34,080 Speaker 1: lot more of their operations are automated, so they don't 245 00:13:34,160 --> 00:13:37,000 Speaker 1: have as many people to pay in the first place. Um. 246 00:13:37,240 --> 00:13:39,720 Speaker 1: So that's their argument is that you know, they're they're 247 00:13:39,720 --> 00:13:42,000 Speaker 1: sort of protected in that way. But yes, it does 248 00:13:42,160 --> 00:13:46,520 Speaker 1: raise questions about longer term impact on demand and sort 249 00:13:46,520 --> 00:13:49,240 Speaker 1: of supporting this cycle, because you can only do these 250 00:13:49,240 --> 00:13:51,760 Speaker 1: things so long before then we do start to see 251 00:13:51,760 --> 00:13:54,679 Speaker 1: this recession that you know is for the most part 252 00:13:54,760 --> 00:13:58,120 Speaker 1: been sort of contained to manufacturing slip into the consumer. 253 00:13:58,360 --> 00:14:01,760 Speaker 1: So with Deer, I know that in general Caterpillar is 254 00:14:01,840 --> 00:14:04,839 Speaker 1: viewed more as a proxy on the economy than than 255 00:14:04,960 --> 00:14:06,760 Speaker 1: Deer is. But is there anything that we can read 256 00:14:06,800 --> 00:14:10,320 Speaker 1: in uh two Deer's results to give us a broader 257 00:14:10,360 --> 00:14:12,679 Speaker 1: sense of what's going on in the effects of corporate 258 00:14:12,679 --> 00:14:15,760 Speaker 1: balance sheets? Yeah? Absolutely, I mean I think they're a 259 00:14:15,840 --> 00:14:18,600 Speaker 1: great proxy for trade war pain because of course this 260 00:14:18,640 --> 00:14:22,560 Speaker 1: has really hit the agricultural sector, um. And so just 261 00:14:22,680 --> 00:14:27,160 Speaker 1: looking at the general uncertainty that's pervading manufacturing, I think 262 00:14:27,200 --> 00:14:29,520 Speaker 1: this is another example of that where people are just 263 00:14:29,760 --> 00:14:32,160 Speaker 1: not willing to spin because they don't know what's going 264 00:14:32,200 --> 00:14:34,360 Speaker 1: to happen, what's going to be out there. How do 265 00:14:34,400 --> 00:14:38,320 Speaker 1: you justify spending thousands of dollars on a tractor? Yeah? Um, 266 00:14:38,360 --> 00:14:41,640 Speaker 1: so right now we are talking about deer shares up 267 00:14:41,680 --> 00:14:44,720 Speaker 1: at three point six percent. Next week, just real quick, 268 00:14:44,840 --> 00:14:47,880 Speaker 1: what industrial news are you looking for. I'm hoping it 269 00:14:47,960 --> 00:14:50,440 Speaker 1: might be a little slow next week because it's it's 270 00:14:50,520 --> 00:14:52,400 Speaker 1: the middle of August. We've sort of gotten through earnings. 271 00:14:52,440 --> 00:14:54,840 Speaker 1: But I think, you know, with this Trump administration, nothing 272 00:14:54,880 --> 00:14:57,960 Speaker 1: can ever be totally uneventful, and so I'm sure we'll 273 00:14:58,000 --> 00:15:00,240 Speaker 1: get some trade headlines which will have an impact act 274 00:15:00,280 --> 00:15:02,160 Speaker 1: on on industrials. And of course we're going to keep 275 00:15:02,200 --> 00:15:05,080 Speaker 1: watching g for more developments there and especially to see 276 00:15:05,080 --> 00:15:08,040 Speaker 1: if they have a more robust defense point by point, 277 00:15:08,040 --> 00:15:09,480 Speaker 1: because we haven't really seen that yet, And do you 278 00:15:09,480 --> 00:15:12,280 Speaker 1: expect that. I think they would be wise to do that. 279 00:15:12,320 --> 00:15:14,560 Speaker 1: I think they'd be smart to go in and get 280 00:15:14,640 --> 00:15:17,520 Speaker 1: rid of all the earnings adjustments and their financial statements 281 00:15:17,560 --> 00:15:19,920 Speaker 1: to you know, stop being quite so opaque with the 282 00:15:19,920 --> 00:15:22,280 Speaker 1: way that they present their numbers. Um. They've had some 283 00:15:22,400 --> 00:15:25,240 Speaker 1: unfortunate errors just over the past couple of months where 284 00:15:25,280 --> 00:15:28,040 Speaker 1: they've had to go back and correct what they said 285 00:15:28,040 --> 00:15:32,120 Speaker 1: in presentations, correct marketing materials that you know, had made 286 00:15:32,160 --> 00:15:35,520 Speaker 1: their business sound better than it really was, and so 287 00:15:35,640 --> 00:15:37,360 Speaker 1: that is not a good look. And you know, I 288 00:15:37,360 --> 00:15:41,200 Speaker 1: think they have a clear opportunity here to do more 289 00:15:41,240 --> 00:15:44,480 Speaker 1: to improve transparency and credibility. Brook Sutherland, thank you so 290 00:15:44,560 --> 00:15:47,520 Speaker 1: much for being with as Brooks Sutherland of Bloomberg Opinion. 291 00:15:47,600 --> 00:15:49,040 Speaker 1: You can read all of our columns O P I 292 00:15:49,160 --> 00:15:52,800 Speaker 1: and go on the Bloomberg or Bloomberg dot com slash 293 00:15:52,800 --> 00:15:56,400 Speaker 1: Opinion on the Internet. I do want to just mention 294 00:15:56,440 --> 00:15:59,720 Speaker 1: that General Electrics, the biggest plunge in eleven years, came 295 00:15:59,760 --> 00:16:01,920 Speaker 1: as of a bad time for a lot of hedge funds. 296 00:16:01,920 --> 00:16:05,200 Speaker 1: There's a really interesting story talking about how the likes 297 00:16:05,240 --> 00:16:09,200 Speaker 1: of Rhissance Technologies, Citadelle Advisors, and a Dodgy Capital Management 298 00:16:09,240 --> 00:16:13,480 Speaker 1: all piled into General Electric shares right before the shares 299 00:16:13,600 --> 00:16:16,200 Speaker 1: completely fell out of bed. So not the best time. 300 00:16:29,280 --> 00:16:35,240 Speaker 1: Biotech is risky China is risky. Biotech in China an opportunity. 301 00:16:35,360 --> 00:16:38,000 Speaker 1: That is what our next guest says. Brad at long Car. 302 00:16:38,120 --> 00:16:41,200 Speaker 1: He is chief executive officer of Long Car Investments, normally 303 00:16:41,240 --> 00:16:44,360 Speaker 1: in Lenox, Kansas, but joining us here in our Bloomberg 304 00:16:44,400 --> 00:16:48,440 Speaker 1: Interactive Broker studios, Brad, So you invest You've been an 305 00:16:48,440 --> 00:16:52,080 Speaker 1: investor in biotechnology shares for a long time, So just 306 00:16:52,240 --> 00:16:55,160 Speaker 1: you give us a sense of why you were attracted 307 00:16:55,160 --> 00:16:59,320 Speaker 1: to China in particular within this sector. Yeah, so thanks 308 00:16:59,360 --> 00:17:02,120 Speaker 1: for having me. This does sound like something that's new, 309 00:17:02,240 --> 00:17:05,680 Speaker 1: because it is. China is having a biotech boom right now, 310 00:17:06,400 --> 00:17:08,440 Speaker 1: and part of what's behind it is, you know, think 311 00:17:08,440 --> 00:17:10,280 Speaker 1: of the trade war and all of the headlines that 312 00:17:10,320 --> 00:17:13,720 Speaker 1: are going on. China wants to shift its economy from 313 00:17:13,720 --> 00:17:17,680 Speaker 1: being a manufacturing base and traditional industries like that to 314 00:17:17,840 --> 00:17:22,159 Speaker 1: innovative sectors like tech and clean tech, and biotech is 315 00:17:22,200 --> 00:17:25,199 Speaker 1: one of those. So your listeners might be familiar with 316 00:17:25,240 --> 00:17:28,800 Speaker 1: the term made in China. Five. China has singled out 317 00:17:28,800 --> 00:17:31,600 Speaker 1: pharmaceuticals as an industry that it wants to be a 318 00:17:31,640 --> 00:17:34,960 Speaker 1: world leader in by that time. So the government is 319 00:17:35,000 --> 00:17:38,439 Speaker 1: behind this. They've completely reformed their version of the f 320 00:17:38,560 --> 00:17:42,159 Speaker 1: d A. It's called the National Medical Products Administration. The 321 00:17:42,240 --> 00:17:45,840 Speaker 1: stock markets are actually allowing biotech companies to list for 322 00:17:45,880 --> 00:17:48,720 Speaker 1: the first time, believe it or not before last year, 323 00:17:49,200 --> 00:17:51,760 Speaker 1: like in Hong Kong. If you didn't have revenue, as 324 00:17:51,840 --> 00:17:55,000 Speaker 1: most biotech companies don't, you couldn't even list on the 325 00:17:55,000 --> 00:17:58,440 Speaker 1: stock exchange, and so all of these things are incubating 326 00:17:58,600 --> 00:18:01,240 Speaker 1: a biotech sector for the first time. How do you 327 00:18:01,320 --> 00:18:05,280 Speaker 1: evaluate a company? First of all, how do you evalue 328 00:18:05,280 --> 00:18:07,479 Speaker 1: a biotech company and is potential worth when a lot 329 00:18:07,520 --> 00:18:09,520 Speaker 1: of them are binary? Right? I mean you can have 330 00:18:09,520 --> 00:18:12,040 Speaker 1: a binary outcome either something gets passed by the FDA 331 00:18:12,160 --> 00:18:16,399 Speaker 1: and adapt adopted by the mainstream medical world where it doesn't. 332 00:18:17,080 --> 00:18:19,200 Speaker 1: But in China, I feel like the bar is even 333 00:18:19,280 --> 00:18:21,959 Speaker 1: hired to understand what's going on with the company. I mean, 334 00:18:22,040 --> 00:18:24,159 Speaker 1: is that a big problem for you just evaluating what 335 00:18:24,240 --> 00:18:27,320 Speaker 1: they actually do and how good their products actually are. Yeah, 336 00:18:27,359 --> 00:18:29,600 Speaker 1: so it's a little different there and here. So here 337 00:18:29,680 --> 00:18:32,080 Speaker 1: you really have to analyze the science and try to 338 00:18:32,119 --> 00:18:35,119 Speaker 1: figure out what's going to work or what's not. The 339 00:18:35,119 --> 00:18:37,840 Speaker 1: phase that China is in with biotech right now is 340 00:18:38,359 --> 00:18:41,520 Speaker 1: a lot of the companies there are licensing drugs here. 341 00:18:41,680 --> 00:18:44,480 Speaker 1: So these drugs that are innovative and being approved here 342 00:18:44,520 --> 00:18:47,640 Speaker 1: for the first time, but are already proven, have already 343 00:18:47,680 --> 00:18:52,360 Speaker 1: succeeded in trials. They're licensing those drugs and then commercializing 344 00:18:52,440 --> 00:18:55,480 Speaker 1: them there. So the stage that we're in right now 345 00:18:55,640 --> 00:18:58,199 Speaker 1: is trying to determine the size of the market and 346 00:18:58,240 --> 00:19:02,359 Speaker 1: the patient population for AREUS medicines there, and then to 347 00:19:02,520 --> 00:19:05,280 Speaker 1: use that to figure out the value of the companies. Now, 348 00:19:05,680 --> 00:19:09,080 Speaker 1: Chinese companies are also doing what we call discovery work, 349 00:19:09,200 --> 00:19:12,840 Speaker 1: and they will be inventing new medicines over the coming years, 350 00:19:12,880 --> 00:19:15,439 Speaker 1: and so we're gonna have to shift our focus and 351 00:19:15,480 --> 00:19:19,280 Speaker 1: focus on that scientific risk they're like we do in 352 00:19:19,320 --> 00:19:21,840 Speaker 1: the US today. But that's kind of the next step. 353 00:19:21,880 --> 00:19:25,119 Speaker 1: The first step is just getting innovative drugs into the 354 00:19:25,119 --> 00:19:28,800 Speaker 1: country to begin with, and what are the economic ramifications 355 00:19:28,800 --> 00:19:32,080 Speaker 1: of that? And for that, there's it's wide open. They're 356 00:19:32,119 --> 00:19:36,600 Speaker 1: transitioning from a generics based model to an innovative based model, 357 00:19:36,640 --> 00:19:38,880 Speaker 1: and so there's gonna be lots of room for many 358 00:19:38,920 --> 00:19:43,000 Speaker 1: companies to succeed. I'm listening to you talk about adapting 359 00:19:43,960 --> 00:19:47,919 Speaker 1: or you know, bringing over some of the established medicines here. 360 00:19:48,840 --> 00:19:50,760 Speaker 1: How does this fit into the trade war and the 361 00:19:50,800 --> 00:19:55,320 Speaker 1: whole intellectual theft in IP theft discussion. Yeah, well, the 362 00:19:55,359 --> 00:19:57,679 Speaker 1: trade wars you classically think of it, There are no 363 00:19:57,960 --> 00:20:00,879 Speaker 1: tariffs on medicines because if you think about it, that 364 00:20:00,880 --> 00:20:04,560 Speaker 1: would raise drug prices and neither side wants that so 365 00:20:04,600 --> 00:20:08,320 Speaker 1: this is one area that fundamentally is not affected by 366 00:20:08,359 --> 00:20:11,280 Speaker 1: the trade war. Now in terms of IP theft, that's 367 00:20:11,320 --> 00:20:14,960 Speaker 1: part of the trade war negotiation. So a big class 368 00:20:14,960 --> 00:20:18,000 Speaker 1: of drugs here what really created the biotech sector, what's 369 00:20:18,000 --> 00:20:21,920 Speaker 1: called biologics and China in the US right now are 370 00:20:22,000 --> 00:20:26,480 Speaker 1: negotiating how many years of exclusivity biologics will get in China. 371 00:20:26,600 --> 00:20:28,560 Speaker 1: What are biologics? Just to give us a sense of 372 00:20:28,560 --> 00:20:30,280 Speaker 1: what kinds of drugs were talking about. So like a 373 00:20:30,280 --> 00:20:34,200 Speaker 1: traditional traditional medicine is made by chemicals, so like a pill, 374 00:20:34,400 --> 00:20:38,119 Speaker 1: biologic is like hum era, you know, drugs that are 375 00:20:38,160 --> 00:20:43,000 Speaker 1: made from living organisms. And so in the US we 376 00:20:43,040 --> 00:20:46,320 Speaker 1: have twelve years of protection from biologics right now. China 377 00:20:46,359 --> 00:20:49,040 Speaker 1: would like to have nine years. But our industry views 378 00:20:49,119 --> 00:20:53,040 Speaker 1: the negotiation as a hugely positive thing. That's that it's 379 00:20:53,080 --> 00:20:56,720 Speaker 1: even taking place. So China understands that you can't have 380 00:20:56,760 --> 00:21:00,760 Speaker 1: a biotech sector without IP protection, and they're starting to 381 00:21:00,800 --> 00:21:03,560 Speaker 1: write that in more forcefully than they have in the past. 382 00:21:03,640 --> 00:21:05,639 Speaker 1: And so I think the arrows are pointed in the 383 00:21:05,720 --> 00:21:08,399 Speaker 1: right direction as far as that goes. So, you know, 384 00:21:09,640 --> 00:21:12,680 Speaker 1: moving aside from the science of it, and I understand 385 00:21:12,680 --> 00:21:14,920 Speaker 1: sort of the technical backdrop, the fact that the biotech 386 00:21:15,000 --> 00:21:17,840 Speaker 1: industry in China is gaining new steam because of the 387 00:21:17,880 --> 00:21:24,959 Speaker 1: Maid Proclamation and also just because there is a shift 388 00:21:25,240 --> 00:21:29,000 Speaker 1: to a more developed economy. How do you invest in 389 00:21:29,119 --> 00:21:30,840 Speaker 1: Chinese stocks? Do you do it with U N do 390 00:21:31,000 --> 00:21:32,879 Speaker 1: you do it with dollars? I mean, is that a 391 00:21:32,920 --> 00:21:36,159 Speaker 1: big consideration for you? Yeah? Well, I'm an index creator. 392 00:21:36,200 --> 00:21:38,960 Speaker 1: I've created an index that tracks a basket of China 393 00:21:39,040 --> 00:21:42,760 Speaker 1: biotech stocks, and most of them are listed in Hong Kong. 394 00:21:43,040 --> 00:21:45,480 Speaker 1: Like the index that I've created, it's called the China 395 00:21:45,520 --> 00:21:49,600 Speaker 1: Biopharma Index, tracks twenty nine companies and twenty three of 396 00:21:49,640 --> 00:21:52,399 Speaker 1: those are listed in Hong Kong. But there's actually a 397 00:21:52,400 --> 00:21:55,800 Speaker 1: handful of really good ones here listed on NASDAC. There's 398 00:21:55,840 --> 00:21:59,239 Speaker 1: one called by Jane, one called zy Lab, and so 399 00:21:59,280 --> 00:22:02,960 Speaker 1: they're listing in both places. And you know, I personally 400 00:22:03,200 --> 00:22:05,360 Speaker 1: do a lot of on the groundwork. Over the last year, 401 00:22:05,359 --> 00:22:08,920 Speaker 1: I've traveled there six times. And in biotech that's really important. 402 00:22:08,960 --> 00:22:11,720 Speaker 1: You have to meet management teams, you have to visit 403 00:22:11,760 --> 00:22:14,480 Speaker 1: facilities and really see the science they're doing and their 404 00:22:14,520 --> 00:22:17,920 Speaker 1: manufacturing facilities. You know, to make sure that you're investing 405 00:22:17,960 --> 00:22:20,400 Speaker 1: in good companies and that takes a lot of legwork. 406 00:22:20,680 --> 00:22:22,000 Speaker 1: What about in the US, do you think that the 407 00:22:22,040 --> 00:22:25,280 Speaker 1: opportunity in biotech in the US has already basically played 408 00:22:25,280 --> 00:22:27,840 Speaker 1: out at this point? Well, you know, the US has 409 00:22:27,880 --> 00:22:30,840 Speaker 1: been very rocky. The ib B, which is the biggest 410 00:22:30,960 --> 00:22:35,359 Speaker 1: biotech ETF actually peaked in and a lot of people 411 00:22:35,359 --> 00:22:37,920 Speaker 1: don't realize that. You know, we the stock market makes 412 00:22:37,920 --> 00:22:41,280 Speaker 1: new highs every day, not over the last couple of weeks, 413 00:22:41,280 --> 00:22:44,879 Speaker 1: but um, the biotech sector is one exception to that. 414 00:22:45,000 --> 00:22:47,479 Speaker 1: So we peaked in ten And the reason for that 415 00:22:47,600 --> 00:22:50,320 Speaker 1: is everything you see in the news about payers pushing 416 00:22:50,359 --> 00:22:53,399 Speaker 1: back on drug pricing and all of this stuff, and 417 00:22:53,440 --> 00:22:56,680 Speaker 1: so it has impacted the industry's growth. And I would 418 00:22:56,720 --> 00:23:00,359 Speaker 1: say biotech investors in general are really nervous about the 419 00:23:00,400 --> 00:23:03,159 Speaker 1: next year because we've got the presidential election and you 420 00:23:03,200 --> 00:23:06,320 Speaker 1: have all of these candidates, you know, saying terrible things, 421 00:23:06,680 --> 00:23:10,800 Speaker 1: some frankly well deserved about our industry. And so we 422 00:23:10,880 --> 00:23:12,720 Speaker 1: think biotech is going to be taking a lot of 423 00:23:12,720 --> 00:23:15,359 Speaker 1: shots over the next year, which is actually one reason 424 00:23:15,400 --> 00:23:18,200 Speaker 1: why I'm so focused in China. You know, in the US, 425 00:23:18,840 --> 00:23:22,080 Speaker 1: we're thinking of ways of how we won't spend money 426 00:23:22,080 --> 00:23:24,760 Speaker 1: on drugs and China they're starting from the very beginning. 427 00:23:24,800 --> 00:23:27,480 Speaker 1: Their biotech sector is just like ours in the eighties 428 00:23:27,480 --> 00:23:30,800 Speaker 1: and nineties, meaning it's just getting started. And what I 429 00:23:30,840 --> 00:23:32,960 Speaker 1: tell people is, there's an am gen there, there's a 430 00:23:33,000 --> 00:23:35,520 Speaker 1: cell gene there, there's a genetech there, and they're just 431 00:23:35,600 --> 00:23:38,760 Speaker 1: small companies that most people haven't heard of yet, but 432 00:23:38,920 --> 00:23:41,760 Speaker 1: you will one day because it's gonna look just like 433 00:23:41,800 --> 00:23:45,040 Speaker 1: our biotech sector in the future. Thank you so much 434 00:23:45,080 --> 00:23:48,280 Speaker 1: for being here. Brad Lankar, chief executive officer of ln 435 00:23:48,320 --> 00:23:52,520 Speaker 1: CAR Investments, talking about China biotech and uh, it really 436 00:23:52,560 --> 00:23:54,520 Speaker 1: interesting to see also the backdrop of this having to 437 00:23:54,520 --> 00:23:56,960 Speaker 1: do with biotech in the US and some of the 438 00:23:56,960 --> 00:24:00,840 Speaker 1: pressures that it will inevitably come under as election cycle 439 00:24:01,320 --> 00:24:04,000 Speaker 1: heats up. We're already seeing a lot of rhetorics saying 440 00:24:04,040 --> 00:24:06,919 Speaker 1: that frankly, we need to lower drug prices, and this 441 00:24:07,000 --> 00:24:24,800 Speaker 1: has been an ongoing discussion. We have had a tumultuous 442 00:24:25,000 --> 00:24:29,879 Speaker 1: week here, Uh, markets getting whips ode by competing tweets 443 00:24:30,000 --> 00:24:32,440 Speaker 1: and comments about the trade war. The U S and 444 00:24:32,520 --> 00:24:35,640 Speaker 1: China do appear to be talking. The US made delay 445 00:24:35,760 --> 00:24:39,160 Speaker 1: tariffs until December that it had originally planned to impose 446 00:24:39,320 --> 00:24:42,560 Speaker 1: in September. The question is how much is this really 447 00:24:42,600 --> 00:24:45,560 Speaker 1: soft and trade tensions, especially as China says that it 448 00:24:45,640 --> 00:24:49,399 Speaker 1: plans to retaliate against the US if it does impose 449 00:24:49,440 --> 00:24:51,399 Speaker 1: those extra tariffs. So how does an investor deal with US? 450 00:24:51,440 --> 00:24:54,040 Speaker 1: David Cat's joining US now, chief investment officer at Matrix 451 00:24:54,080 --> 00:24:58,480 Speaker 1: Ascid Advisors. Uh, David, I'm just wondering after this week, 452 00:24:59,000 --> 00:25:01,239 Speaker 1: is there anything that happen that makes you want to 453 00:25:01,359 --> 00:25:06,120 Speaker 1: change how you allocate your money. Well, we think that 454 00:25:06,160 --> 00:25:09,639 Speaker 1: the large sell off is actually created an opportunity. We 455 00:25:09,680 --> 00:25:13,040 Speaker 1: are fearful of the trade war. Uh. It definitely is 456 00:25:13,080 --> 00:25:19,040 Speaker 1: slowing the economy. If there isn't a daytonter cessation of hostilities, 457 00:25:19,440 --> 00:25:21,639 Speaker 1: we think that it could cause the global economy to 458 00:25:21,680 --> 00:25:25,600 Speaker 1: slow down, possibly a recession, and the same with the US. However, 459 00:25:26,119 --> 00:25:29,200 Speaker 1: if there is any sort of easing of the tensions, 460 00:25:29,840 --> 00:25:32,080 Speaker 1: we think the economy is in good shape. And stocks 461 00:25:32,080 --> 00:25:36,320 Speaker 1: which sold off probably about six from their highs in 462 00:25:36,359 --> 00:25:38,480 Speaker 1: the last two to four weeks, are really a very 463 00:25:38,480 --> 00:25:41,680 Speaker 1: good prices. So key to investor take a longer term 464 00:25:41,720 --> 00:25:44,720 Speaker 1: time horizon, uh, and pick companies that you like. And 465 00:25:45,000 --> 00:25:47,520 Speaker 1: we definitely would be buying into this week. That's not 466 00:25:47,560 --> 00:25:49,879 Speaker 1: on a day like today where the markets rallying, but 467 00:25:50,000 --> 00:25:51,639 Speaker 1: on a day like Wednesday when it looks like the 468 00:25:51,680 --> 00:25:54,399 Speaker 1: world's coming to an end. So where exactly do you 469 00:25:54,400 --> 00:25:58,640 Speaker 1: see opportunities? Well, the group that's been hit the worst 470 00:25:58,960 --> 00:26:01,199 Speaker 1: in the last week or two, who has been financials 471 00:26:01,280 --> 00:26:03,240 Speaker 1: or one of the worst been financials, And we think 472 00:26:03,280 --> 00:26:05,240 Speaker 1: that even though it's gonna be a little bit tougher 473 00:26:05,320 --> 00:26:08,720 Speaker 1: to be as profitable in a lower interest rate environment, 474 00:26:08,760 --> 00:26:11,520 Speaker 1: they're still making a boatload of money. They're buying stock back. 475 00:26:11,840 --> 00:26:15,160 Speaker 1: They're actually among the best yielding stocks in the market today. 476 00:26:15,200 --> 00:26:17,680 Speaker 1: So you have a good two to three year time 477 00:26:17,720 --> 00:26:21,280 Speaker 1: horizon or two to three year earnings growth window, and 478 00:26:21,280 --> 00:26:23,600 Speaker 1: you're gettinghim a ten eleven times earnings paying a three 479 00:26:23,600 --> 00:26:26,000 Speaker 1: and a half percent yield. So we would be pretty 480 00:26:26,040 --> 00:26:29,960 Speaker 1: aggressively buying financials, whether it's a BBT or Wells Fargo 481 00:26:30,040 --> 00:26:32,359 Speaker 1: with JP Morgan at b n C. We really like 482 00:26:32,480 --> 00:26:35,920 Speaker 1: that group a lot. We like the um brokers like 483 00:26:36,040 --> 00:26:39,360 Speaker 1: a Goldman Sachs or Morgan Stanley. Again, we think that's 484 00:26:39,359 --> 00:26:41,720 Speaker 1: a very good opportunity if you're willing to turn down 485 00:26:41,800 --> 00:26:45,200 Speaker 1: the day to day noise. So David, I guess that 486 00:26:45,440 --> 00:26:48,040 Speaker 1: then what would you say, how much is this predicated 487 00:26:48,040 --> 00:26:49,600 Speaker 1: on the idea that the Federal Reserve is going to 488 00:26:49,680 --> 00:26:53,360 Speaker 1: cut rates at least two more times this year. So 489 00:26:53,520 --> 00:26:56,680 Speaker 1: the Fed's gonna cut rates for sure, whether it's it's one, two, 490 00:26:56,800 --> 00:26:59,840 Speaker 1: or three times. We think that will help the financial 491 00:27:00,000 --> 00:27:02,920 Speaker 1: markets and provide liquidity, but we don't think it really 492 00:27:02,960 --> 00:27:07,000 Speaker 1: will have that positive impact on the economy. We're speaking 493 00:27:07,000 --> 00:27:09,159 Speaker 1: with hundreds of companies, and what all of the companies 494 00:27:09,200 --> 00:27:11,840 Speaker 1: are saying, pretty much across the board is that their 495 00:27:11,880 --> 00:27:15,120 Speaker 1: business is slowing because of China, because of trade tensions, 496 00:27:15,160 --> 00:27:18,399 Speaker 1: and because of tariffs. Not one company that we're speaking 497 00:27:18,440 --> 00:27:21,120 Speaker 1: to has said, hey, business is slow because we're worried 498 00:27:21,160 --> 00:27:23,200 Speaker 1: about the credit markets, that we're not able to land, 499 00:27:23,240 --> 00:27:26,679 Speaker 1: our interest rates are too high. So the Fed lowering rates, 500 00:27:27,080 --> 00:27:29,200 Speaker 1: we think is a foregone conclusion and will be a 501 00:27:29,280 --> 00:27:32,320 Speaker 1: net positive. But the real key to the economy and 502 00:27:32,359 --> 00:27:34,920 Speaker 1: then the real key to the stock market is do 503 00:27:34,960 --> 00:27:38,080 Speaker 1: we get better progress on the trade And the reason 504 00:27:38,119 --> 00:27:41,320 Speaker 1: that we're hopeful that we will is it's finally starting 505 00:27:41,359 --> 00:27:44,480 Speaker 1: to set into everybody and ultimately to the President that 506 00:27:44,920 --> 00:27:47,600 Speaker 1: tariffs are bad. Trade war is bad. More and more 507 00:27:47,680 --> 00:27:50,360 Speaker 1: strategists are talking about it, more and more newspapers are 508 00:27:50,359 --> 00:27:53,120 Speaker 1: talking about it, and that's going to put pressure on 509 00:27:53,160 --> 00:27:55,960 Speaker 1: the President and Theater Navarro to come up with the 510 00:27:56,040 --> 00:27:58,960 Speaker 1: resolution rather than keep talking about tariffs being such a 511 00:27:59,000 --> 00:28:02,800 Speaker 1: great thing. People are now losing real money. The economy 512 00:28:02,880 --> 00:28:05,320 Speaker 1: is gonna slow and President Trump does not want to 513 00:28:05,359 --> 00:28:07,920 Speaker 1: go into next year in a recession as he tries 514 00:28:07,960 --> 00:28:10,400 Speaker 1: to run for re election. David, let's say that there 515 00:28:10,720 --> 00:28:12,840 Speaker 1: it becomes clear there's not going to be a trade 516 00:28:12,880 --> 00:28:15,679 Speaker 1: deal between the US and China. Would you be forced 517 00:28:15,720 --> 00:28:18,880 Speaker 1: to sell some of your stocks that you've been buying. Well, 518 00:28:18,920 --> 00:28:21,040 Speaker 1: we wouldn't be forced to sell them, but it definitely 519 00:28:21,040 --> 00:28:23,399 Speaker 1: would extend our time horizon. We think you're gonna have 520 00:28:23,400 --> 00:28:26,520 Speaker 1: a pretty quick rebound if you get some sort of 521 00:28:26,520 --> 00:28:28,560 Speaker 1: a deal, but if you don't, you're going to go 522 00:28:28,640 --> 00:28:32,200 Speaker 1: into a slowdown or a recession. But again, we think 523 00:28:32,200 --> 00:28:34,840 Speaker 1: it's self correcting because the more the market goes down 524 00:28:34,960 --> 00:28:37,920 Speaker 1: goes down, the more pressure there is on the United 525 00:28:37,960 --> 00:28:41,080 Speaker 1: States and on Chid into settling something. So this isn't 526 00:28:41,120 --> 00:28:44,040 Speaker 1: the type of problem that you had in two thousand, 527 00:28:44,040 --> 00:28:46,880 Speaker 1: where you had huge excess inventories and spending in the 528 00:28:46,920 --> 00:28:50,040 Speaker 1: internet bubble, or in two thousand and eight when you 529 00:28:50,120 --> 00:28:52,400 Speaker 1: had a huge real estate bubble and banks have bad 530 00:28:52,400 --> 00:28:56,440 Speaker 1: balance sheets. The overall economy is generally intact. You don't 531 00:28:56,480 --> 00:28:59,640 Speaker 1: have excess inventory. Consumer balance sheets are in great shape. 532 00:29:00,080 --> 00:29:02,200 Speaker 1: Bank balance sheets are in great shape, so you have 533 00:29:02,280 --> 00:29:04,240 Speaker 1: a lot of really good things out there. This is 534 00:29:04,280 --> 00:29:07,600 Speaker 1: a self inflicted wound that can be corrected easily, So 535 00:29:07,960 --> 00:29:10,240 Speaker 1: we think the longer it goes on, the great little 536 00:29:10,240 --> 00:29:13,960 Speaker 1: likelihood it gets fixed, simply because you can't continue in 537 00:29:14,000 --> 00:29:16,280 Speaker 1: the form that it is. David Cats, thank you so 538 00:29:16,360 --> 00:29:19,640 Speaker 1: much for joining us today. David Cats, chief investment officer 539 00:29:19,680 --> 00:29:23,840 Speaker 1: at Matrix Acid Advisers, joining us from New York on 540 00:29:23,880 --> 00:29:28,080 Speaker 1: the phone. Thanks for listening to the Bloomberg P and 541 00:29:28,200 --> 00:29:30,760 Speaker 1: L podcast. You can subscribe and listen to interviews at 542 00:29:30,760 --> 00:29:34,480 Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney, 543 00:29:34,520 --> 00:29:37,240 Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa bram Woyds. 544 00:29:37,280 --> 00:29:40,280 Speaker 1: I'm on Twitter at Lisa bramwo wits one before the podcast, 545 00:29:40,320 --> 00:29:42,920 Speaker 1: you can always catch us worldwide on Bloomberg Radio.