WEBVTT - Surveillance: Black Lives Matter With LeBron 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.760 Bloomberg dot Com, and of course on the Bloomberg Right Now. 0:00:28.200 --> 0:00:31.240 On leadership, and it is a leadership that started out 0:00:31.240 --> 0:00:34.960 of a very difficult, challenging childhood and what he did 0:00:34.960 --> 0:00:38.599 at St. Vincent St. Mary High School in Akrona, Ohio, 0:00:39.000 --> 0:00:42.200 and that was Lebron James leading early. It is something 0:00:42.240 --> 0:00:45.560 he has continued on our Jason Kelly with this important 0:00:45.680 --> 0:00:49.479 interview with Mr James on his business enterprises. Here is 0:00:49.680 --> 0:00:54.520 Lebron James on a leadership and the National Basketball Association. 0:00:55.720 --> 0:00:57.880 Being a leader is not when. It's not about when 0:00:57.880 --> 0:01:00.560 you decide to do it. It's every single day. If 0:01:00.600 --> 0:01:02.200 you want to be a leader, or you call yourself 0:01:02.200 --> 0:01:04.160 a leader, has to be every single day that you 0:01:04.200 --> 0:01:06.480 wake up and you jump out of your bid and 0:01:07.200 --> 0:01:09.000 people are gonna follow you. Then if people are gonna 0:01:09.040 --> 0:01:11.679 understand you and understand that you're not perfect, but they 0:01:11.680 --> 0:01:13.920 know you are true to them, so you know, my 0:01:14.000 --> 0:01:16.199 mission has always been that and it will it will 0:01:16.240 --> 0:01:18.720 not change. I will continue to point out things that 0:01:18.760 --> 0:01:21.560 I know is wrong, UM if I see it, UM, 0:01:21.600 --> 0:01:24.720 not only socially, but also with cameras in my face. 0:01:25.000 --> 0:01:27.040 And I will also continue to leave by example as 0:01:27.040 --> 0:01:29.560 a model citizen, as a black man growing up UM 0:01:29.560 --> 0:01:33.760 in America. So my mission stays the same, Lebron, I 0:01:33.800 --> 0:01:38.679 do wonder I think back toeen and and Eric Garner 0:01:38.720 --> 0:01:41.560 and the T shirt UH that you wore, and the 0:01:41.680 --> 0:01:46.640 NBA has consistently stood behind you and its players in 0:01:46.720 --> 0:01:49.760 terms of protests. Other leagues have not done that, most 0:01:49.800 --> 0:01:53.920 notably the NFL. Now the NFL has changed its tune. 0:01:54.200 --> 0:01:57.320 What do you make of that? UM? I do know 0:01:57.520 --> 0:01:59.160 one thing I can speak from is what I'm a 0:01:59.160 --> 0:02:01.040 part of and a part of the league with a 0:02:01.040 --> 0:02:03.760 great commissioner and Adam Silver, and he's always listened to 0:02:03.760 --> 0:02:07.360 the voice of his players, UM, and I've always respected 0:02:07.400 --> 0:02:09.600 him of that for that, UM, He's given us an 0:02:09.639 --> 0:02:12.800 opportunity to when we feel something that's very wrong with society, 0:02:13.200 --> 0:02:15.880 that's very wrong with what's going on in our communities, 0:02:16.080 --> 0:02:18.320 that we could speak upon that and use the NBA 0:02:18.440 --> 0:02:20.960 shield to back us. And UM, I have nothing but 0:02:21.040 --> 0:02:23.720 respect for Adam Silver. Um, as far as the NFL, 0:02:23.880 --> 0:02:27.400 I'm not in those locker rooms. I'm not with those guys. 0:02:27.440 --> 0:02:31.040 But I do understand, um, that an apology. I have 0:02:31.200 --> 0:02:35.760 not heard true official apology to Colin Kaepernick on what 0:02:35.880 --> 0:02:37.960 he was going through and what he was trying to 0:02:38.000 --> 0:02:40.840 tell the NFL and tell the world about why he 0:02:40.880 --> 0:02:43.400 was kneeling when he was doing that as a San 0:02:43.440 --> 0:02:47.480 Francisco forty niner. Um, So I just see that to 0:02:47.600 --> 0:02:50.919 be still be wrong. Um. And now they are listening something. 0:02:50.960 --> 0:02:53.520 But I still think, um, we have not heard that 0:02:53.600 --> 0:02:58.080 official apology to a man who basically sacrifice everything for 0:02:58.120 --> 0:03:00.920 the better at his world. So I can say that 0:03:00.960 --> 0:03:05.959 about about that, And Maverick, I wonder about the Kaepernick 0:03:05.960 --> 0:03:09.200 issuing from from your perspective, knowing the business world, the 0:03:09.280 --> 0:03:14.160 endorsement world, the economic element of this, how does that 0:03:14.280 --> 0:03:17.160 change going forward? Given that, I think it's fair to 0:03:17.160 --> 0:03:22.720 say Colin Kaepernick was vindicated in a lot of senses. Yeah, well, 0:03:22.760 --> 0:03:26.399 I think you know. The fact of the matter is, Um, 0:03:26.560 --> 0:03:29.679 Colin Kaepernick did what was on his heart, He did 0:03:29.680 --> 0:03:32.360 what he felt was right. He took all the right steps. 0:03:32.400 --> 0:03:36.480 People always obviously look over that he met with the military. Uh. 0:03:36.680 --> 0:03:38.760 I think it was a marine or maybe even a 0:03:38.840 --> 0:03:41.480 Navy seal that told him sitting was the wrong thing 0:03:41.480 --> 0:03:43.200 to do, that he should knew. That's where he actually 0:03:43.240 --> 0:03:45.000 got the idea. He took the right steps. But I 0:03:45.040 --> 0:03:49.560 think as black people, you know, we've been ringing this 0:03:50.240 --> 0:03:54.560 alarm for a long time, and and and the rest 0:03:54.560 --> 0:03:57.680 of the country, who are you know, I happen to 0:03:57.720 --> 0:03:59.839 believe most people are good, so who are not? Even 0:04:00.040 --> 0:04:03.440 races have just been hitting snooze on it because it's 0:04:03.480 --> 0:04:06.080 just the system has been set up in a way 0:04:07.040 --> 0:04:11.440 that even if you're not racist, right, that you still 0:04:11.440 --> 0:04:18.680 perpetuate a system that oppresses black people. An important conversation 0:04:18.720 --> 0:04:21.840 when Jason Kelly started this project in February, but now 0:04:21.880 --> 0:04:25.880 in the summer of our discontent, exceptionally important to listen 0:04:25.920 --> 0:04:29.000 to Lebron James not only on his business affairs, but 0:04:29.120 --> 0:04:36.440 also on his take on American society. This is a joy. 0:04:36.560 --> 0:04:39.080 He comes to us today within the vicinity of his 0:04:39.520 --> 0:04:42.599 Colby College, and he comes to us from BMB Perry 0:04:42.640 --> 0:04:45.960 Bob where he does global allocation. But far more than that, 0:04:46.040 --> 0:04:50.440 Mark Howard was an institution at Lehman Brothers for years 0:04:50.440 --> 0:04:54.839 in credit analysis, were thrilled he could join us this morning. Mark, 0:04:54.880 --> 0:04:58.000 I'm gonna cut to the chase. There's no real yield. 0:04:58.480 --> 0:05:02.200 There's barely any nominal yield at all. What's a retire 0:05:02.160 --> 0:05:05.159 read to do? Tom, That's a great question, because I 0:05:05.160 --> 0:05:07.200 think even the real yield that is there is a 0:05:07.200 --> 0:05:10.520 little bit illusory. For example, if you strip out some 0:05:10.600 --> 0:05:14.160 of the distressed assets in the high yield market that 0:05:14.160 --> 0:05:18.680 that the same person wouldn't normally buy, the remaining yield 0:05:18.800 --> 0:05:21.760 or spread is really uh, quite average, if you will, 0:05:21.760 --> 0:05:23.919 in the scheme of things looking over time. So I 0:05:23.920 --> 0:05:27.039 think a retiree is supposed to be diversified. They're supposed 0:05:27.040 --> 0:05:29.840 to own equities, perhaps a little bit more than they 0:05:29.839 --> 0:05:33.080 normally do. And uh and they have to be very 0:05:33.120 --> 0:05:36.000 careful to keep dry powder, to buy tips like we 0:05:36.080 --> 0:05:39.640 had yesterday, because the way to generate return, the way 0:05:39.680 --> 0:05:44.160 to generate alphau is to be fairly nimble. Unfortunately, this 0:05:44.279 --> 0:05:46.480 is a this is a very odd market, as John 0:05:46.640 --> 0:05:50.719 is talking about. On many occasions, policymakers are really distorting 0:05:50.760 --> 0:05:53.920 things and that makes it very difficult for retirees. Well, 0:05:54.040 --> 0:05:56.240 John does that on his property. The real yield we're 0:05:56.279 --> 0:05:59.280 looking for that folks to come back sometime in two 0:05:59.320 --> 0:06:02.920 things and twenty two. Mark, I want thank you, Mark. 0:06:02.960 --> 0:06:05.800 I want to look right now when I look at 0:06:05.839 --> 0:06:08.200 the yield dynamics, there's a one way bet right now 0:06:08.240 --> 0:06:13.760 in conversation about higher yields, yield curve control, etcetera. Do 0:06:13.839 --> 0:06:15.960 you push against the one way bet and look for 0:06:16.040 --> 0:06:20.880 yields stability or even lower yields? You know, Tom, I 0:06:20.920 --> 0:06:23.080 think that you know, there's a there's a short term 0:06:23.080 --> 0:06:25.520 and there's a longer term. We do think that that 0:06:25.640 --> 0:06:28.440 there's probably gonna be some give back and perhaps a 0:06:28.480 --> 0:06:31.640 bit of a rally and yields, but ultimately we you know, 0:06:31.720 --> 0:06:35.200 over the into the fourth quarter as we have election 0:06:35.320 --> 0:06:40.640 uncertainty and and other noise in the marketplace defensiveness. But 0:06:40.640 --> 0:06:44.320 but longer term, we think central banks are gonna really 0:06:44.480 --> 0:06:47.159 keep pressure on yields and it's gonna be hard to 0:06:47.200 --> 0:06:49.520 fight that tape. That's a that's a tough one to 0:06:49.560 --> 0:06:52.800 fight against. Mark. There's a real worry about the instability 0:06:52.800 --> 0:06:55.120 and some of the states across the United States right now. 0:06:55.120 --> 0:06:57.080 And I just want to and I just wanted a 0:06:57.160 --> 0:07:00.159 little bit more deeply if the United States become the 0:07:00.160 --> 0:07:02.800 source of instability in the months to come. What does 0:07:02.839 --> 0:07:06.200 that mean for the primacy of dollar denominated assets. You know, 0:07:06.320 --> 0:07:08.880 it's a it's a great question, Jonathan, and and I 0:07:09.000 --> 0:07:11.880 hear that increasingly from global investors. We've seen quite a 0:07:11.920 --> 0:07:15.440 bit of money flowing into Europe, for example, recently reflecting 0:07:15.560 --> 0:07:22.480 both a more active ECB, better growth data, and underlying 0:07:22.600 --> 0:07:26.360 that issue about whether the currency tail winds might be 0:07:26.360 --> 0:07:28.240 better in Europe than in the US. But the dollar 0:07:28.280 --> 0:07:31.920 has been surprisingly resilient and as you as you know, 0:07:32.040 --> 0:07:35.640 a lot of people expect one more round a fiscal stimulus, 0:07:35.680 --> 0:07:40.840 particularly its administration looks to bolster it's reelection chances. So um, 0:07:40.880 --> 0:07:43.240 you know, it's it's it's hard to see the dollar 0:07:43.320 --> 0:07:46.600 giving up a lot in the short term, but longer term, yes, 0:07:46.600 --> 0:07:49.800 that dollar primacy is at some risk, particularly depending on 0:07:49.800 --> 0:07:52.920 how the election goes later this year. So Mark, is 0:07:52.960 --> 0:07:55.800 that basically your way of saying that you currently are 0:07:55.800 --> 0:07:58.880 still betting on US dollar assets ahead of others or 0:07:59.000 --> 0:08:02.080 does this mean this is sort of a medium term 0:08:02.120 --> 0:08:05.720 bet on on Europe? How how are you positioning well, 0:08:06.000 --> 0:08:09.640 As one of your earlier guests Andrew said before in 0:08:09.680 --> 0:08:12.920 a in a risk off. Treasuries still hold a lot 0:08:12.960 --> 0:08:16.200 of the lure, as does high quality credit, so uh, 0:08:16.240 --> 0:08:18.600 in the in the shorter term, not that we expect 0:08:18.600 --> 0:08:21.200 a major risk off, but we wouldn't be surprised to 0:08:21.240 --> 0:08:24.480 see a pullback over the quiet summer months when liquidity 0:08:24.520 --> 0:08:28.400 is less and as investors position four, we think the 0:08:28.480 --> 0:08:32.080 dollar will remain resilient, So we're not uh anticipating a 0:08:32.080 --> 0:08:35.199 big move. We do think structurally the dollar is a 0:08:35.240 --> 0:08:38.240 little bit expensive versus the basket and versus the Euro 0:08:38.880 --> 0:08:41.680 longer term. Uh, you know, there there are very real 0:08:41.760 --> 0:08:45.040 questions about dollar primacy and UM, but we're not staking 0:08:45.200 --> 0:08:48.400 big allocation bets on that until we get closer to 0:08:48.440 --> 0:08:50.920 the election and have more clarity around that mark. You 0:08:50.960 --> 0:08:54.120 talked about central bank distortions, and there is this feeling, 0:08:54.200 --> 0:08:56.760 don't fight the Fed, go into risk your assets because 0:08:56.800 --> 0:08:59.480 yields will remain ultra ultra low and they're going to 0:08:59.559 --> 0:09:03.160 keep pump being that prime to get asset prices higher. 0:09:03.400 --> 0:09:05.480 At what point does that fall down? As we see 0:09:05.480 --> 0:09:08.160 the highest pace of bankruptcy is in the US since 0:09:08.200 --> 0:09:10.680 two thousand and nine, with Chuck E. Cheese filing for 0:09:10.720 --> 0:09:15.440 bankruptcy this morning, at least it's a it's a terrific question. 0:09:15.600 --> 0:09:18.880 And and you know, increasingly we're seeing fund managers, the 0:09:18.960 --> 0:09:23.600 big major fund managers acknowledge that, uh, you know, rates, 0:09:23.679 --> 0:09:26.360 much of the mortgage market, the investment grade credit market, 0:09:26.360 --> 0:09:29.520 even part of the double being market is hugely distorted. 0:09:29.640 --> 0:09:31.520 And that's not just in the US, but it's it's 0:09:31.840 --> 0:09:34.319 in Europe as well. And so equities are the one 0:09:34.360 --> 0:09:38.720 place to kinda to pivot or to to uh swing 0:09:38.760 --> 0:09:41.320 your at your risk allocation. And the very low end 0:09:41.320 --> 0:09:43.400 of the high yield market, of course that's not liquid 0:09:43.520 --> 0:09:47.320 enough to do very tactically. So um we we do 0:09:47.480 --> 0:09:51.280 see um, you know, the potential for particularly as we 0:09:51.320 --> 0:09:55.160 see the second wave of corporate stress. Right the first 0:09:55.200 --> 0:09:58.440 wave were the most directly affected companies, the airlines, the 0:09:58.440 --> 0:10:02.000 cruise companies, U edging, and the light The second wave 0:10:02.240 --> 0:10:04.320 are going to be the ones that are exposed to 0:10:04.400 --> 0:10:08.120 have been basically broken, either from a business model or 0:10:08.120 --> 0:10:10.480 from a balance sheet standpoint, and that's where you're going 0:10:10.559 --> 0:10:13.360 to see more bankruptcies, particularly in the energy patch, but 0:10:13.480 --> 0:10:17.360 also in retail and in other sectors. So I think 0:10:17.360 --> 0:10:20.160 you see more dispersion, Lisa, I think you see more 0:10:20.280 --> 0:10:24.719 differentiation between winners and losers, and then ultimately consolidation through 0:10:24.760 --> 0:10:28.400 the bankruptcy process. Only Lisa could fit in Chucky Cheese, 0:10:28.480 --> 0:10:30.600 and our guests would call it a great question. Still, 0:10:30.640 --> 0:10:33.439 that's something Tom and I seriously can't do. Tom Caine 0:10:33.480 --> 0:10:35.960 for me now, looking at this data at the moment, 0:10:36.280 --> 0:10:38.960 there's a serious shift and we need to talk about it. 0:10:39.040 --> 0:10:41.400 We were focusing on sequential growth and I think we 0:10:41.480 --> 0:10:43.600 all got to slap around the head big time in 0:10:43.640 --> 0:10:45.880 the last few weeks to focus once again on what's 0:10:45.880 --> 0:10:51.320 really important, subcapacity economic growth. For a long long time, 0:10:51.400 --> 0:10:54.400 we will be below potential. We talked about the airline 0:10:54.400 --> 0:10:57.319 sector is just one example. They're going to be below capacity, 0:10:57.320 --> 0:11:00.360 below potential for months, if not years, Tom, and that's 0:11:00.360 --> 0:11:03.000 a massive problem for this economy. This is a really, 0:11:03.040 --> 0:11:05.680 really important question. I should point out, folks, I've never 0:11:05.760 --> 0:11:08.520 eaten at Charles Cheese. I'll try to get there before 0:11:09.120 --> 0:11:11.800 they shut down at the shop Mark Howard. What is 0:11:11.840 --> 0:11:14.640 so important about this is it really goes to the 0:11:14.720 --> 0:11:19.760 comfort of investment grade. If John gets his subcapacity economy, 0:11:19.840 --> 0:11:23.720 does that take out profits and reduce margins, which begins 0:11:23.760 --> 0:11:28.840 to affect the price of investment grade paper. Tom. In 0:11:28.840 --> 0:11:31.520 a normal world that absolutely would be the case. So 0:11:31.679 --> 0:11:34.440 we're not in a normal world where central banks are 0:11:34.520 --> 0:11:37.520 are really propping up the investment grade market to maintain 0:11:38.200 --> 0:11:41.760 um you know, good good liquidity in these markets and 0:11:41.800 --> 0:11:46.000 access to capital. All the major US corporations who needed 0:11:46.040 --> 0:11:49.440 money this year are into early next for refinancing or 0:11:49.559 --> 0:11:53.040 for um for investment purposes have tapptain marketing. As you know, 0:11:53.080 --> 0:11:55.760 we've had one point two trillion of I g issuing 0:11:55.880 --> 0:11:57.800 so far this year. The back half of the year 0:11:57.840 --> 0:12:01.120 is gonna be a lot less, perhaps only four million 0:12:01.080 --> 0:12:03.800 a billion of issuance. So there just isn't the need 0:12:03.920 --> 0:12:08.080 for for this type of excuse me, isn't the need 0:12:08.200 --> 0:12:10.760 for fresh capital. And as long as the central bank 0:12:10.840 --> 0:12:14.280 is they're buying assets. We don't see a real pullback, 0:12:14.400 --> 0:12:16.719 only a modest pullback investment grates and we think it's 0:12:16.720 --> 0:12:21.439 a safe asset class for the foreseeable future. Mark. Maybe 0:12:21.480 --> 0:12:23.520 this is off the mark, Howard Radar, but I'm going 0:12:23.559 --> 0:12:26.160 to ask it. I think it is a timely question, folks, 0:12:26.280 --> 0:12:30.040 and that is of state and city finances in America. 0:12:30.200 --> 0:12:33.960 How urgent is it in the fixed income space to 0:12:34.080 --> 0:12:39.840 get our state and local taxation fiscal debt fixed soon. 0:12:40.720 --> 0:12:43.080 Well at the time, you know that there are both 0:12:43.120 --> 0:12:46.000 structural and short term issues, whether it's the long term 0:12:46.000 --> 0:12:50.000 pension and retiree health issues that that plague our our 0:12:50.120 --> 0:12:53.239 municipalities in our states. But in the short term they're 0:12:53.280 --> 0:12:56.000 you know, very real budget gaps that need to be 0:12:56.520 --> 0:13:00.280 um sorted out by uh, you know, per per law UH. 0:13:00.559 --> 0:13:02.240 And I think there's gonna be a band aid applied 0:13:02.280 --> 0:13:05.400 to that in one form or another. No structural fix 0:13:06.000 --> 0:13:08.800 um and so it's important, but I think Washington is 0:13:08.800 --> 0:13:10.679 working on it, and I think it will particularly now 0:13:10.720 --> 0:13:13.640 with the migration of the virus. It's no longer a 0:13:13.720 --> 0:13:18.080 we they phenomena uh, and money being transported from one 0:13:18.080 --> 0:13:20.199 state to another. We're all in this together. So I 0:13:20.240 --> 0:13:22.559 think we're going to see some some band aids applied 0:13:22.600 --> 0:13:25.440 to that fiscal situation. But it's a very real issue 0:13:25.440 --> 0:13:28.360 for a lot of insurance companies, particularly pncs that are 0:13:28.440 --> 0:13:30.839 very involved in the muni market, and of course for 0:13:30.880 --> 0:13:34.520 a broad swath of retirees who who are active investors there. 0:13:34.720 --> 0:13:37.440 Mark how would have BEFITS has today to catch up 0:13:37.440 --> 0:13:44.160 with he said, right now, with us Sebastian page of 0:13:44.240 --> 0:13:49.000 Tiro Price of course, the venerable buy side institution in Baltimore, Maryland, 0:13:49.080 --> 0:13:51.080 and we're thrilled he could be with us for a 0:13:51.160 --> 0:13:55.200 mid year correction. Sebastian, Within all this turmoil and the 0:13:55.280 --> 0:13:59.120 record uncertainty, how do you reframe for the second half 0:13:59.200 --> 0:14:01.760 of two thousand wanting Well, Tom, we just had our 0:14:01.800 --> 0:14:06.319 Assocation Committee meeting and we will remain neutral for now 0:14:06.360 --> 0:14:09.480 between stocks and bonds. You were just talking about the 0:14:09.600 --> 0:14:13.160 key risks with the reopening, and those are all very 0:14:13.280 --> 0:14:17.320 immediate risks, the pandemic and the reopening risk, and the 0:14:17.360 --> 0:14:20.760 only thing I would say there is a significant risk. 0:14:20.840 --> 0:14:24.440 But we also have to contrast the statistics on the 0:14:24.560 --> 0:14:27.760 number of deaths and hospitalizations and there's a risk there 0:14:27.760 --> 0:14:30.720 in Texas that came out this morning with the number 0:14:30.960 --> 0:14:35.840 of cases themselves. So there's interpretation in the data and nuance, 0:14:35.920 --> 0:14:38.320 but it is a risk. Then the election, you know, 0:14:38.360 --> 0:14:40.720 for the second half of the year, and then just 0:14:40.800 --> 0:14:44.880 generally the uncertainty on the pace of the economic recovery. 0:14:45.040 --> 0:14:47.960 And this is where sentiment matters. What are what is 0:14:48.040 --> 0:14:50.760 priston with respect to what's going to come out. We're 0:14:50.800 --> 0:14:55.000 just talking about unemployment and claims data. You know, I 0:14:55.080 --> 0:14:57.280 listened to your show a lot, and every gas on 0:14:57.320 --> 0:15:00.880 Bloomberg Surveillance was pessimistic about six weeks ago. Right. The 0:15:00.920 --> 0:15:03.080 refrain was, we're not getting a V shape and it's 0:15:03.080 --> 0:15:06.680 going to be really, really slow more than people think. Uh. 0:15:06.720 --> 0:15:09.520 But recently you've seen a little bit of a reset 0:15:09.560 --> 0:15:13.240 of expectations on the upside. So that kind of gives 0:15:13.320 --> 0:15:16.760 us pause. Actually, because we tend to lean against the wind. 0:15:16.840 --> 0:15:20.280 So we're willing to take some cyclical exposures in our 0:15:20.320 --> 0:15:22.680 portfolios for the second half of the year, and we 0:15:22.760 --> 0:15:26.480 typically take a six to eight horizon under the hood 0:15:26.640 --> 0:15:30.680 of a neutral stocks re respond positioning, so we'll have 0:15:31.040 --> 0:15:34.520 slight overweights to small caps and emerging markets. For example, 0:15:35.000 --> 0:15:37.560 what is leaning against the winds Maine? An environment like 0:15:37.640 --> 0:15:42.760 this sebastition, you know it Generally speaking, it means looking 0:15:42.760 --> 0:15:46.280 at valuation. Now, in this environment, it's very hard to 0:15:46.280 --> 0:15:50.520 look at valuations because the fundamentals are very hard to estimate. 0:15:50.920 --> 0:15:55.520 But let's look at emerging markets. For example, emerging markets 0:15:55.560 --> 0:15:58.720 if you look at just forward pease, and again the 0:15:58.800 --> 0:16:02.479 data is not perfect, right, but relative to the US, 0:16:02.720 --> 0:16:06.240 they've essentially never been that cheap if you look at 0:16:06.280 --> 0:16:09.440 say fifteen twenty years of data, So we're talking nine 0:16:10.000 --> 0:16:14.400 percentile valuations in favor of emerging markets. So that's an 0:16:14.400 --> 0:16:17.720 example of where you could lean against the wind. But 0:16:17.960 --> 0:16:21.640 in the current environment, it's not just about valuations. It's 0:16:21.680 --> 0:16:24.600 also about, of course, the macro. The macro could be 0:16:24.800 --> 0:16:27.200 could be favorable for emerging markets as well. You know, 0:16:27.280 --> 0:16:31.640 we expect a weaker dollar, and just generally speaking, coming 0:16:31.640 --> 0:16:34.880 af you use business cycle models coming out of recessions, 0:16:35.440 --> 0:16:39.800 emerging markets tend to do well, and the sentiment could 0:16:39.800 --> 0:16:44.360 turn favorable if you take the six to eighteen much horizon. So, Jonathan, 0:16:44.360 --> 0:16:46.680 that's an example of how we would think about leaning 0:16:46.680 --> 0:16:49.200 against the wind. Look at how extremes some of the 0:16:49.320 --> 0:16:53.080 valuations are, and then look at the other factors fundamental, 0:16:53.120 --> 0:16:56.280 macro and sentiment. So looking at the fundamental factors, we're 0:16:56.280 --> 0:16:59.480 just getting news that Macy's, for example, is a planning 0:16:59.560 --> 0:17:02.320 layoffs that are roughly three percent of the total workforces. 0:17:02.360 --> 0:17:04.719 Plays into this feeling that as this goes on, as 0:17:04.760 --> 0:17:08.439 a sentiment SAgs in the face of those higher virus counts, 0:17:08.440 --> 0:17:12.880 the layoffs will only continue to mount. From your perspective. 0:17:12.920 --> 0:17:17.040 Are official shutdowns positive for sentiment given the fact that 0:17:17.119 --> 0:17:19.840 perhaps it will shore up some confidence that the virus 0:17:19.880 --> 0:17:23.680 will get simed and get curtailed. Or are they negative 0:17:23.760 --> 0:17:26.160 given the fact that they could spread fear further. It's 0:17:26.200 --> 0:17:28.639 clearer their negative, and it's clear that the news flow 0:17:29.119 --> 0:17:32.160 for sentiment over the last couple of days is negative 0:17:32.240 --> 0:17:35.040 because there's just so much uncertainty just about the pace 0:17:35.160 --> 0:17:37.960 of the reopening. Right if you just zoom out and 0:17:38.080 --> 0:17:42.199 take a longer time horizon, this is fundamentally more of 0:17:42.240 --> 0:17:46.600 a temporary shock than other economic shocks we've had in history. 0:17:47.119 --> 0:17:51.640 But day today, Uh, I don't think there's an expectation 0:17:51.720 --> 0:17:55.480 that will go back into full nationwide lockdown, but it 0:17:55.600 --> 0:17:59.080 will be a bumpy road towards reopening, and that is 0:17:59.200 --> 0:18:03.840 definitely negative sentiment. But if you're kind of a longer 0:18:03.960 --> 0:18:06.480 term investor, again going back to the idea of leaning 0:18:06.520 --> 0:18:09.600 against the wind, it gives you an opportunity to do 0:18:09.640 --> 0:18:14.879 that when valuations get really really stretched, you know. Yep, Sebastian, 0:18:15.000 --> 0:18:18.200 the heritage of tro price. Just one final question, if 0:18:18.240 --> 0:18:22.119 we could is growth. How do you deal with the 0:18:22.240 --> 0:18:25.879 mega growth stocks right now? How does tro price deal 0:18:26.480 --> 0:18:30.280 with these stocks that just go up and up and up. 0:18:30.600 --> 0:18:34.600 You know, for us, growth remained the secular winners. But 0:18:34.960 --> 0:18:38.440 going back to valuations, that's the most kind of worrisome 0:18:38.520 --> 0:18:42.320 aspect of the value growth decision. Just just look at 0:18:42.359 --> 0:18:45.800 the performance of value on your Bloomberg year today right 0:18:45.920 --> 0:18:50.679 minus seventeen and relative to growth over the last twelve months, 0:18:51.280 --> 0:18:57.720 thirty percent under performance value relative to growth. So we 0:18:57.920 --> 0:19:01.560 like the fact that growth are secular winners, and we're 0:19:01.600 --> 0:19:05.040 investors in growth stocks. But if I talk to some 0:19:05.119 --> 0:19:07.439 of our bottom up portfolio managers, some of them are 0:19:07.480 --> 0:19:11.159 starting to hedge some of these exposures with more cyclicality 0:19:11.240 --> 0:19:15.080 in the portfolio, looking at financials and energy stocks for example. 0:19:15.640 --> 0:19:19.080 US as asset allocators, we're going to be neutral for 0:19:19.200 --> 0:19:21.680 now between value and growth. Now is not the time 0:19:21.720 --> 0:19:25.439 to be a hero in either direction between value and 0:19:25.480 --> 0:19:29.440 growth stocks. Sebastian Page as hero price and really good advice. 0:19:33.320 --> 0:19:36.919 Right now we need to catch up unvail. You you 0:19:36.960 --> 0:19:39.800 can do that with Mario Gabella. Yeah is this title 0:19:39.840 --> 0:19:43.160 in that title at Gemco and Gabelle And yes he's 0:19:43.200 --> 0:19:46.320 a grateful anthropist and all that. But what you really 0:19:46.359 --> 0:19:49.679 need to know is he was a disciple of Roger Murray. 0:19:50.160 --> 0:19:52.439 One of the reasons we have the I R A 0:19:52.720 --> 0:19:55.680 and the old Kio account and frankly the four oh 0:19:55.720 --> 0:20:00.320 one K was a Columbia University professor who stood up 0:20:00.359 --> 0:20:06.040 and change the perception of value investing many many decades ago. 0:20:06.480 --> 0:20:09.320 Mr Gibelly was a disciple of Roger Murray and he 0:20:09.440 --> 0:20:14.600 joins us this morning, Mario, is value investing changing right now? 0:20:15.040 --> 0:20:18.040 Is it changed from Graham and Dodd to Roger Murray 0:20:18.119 --> 0:20:22.560 and that is it changing right now into is something new? Yeah, 0:20:22.680 --> 0:20:24.879 that's a great question. And I'm glad you mentioned h 0:20:25.560 --> 0:20:30.080 Roger and his success of Bruce Greenwald. What we do 0:20:30.160 --> 0:20:34.040 and basically read annual reports. I was on conference calls yesterday, 0:20:34.119 --> 0:20:37.280 for example, Patterson Company was talking about so on and 0:20:37.320 --> 0:20:41.199 we're talking to broadcast of executives to understand business. So 0:20:41.240 --> 0:20:44.320 we look with a microscope on the details that are unfolding, 0:20:44.359 --> 0:20:47.640 but also use a telescope and say what the company 0:20:47.680 --> 0:20:49.879 and the world gonna look like in five years. So 0:20:50.000 --> 0:20:53.960 nothing has changed. But going back, since the middle of March, 0:20:54.320 --> 0:20:58.840 Gubbies gold and now growth stocks have been the flavor 0:20:58.880 --> 0:21:01.480 of the day. The descriptive see between owning a basket 0:21:01.480 --> 0:21:05.560 of in quotes UH interesting value companies are particularly small 0:21:05.640 --> 0:21:08.400 leverage companies on the downside of a cycle has been 0:21:08.440 --> 0:21:11.320 a challenge. How Growth team led by Howard Wards up 0:21:11.520 --> 0:21:14.879 thirteen percent of value teams poly down fifteen. But we 0:21:14.920 --> 0:21:17.240 think the best is yet to come and over the 0:21:17.280 --> 0:21:19.600 next three or four years you're gonna get an enormous 0:21:20.119 --> 0:21:24.360 UH surgeon. And as the economy improves in value investing 0:21:24.720 --> 0:21:30.719 type stocks, you are notorious for the conference call and 0:21:30.800 --> 0:21:36.760 for speaking to managements. Are they impatient over there under valuation? 0:21:37.280 --> 0:21:41.480 And can they affect a plan to find value while 0:21:41.520 --> 0:21:44.600 they wait for the market to find value? Are they 0:21:44.720 --> 0:21:49.040 motivated to see their shares move higher? I don't know 0:21:49.080 --> 0:21:51.560 if they want motivated to move the shares higher. Independent 0:21:51.600 --> 0:21:55.400 of that, If you want to be practical, Tom, if 0:21:55.400 --> 0:21:57.840 you had a stock that was forty in your options, 0:21:57.880 --> 0:22:01.399 are ours? We're at a strike of forty five and 0:22:01.440 --> 0:22:05.119 you stock ten? You know you reset the option, So 0:22:05.359 --> 0:22:08.080 forget that and let's stop being cynical all the time. 0:22:08.119 --> 0:22:11.000 The point is that what is intrinsic value? What is 0:22:11.000 --> 0:22:14.119 the business worth? Why aren't there more deals surfacing that value? 0:22:14.119 --> 0:22:16.360 When will deals come back? When will the Henry Travis 0:22:16.440 --> 0:22:20.640 is and the private equity guys and the facts unfolded. 0:22:20.800 --> 0:22:22.560 And you're going to see more of that, particularly as 0:22:22.560 --> 0:22:26.600 you get closer to the election, going into independent of that, 0:22:27.119 --> 0:22:30.000 what how bad is bad? How good is good? What 0:22:30.080 --> 0:22:32.879 are the changes in the world with regards to the 0:22:33.119 --> 0:22:36.600 changing business models? You know Shampa has said this before, 0:22:36.720 --> 0:22:39.840 creative the structure, we call it creative innovation. What's going 0:22:39.880 --> 0:22:42.439 on in the digital world? And then how do you 0:22:42.640 --> 0:22:44.359 what's going on in the economy and what are the 0:22:44.359 --> 0:22:47.280 speed bumps short term and what are they long term? 0:22:47.320 --> 0:22:50.840 So you've got all of those. Okay, are you so? 0:22:51.040 --> 0:22:58.080 How bad is bad? And you'll get a dot today 0:22:58.080 --> 0:23:00.800 on the c Fred on his Federal Reserve of the 0:23:00.880 --> 0:23:03.440 United States and stress tests. But what the Fed did 0:23:03.520 --> 0:23:06.680 was they went into hypersonic in terms of monetary policy. 0:23:06.720 --> 0:23:09.480