Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot com, and of course on the Bloomberg PIM.
Speaker 1: We were over the weekend, UH setting up the best
Speaker 1: way to discuss the Senator from Arizona. My first name
Speaker 1: was Trevillus. Yes, Admiral James George Well, James trevinas I said,
Speaker 1: let's get admirals trevit us out. Of course it tofts
Speaker 1: and of course this wonderful book See Power, which talks
Speaker 1: about our oceans. Uh is well, Admiral, thank you so
Speaker 1: much for joining us this morning. Your thoughts on John McCain, Well,
Speaker 1: let me start. We've been talking correctly about what it
Speaker 1: means that the nation to lose John McCain, If I may,
Speaker 1: I want to tell you what it means for the
Speaker 1: Navy to lose that. That's exactly what I wanted. He is.
Speaker 1: He really is a legend, starting back at the Naval
Speaker 1: Academy where he was the ultimate bad boy. He had
Speaker 1: more demerits than anybody in his class. He graduated at
Speaker 1: the absolute bottom of his class. He got away with
Speaker 1: everything and he was beloved for it. Flashed forward incredible
Speaker 1: heroism in Vietnam. We all know that um and then
Speaker 1: consistently for the rest of his life, the Navy continued
Speaker 1: to be a touchdown. He was the son and grandson
Speaker 1: of two fourth star admirals, and I can tell you,
Speaker 1: as a fourth star admiral myself, that is not an
Speaker 1: easy position. I look at my own children in the
Speaker 1: Navy struggling with that. John McCain was an icon for
Speaker 1: this nation, but even more so for the U. S. Navy.
Speaker 1: We will miss him deeply. Who are the new John
Speaker 1: McCain in the Navy? If you go to Annapolis today,
Speaker 1: who are the new John mccains? How do you build
Speaker 1: them today? We are fortunate that the service academies, and
Speaker 1: here I'll I'll grudgingly admit, the place just up the
Speaker 1: river called West Point does a pretty good job. Thanks
Speaker 1: as that. The Air Force Academy in Colorado, it wasn't
Speaker 1: aware of that either. And all those academies are all
Speaker 1: about duty, honor, country. They are all driven by honor
Speaker 1: codes that say we will not lie, cheat, or steel.
Speaker 1: And they produced people to throw a name out like
Speaker 1: Admiral Mike Mullen, Chairman of the Joint Chiefs for Star
Speaker 1: Admiral as straight as as an arrow and extraordinary leader.
Speaker 1: There are plenty of John McCain's out there these days.
Speaker 1: Admiral Steverda's John McCain was a naval aviator and that
Speaker 1: also had an effect on the way people look at
Speaker 1: appropriations and the power that the US Navy is able
Speaker 1: to project. I'm wondering if you could just comment on
Speaker 1: his role as an naval aviator and what legacy he
Speaker 1: will leave there. Yeah. I have to begin by saying
Speaker 1: that I came out of the Academy and I wanted
Speaker 1: to be a naval aviator, you know, like Goose and
Speaker 1: Maverick and Top Gun. By the way, the remake is
Speaker 1: coming out soon, uh, And I could never do it
Speaker 1: because every time I did a barrel role, I lost
Speaker 1: my lunch in the cockpit. So I have enormous respect
Speaker 1: for these aviators and really that ability to project power
Speaker 1: from c on these massive aircraft carriers, eight combat aircraft
Speaker 1: on the decks of each, seven acres, those sovereign American
Speaker 1: acres that go anywhere. They can move a thousand miles
Speaker 1: in a day. These are extraordinary machines of war, but
Speaker 1: they are useless without these naval aviators like John McCain.
Speaker 1: You commanded the Enterprise Carrier Strike Group and that conducted
Speaker 1: operations in the Persian Gulf operation of Rocky Freedom operation
Speaker 1: and during Freedom. What's changed in terms of the use
Speaker 1: of aircraft carriers to project not just military force but
Speaker 1: political influence. What's really changed since I had command of
Speaker 1: Enterprise and we were doing simultaneous operations in Afghanistan, in
Speaker 1: Iraq and over the Horn of Africa. That that incredible
Speaker 1: operational flexibility, that ability to maneuver, that has not changed.
Speaker 1: But what has changed is the rise of pure navies,
Speaker 1: notably China and Russia have become much more capable at sea.
Speaker 1: So instead of, if you will, getting open sea space
Speaker 1: to move those carriers and simply launch those strikes, today
Speaker 1: our carriers have to worry about other navies at sea
Speaker 1: who can compete with us, like China and Russia. That
Speaker 1: means we have to be better at missile defense, better
Speaker 1: at anti submarine warfare, better at protecting the carrier at
Speaker 1: seed than we had to previously. Admiraldu To finish up
Speaker 1: with our discussion of John McCain before we get back
Speaker 1: to more important international relations matters with your work at
Speaker 1: TuS Fletcher School. Al Hunt, in his beautiful essay, mentions
Speaker 1: John Glenn and I think there's not enough said about
Speaker 1: you know, we know of McCain over Vietnam, but the
Speaker 1: technology of the Korean War that Ted Williams and John
Speaker 1: Glenn flew in was is medieval? Is medieval the right word? Yes,
Speaker 1: medieval is the right word. And you're right to mention
Speaker 1: both of those legends, especially John Glenn, who was a
Speaker 1: lifelong naval aviator. He was a US Marine Corps and
Speaker 1: of course they're part of the Department of the Navy,
Speaker 1: and they flew basically flying crates that were very similar
Speaker 1: to what came out of World War Two. By the
Speaker 1: time John Cane was flying much more advanced radar, much
Speaker 1: better capability. You have to tip your hat to people
Speaker 1: like John Glenn when I when I look at what
Speaker 1: we're talking about here, it is about the deployment. His
Speaker 1: pin was mentioning the boats in the water today, the
Speaker 1: aircraft carrier excuse me, shift, so what I know spoken
Speaker 1: like your thank you? Yeah, God nailed nailed that as
Speaker 1: far as I got airmalster Vitas was a grumming canoe
Speaker 1: with wings, yes, with the wigs within this adimalster view.
Speaker 1: This is a new technology. Would Senator McCain know the
Speaker 1: two technology? Could he land a plane on one of
Speaker 1: these new carriers we have in a minute, And I
Speaker 1: will tell you that actually that technology makes it tom
Speaker 1: So you could probably land plane on an aircraft carrier.
Speaker 1: That's how good it is now. Seriously, John McCain, UH, open, intuitive,
Speaker 1: lifelong learner, and I think that's very important quality and
Speaker 1: a leader that ability to change and step into new technology.
Speaker 1: And John McCain did that every day. That's why he
Speaker 1: was so important on the Senate Armed Services Committee because
Speaker 1: he knew those technologies so well as he was funding
Speaker 1: them for us to take them for Well, let's finish
Speaker 1: up this discussion before we get back to uh the
Speaker 1: work at hand. Your wonderful book in my book of
Speaker 1: the Year, The Leader's Bookshelf had a seventy nine books
Speaker 1: in it. For our listeners, what is the book in
Speaker 1: your the Leader's bookshelf that has the most to do
Speaker 1: with Senator McCain. I think the one that would reflect
Speaker 1: the most would be another prisoner of war story, and
Speaker 1: that's James Stockdale, who you'll recall Tom was at one
Speaker 1: point vice presidential candidate with Rossborough. He and his wife Sybil.
Speaker 1: Stockdale and his wife Sybil wrote a book called In
Speaker 1: Love and War about Stockdale's time in the camps, alternating
Speaker 1: chapters between the two of them. It's a love story
Speaker 1: that transcends war and is also brings to focus what
Speaker 1: John McCain went you win those camps. Let's come back
Speaker 1: with James Durvinus the toughs. James Stockdale pim buried at
Speaker 1: the Naval Academy and Mr mckaine will join him. Yes,
Speaker 1: he was at most Stocktail was also he was shot down,
Speaker 1: uh in North Vietnam. That was in September. We'll come
Speaker 1: back with James Trevines. Lots to talk about on our
Speaker 1: International Relations film. I liked where you're going there with
Speaker 1: the boats at ham today and uh ships boats, ships, Yeah, well,
Speaker 1: I gotta say also, you know, just over the weekend
Speaker 1: there was a report that there were there were three
Speaker 1: Russian warships that were spotted passing through the bus Verus
Speaker 1: that connects Turkey. Let's let's come back and talk to
Speaker 1: James drevinus about that more typical themes what we thank him? First?
Speaker 1: Comments on uh Senator McCain John gollub with us listening
Speaker 1: to the opening show festivities, and there's sort of that
Speaker 1: August and in school used to start Wednesday of Labor Day,
Speaker 1: and that's sort of when you reallocated your portfolio. And
Speaker 1: as we all know, anybody with parents, we hate it.
Speaker 1: It's all starting earlier and earlier. Were there? Now, how
Speaker 1: do you reallocate this morning? Well, I'm first of all,
Speaker 1: I'm not sure that you really do relocate, but you
Speaker 1: and I were talking about this before on TV. The
Speaker 1: real question is how much of your money do you
Speaker 1: put in technology? And how how strong are they equity investment?
Speaker 1: Where do you put it in tech? Yeah? And I think, um, right,
Speaker 1: right now, these companies are just so powerful in their
Speaker 1: ability to earn and their potential upside, and even as importantly,
Speaker 1: the damage that they're doing to other large parts of
Speaker 1: the economy in the process of their success is just
Speaker 1: making them look relatively so much more attractive, relatively attractive,
Speaker 1: and that goes to the idea of value trap. Where's
Speaker 1: the value trap in the market? Our listeners. They're gonna
Speaker 1: make decisions there in cash. They've missed the bull market.
Speaker 1: Where are we twelve months trailing? I can bring this
Speaker 1: up in a Bloomberg quickly with the w E I function.
Speaker 1: It's only up eighteen percent double digit in the last
Speaker 1: twelve months. Okay, fine, where's the value trap that I
Speaker 1: want to buy cheap? But it's a mistake. Well, I
Speaker 1: will tell you. When I'm talking to traditional value investors,
Speaker 1: they're finding it hard to find anything that looks really cheap.
Speaker 1: But I think that perhaps the area might be in
Speaker 1: consumer staples. Companies that were very expensive have fallen a
Speaker 1: fair bit, are a little bit cheaper than the market
Speaker 1: right now, but their their brands are just getting demolished
Speaker 1: by technology. And we are changing the way that we're
Speaker 1: buying things because you can, you know, have you know,
Speaker 1: just search on Google or or or Amazon. I'm going
Speaker 1: to pick up a major consumers something you buy at
Speaker 1: the grocery store all the time, folks. In revenue growth
Speaker 1: is flat with the hope and prayer of single digit
Speaker 1: growth into the future. Versus a major tech company where
Speaker 1: in ninety days you can get two years of revenue
Speaker 1: growth that you get in a food company. And I
Speaker 1: know that you you love the idea of cash flows,
Speaker 1: but if you look at the price for per cash
Speaker 1: flow on these tech companies are trading at a discount
Speaker 1: to the market, partially because investors don't fully believe that
Speaker 1: this growth can continue into the future. And I think
Speaker 1: that they're likely gonna be wrong. And part of this
Speaker 1: is the management of those tech companies. Is it safe
Speaker 1: to say that that they're not making the accounting and
Speaker 1: capital deployment mistakes of previous Tech Bowl markets. I think
Speaker 1: there's a little more responsibility out there and maybe that
Speaker 1: or may just be that that some of these stories
Speaker 1: are are coming of age um and and you know,
Speaker 1: I was mentioning this again on on on the TV
Speaker 1: show this morning, but if you look at the revenue
Speaker 1: revenue chart of Amazon versus Walmart, one of them, you know,
Speaker 1: which is the Amazon line just looks like it launches,
Speaker 1: that it was at one pace for a period of
Speaker 1: time and then all of a sudden revenues and profits
Speaker 1: as we all became more comfortable with the types of
Speaker 1: brands and and this and it's not only that one
Speaker 1: company but others as well. How do you buy tech
Speaker 1: if our listeners say, I don't want to buy just
Speaker 1: the three names everybody else owns. Yeah, I mean you
Speaker 1: can buy any t I you can buy a broad portfolio.
Speaker 1: Might mind you. You know, there's a whole there's obviously
Speaker 1: there's there's there's dozens or hundreds of companies that that
Speaker 1: are part of that that ecosystem. And yeah, you don't
Speaker 1: want to buy just five or seven names. Um And
Speaker 1: and there's there's success stories in everything. In a matter
Speaker 1: of fact, if you even look in areas like reads
Speaker 1: UM with you know, real estate investment trust, which wouldn't
Speaker 1: be what you think about technology, but the most exciting
Speaker 1: companies there are companies they are building data centers UM
Speaker 1: for cloud computing, and those are interesting plays. Um. You're
Speaker 1: seeing that in you know, in in innovative consumer companies
Speaker 1: that are using technology. So it's not just in our group.
Speaker 1: Our David Wilson does a great equity update in the
Speaker 1: nine o'clock hour, sort of like the ten stocks of
Speaker 1: the day. They're moving in that and I have been
Speaker 1: really quite taken by the the the idiosyncrasies of each
Speaker 1: retail story. Now retail has got to react to Amazon.
Speaker 1: We all understand that as well. How do you how
Speaker 1: do you strategize about retail and the cacophony of the
Speaker 1: American consumption. Well, I think you have. I think you
Speaker 1: have a couple of stories here. One is that in
Speaker 1: the near term, these these companies are doing UH surprisingly
Speaker 1: well because the American consumer is in great shape and
Speaker 1: the you know, the unemployment rate is low, wages are
Speaker 1: beginning to rise, which has other side effects, but the
Speaker 1: consumers in super shape and that's helping UM a lot.
Speaker 1: But the question is is it masking UM? Perhaps? And
Speaker 1: I think that the long term story is is somewhat
Speaker 1: dire for many of these brick and mortar names, but
Speaker 1: but no different than people who have invested in Japan,
Speaker 1: where it was for twenty or thirty years a downward
Speaker 1: trend line, but with periods of brilliant jumps where you
Speaker 1: wanted to play play the game. Right now, maybe one
Speaker 1: of those times where retail, even though it's on a downtrend,
Speaker 1: looks absolutely brilliant because the consumers in great about I
Speaker 1: think that large cap companies are probably going to continue
Speaker 1: to do UH to outpage UM there in a in
Speaker 1: a world where again the economy is good right now,
Speaker 1: but in the world world. The economy has been tighter.
Speaker 1: We're managing margins has been the key to six says.
Speaker 1: Larger companies have just done a better job at managing
Speaker 1: those expenses in margins. John Golub with a start at
Speaker 1: sweets as we look at the equity Margaret, you know
Speaker 1: what in August afternoon we had animals to beat us
Speaker 1: on and wonderful comments on John McCain and talking about
Speaker 1: international relations on this day, as we did with John
Speaker 1: gobb of Credit Sweets, a little different conversation, and we
Speaker 1: could do that with Fred Lane with Lane Generational, which
Speaker 1: is a dead serious effort with Raymond James to actually
Speaker 1: talk to people about the emotion of money. Now. Granted,
Speaker 1: you know, Fred Lane, what what's your minimum investment? Two
Speaker 1: dred million, five thousand? What's a reasonable number? And to
Speaker 1: a lot of people that's upot and other people to
Speaker 1: rounding here. But the answer is, and I don't want
Speaker 1: to say, what's a doal gonna do? Should I be
Speaker 1: in the market. I want to talk about how the
Speaker 1: sweat is different now from the kids than it was
Speaker 1: twenty or forty years ago. You've got to deal with
Speaker 1: the emotion of families, the generational and how are the
Speaker 1: kids different than they were a generation ago. Well, I
Speaker 1: don't think the kids are so different. I think we
Speaker 1: as parents and some in some cases, have been overly
Speaker 1: concerned with our kids emotional well being and maybe haven't
Speaker 1: asked him to do enough chores and be self sufficient enough.
Speaker 1: I'm saying this about my own children as well. Um
Speaker 1: But I think in general that my concern is that
Speaker 1: the next generation, UM, well, I think find it a
Speaker 1: little harder to accumulate capital. Then this past generation has founded.
Speaker 1: The baby boomers have found it easier because there were
Speaker 1: so many of us entering the economy that drove GDP growth,
Speaker 1: And I think the I think today's world is a
Speaker 1: little different than it's gonna be harder to accumulate capital.
Speaker 1: I think global growth is going to be over time,
Speaker 1: it's going to be declining, and that's going to make
Speaker 1: it harder to accumulate capital. In the old days, you
Speaker 1: had a cash flow off of a pot of money
Speaker 1: and you could write ignorances tuition to whatever school. Today,
Speaker 1: pim correct me if I'm wrong. It's overwhelming. It is
Speaker 1: for families and generations. It's just overwhelming. How do you
Speaker 1: deal with that? How do you deal with somebody with
Speaker 1: a pot of money who says, look, I can't do
Speaker 1: this because I can't write the checks. I got to
Speaker 1: dip into capital. Well, Michael, actually myel no, no, we're
Speaker 1: taking notes. Yeah, no, I listen. Most of my clients
Speaker 1: aren't in that aren't directly in the crosshairs of that dilemma. However,
Speaker 1: I think the question, and I'm glad it's being asked increasingly,
Speaker 1: is is there are a good return on investment in
Speaker 1: a college education? The rack rate, the rate that's supposed
Speaker 1: to be paid frequently is not okay. So you know,
Speaker 1: you got average university, maybe they're seventy seventy five all end,
Speaker 1: but magically they come up with a scholarship for kids.
Speaker 1: But your kid could put the puck in under the
Speaker 1: crossbar from he was different, thank you. Both My kids
Speaker 1: were different because they were hockey players. And that's rather unfair.
Speaker 1: They are heavily recruited athletes and that and that they're
Speaker 1: they're putting a different class. But for the average, the
Speaker 1: really smart, hard working kid, he's probably not gonna get
Speaker 1: scholarship help if his parents have means and the and
Speaker 1: the worst people that the people who are the worst off,
Speaker 1: I should say, are the people are making two fifty
Speaker 1: thousand dollars year because they're making enough, and they've been
Speaker 1: good savers and put money away, and they have equity
Speaker 1: in their home, and the universities don't want to hear
Speaker 1: about the fact that they need help. And so you know, frankly,
Speaker 1: a lot of those kids are going to end up
Speaker 1: um the beneficiary of their parents large and the parents
Speaker 1: are gonna end up with a lot less than in
Speaker 1: the way of retirement income. And it's it's an unfortunate situation.
Speaker 1: That's one of the reasons I say to everybody, all clients,
Speaker 1: let me meet your children. Let's get the magic compounding
Speaker 1: going when they're young years old. Put away ten fifteen
Speaker 1: thousand dollars a year consistently every year. That adds up
Speaker 1: by the time you're fifty. It's a lot of money
Speaker 1: by the time you're fifty. Fred Fred Lane, I want
Speaker 1: to ask about the context in which we kind of
Speaker 1: do all these comparisons, you know, and and one of
Speaker 1: the things I've kind of noticed is everyone's trying to
Speaker 1: compare now to a period, let's say, after the Second
Speaker 1: World War, and if you look at that as the anomaly.
Speaker 1: Not everyone had any money. I mean, no one had anyoney.
Speaker 1: I can remember conversations around the dining room table where
Speaker 1: when asked about the depression, my father would say, what depression?
Speaker 1: No one had any money before, no one had any
Speaker 1: money during, and no one had any money afterwards. And
Speaker 1: I'm wondering whether we're comparing this to some nostalgic gold
Speaker 1: and age that really didn't exist from most people. Look,
Speaker 1: the standard of living for the average from Americans in
Speaker 1: general is breathtaking lee high, there's no question about it. Uh.
Speaker 1: And yet by comparison, when we see the super wealthy
Speaker 1: and the very wealthy all a function of the accumulation
Speaker 1: of wealth that's gone on, um, you know, certain people
Speaker 1: are gonna feel as if they've missed out, they missed
Speaker 1: missed because they only have two cars and they have
Speaker 1: a boat, and they don't have a summer home, and
Speaker 1: oh too bad. And and I'm not saying that dismissively.
Speaker 1: I'm not saying that dismissively risively, But I'm saying a
Speaker 1: different in a different fashion, which is the wealth effect
Speaker 1: has created a class of human being, a class, a
Speaker 1: small class who are unbelievably wealthy, but you know, it's
Speaker 1: a function time. You know you you remember, I remember
Speaker 1: Pam in six when I came to Wall Street, the
Speaker 1: dow was at six hundred in four d. If you
Speaker 1: had just put money into the market, it didn't matter
Speaker 1: what you did. You know, you you you would accumulate
Speaker 1: tremendous levels of capital. But you have to be in
Speaker 1: the game in order to benefit from the game. Patient
Speaker 1: and also unemotional, staying the course. Staying the course, you
Speaker 1: make adjustments, of course, but no pun intended. But but nonetheless, um,
Speaker 1: you have to be in the game, and you have
Speaker 1: to be unemotional and frankly, you know, when there's a
Speaker 1: rollover in the market, bingo, that's the time to be
Speaker 1: putting money to work. Where I grew up, it was
Speaker 1: people that bought Kodak, you know, from Frank Strong and
Speaker 1: George Eastman, or they bought a company called hay Lloyd,
Speaker 1: which became a company called Xerox. You must have clients
Speaker 1: about Apple for a song or Amazon when they sold books.
Speaker 1: What do you advise them to do when it becomes
Speaker 1: twenty and thirty and of a portfolio? How dare you
Speaker 1: sell that? Do you write? Puts again? It? Well? What
Speaker 1: do you do with a huge gain that overweights a portfolio. Well,
Speaker 1: I think writing some some calls against it, having some
Speaker 1: having some of that stockhold against you makes sense. I mean,
Speaker 1: they're comes a point when there's over concentration in a portfolio.
Speaker 1: I'm talking about, man, I'm not talking about some cutesy
Speaker 1: pie academics out of m I t talking about huge
Speaker 1: overconcer If someone is fifty or eighty or nine of
Speaker 1: their portfolio in one stock, you have to caution them
Speaker 1: to diversify because things happen right now. It's it's it's
Speaker 1: tricky because um, I mean, I have a client who
Speaker 1: owns tens of thousands of stock as a result of
Speaker 1: being on a board, UM, and the stock has continued
Speaker 1: to appreciate and appreciate and appreciate, appreciate. It's very well positioned.
Speaker 1: It's in the life sciences healthcare sect but well it's
Speaker 1: it's fift of this individual's net worth, So it's not excessive.
Speaker 1: It's a little excessive, quite honestly, but there's enough resources
Speaker 1: so it's it's okay. But um, you know we as
Speaker 1: you I think you know. Tom My portfolio for my
Speaker 1: growth investors is fifteen stocks we say we don't rebalance,
Speaker 1: but we do. When we get to eleven or twelve
Speaker 1: or thirteen percent, we have to rebalance. It's imprudent not
Speaker 1: to so we've owned companies, you know. But this is
Speaker 1: against in in Fred and I are on the same
Speaker 1: page on this full disclosure, folks, against the industry of rebalancing.
Speaker 1: If you get the three or four percent of a portfolio,
Speaker 1: and think of all the gain you lost on Apple
Speaker 1: or Amazon if you're smart enough to buy him. I mean,
Speaker 1: there's a whole list of stocks, look at the top.
Speaker 1: I mean, is it too too much, Fred to say
Speaker 1: it's basically on the edge of Sequoia. You and I
Speaker 1: are talking about a model that really harkens back to
Speaker 1: the genius of Sequoia. Absolutely listen. I mean concentration matters.
Speaker 1: You have to you can't. If you own the market,
Speaker 1: you will perform like the market. If you want to
Speaker 1: outperform the market, you have to be concentrated, which means
Speaker 1: you have to have a point of view, and you
Speaker 1: have to have sectors and companies that you know well
Speaker 1: that you feel will will perform in a superior way.
Speaker 1: And that's a focus on secular growth. In my experience
Speaker 1: buy stocks now. Yes, Um, although new money coming in.
Speaker 1: I'm telling my clients, look, if you if you're if
Speaker 1: you're the kind of person who's going to have a
Speaker 1: regret that we buy it at this level and it
Speaker 1: goes down ten percent because of which I'm not predicting,
Speaker 1: but if you're going to live with deep regret and
Speaker 1: you're not gonna you'll get that back within a year
Speaker 1: or two, there's an alternative E and so certain clients
Speaker 1: we're putting money into ninety and two hundred seventy day
Speaker 1: and three hundred sixty day c d s and when
Speaker 1: they when they're a tour, we put the money to work.
Speaker 1: So we're kind of dollar cost average. It's a psychological
Speaker 1: thing and it's not really compete. It's not coming to
Speaker 1: me to be doing it because I don't think we're
Speaker 1: in I don't think we're ready for over session. This
Speaker 1: was valuable, but it's not why we booked you are
Speaker 1: the Toronto maple Beliefs just totally loaded this year? Is
Speaker 1: it going to be like a joy for you to
Speaker 1: go to Boston Fleet Centered, Boston Garden whatever and see
Speaker 1: the Toronto map Beliefs. It's never a joy to go
Speaker 1: to Fleet because the Bruins just don't have the skilled
Speaker 1: players that I like to see plays. Really, I like
Speaker 1: to the opposing teams. Boston has always had a tradition
Speaker 1: in my view, Bobby or being the great exception of
Speaker 1: not having flashy, highly skilled, great skating players. Don't they
Speaker 1: just don't. They don't play e C a c Hockey.
Speaker 1: I mean, get you know, cut to the chase right right,
Speaker 1: Fred Lane with us and e c a c Hockey
Speaker 1: and of course with Lane generational with Raymond. Some interesting
Speaker 1: inside there, folks. Right now, Aaron Brown with us with
Speaker 1: ubs as we look at where to places the money
Speaker 1: and the big difference, Aaron is, all of a sudden,
Speaker 1: there's a yield in the short term space. Are we
Speaker 1: back to normal equity and bond correlations? Yeah? I think
Speaker 1: that we are back to what I think is going
Speaker 1: to persist for some time, which is a negative stock
Speaker 1: bond correlation. I think that's really important for asset managers
Speaker 1: and particularly for US as an asset allocator, in that
Speaker 1: given the fact that the stock bond correlation is negative,
Speaker 1: it helps actually for acid allocators to be long stocks
Speaker 1: and be long bonds. As a diversifier, so you actually
Speaker 1: can stay longer stocks and have a larger weight of
Speaker 1: allocation to equities in your portfolio. Given the fact that
Speaker 1: the stock bond correlation is negative, how two thousand six
Speaker 1: has been that long, right, it has, and we think
Speaker 1: it's going to persist. What could turn it negative is
Speaker 1: if we were to see inflation spike well ahead, Well,
Speaker 1: I was going to ask about the earnings boom that
Speaker 1: you're seeing in US companies particularly, and where they're going
Speaker 1: to use the money that they make. Are they going
Speaker 1: to be paying down more debt? And that means that
Speaker 1: it's going to be less supply of corporate bonds. So
Speaker 1: that's that's likely, right. I think that you are going
Speaker 1: to see them continuing to pay down debt. But I
Speaker 1: think that particularly right now, given the fact that rates
Speaker 1: are still low, that the expectation that rates are going
Speaker 1: to rise, you are still going to see a bringing
Speaker 1: pretty lofty bond issuance um, which is one of the
Speaker 1: reasons actually that we are negative high yield right now
Speaker 1: in our asset allocation portfolios. Aaron Brown with us, and
Speaker 1: we will continue right now. Is is such a tradition
Speaker 1: PIM is a moment of silence at the New York
Speaker 1: Stock Exchange. It is more often, but today most poign,
Speaker 1: isn't it. Yes, it is a moment of silence for
Speaker 1: the passing of Senator John McCain formal Navy aviator and
Speaker 1: also really a mavericka in the on the floor of
Speaker 1: the U. S. Senate, and in New York, of course
Speaker 1: Senate Schumer talking about renaming the Russell Building in Washington
Speaker 1: for John McCain. Let us listen in to the quiet
Speaker 1: at the New York Stock Exchange, the New York Stock
Speaker 1: Exchange and honor of John McCain. We've seen this many times, Pam.
Speaker 1: And of course as we come up on September eleven,
Speaker 1: I should announced within the remembrance of September eleventh that
Speaker 1: I'll be with Cantor Fitzgerald again this once again this
Speaker 1: year with scarlet food. Yes, and there in their efforts
Speaker 1: to remember September eleven, continue with the Aaron Brown of UBS,
Speaker 1: Managing Director ahead of asset allocation? Is asset allocation uh,
Speaker 1: something that depends on the perspective of UBS or the
Speaker 1: perspective of the client. It's a great question. It Actually
Speaker 1: we have our own capital market assumptions that our own
Speaker 1: asset allocation views. There are certain parameters the clients, when
Speaker 1: we're speaking with clients will set for us and with
Speaker 1: us until they'll ask us to take a specific overweight
Speaker 1: to an asset class, or to a country, or in
Speaker 1: many cases to hedge if we're talking to our sovereign
Speaker 1: wealth fund, to hedge, the underlying currency that they transact in.
Speaker 1: Also we're seeing increasingly is specific clients want to increase
Speaker 1: their private market asset allocation views. So whether it's into
Speaker 1: real estate, into hedge funds, into venture capital, or into
Speaker 1: real assets like real estate, timber, other commodities. So a
Speaker 1: lot of times, certainly we will have our own views
Speaker 1: and we have our own capital market assumptions that underpin
Speaker 1: how we allocate. But a lot of the dialogue that
Speaker 1: we have with clients is understanding what their parameters are
Speaker 1: and what they either want to include or exclude in
Speaker 1: terms of asset allocation. Well, the reason I asks, and
Speaker 1: I'm glad you mentioned these these situations is because risk
Speaker 1: is a two edged sword, right at least two, maybe
Speaker 1: a nine. But the reason being that risk is great
Speaker 1: when you're making money, But do they really understand the
Speaker 1: risks that they're taking by asking to go into these
Speaker 1: private investments that may lack liquidity. It's interesting because if
Speaker 1: you rewind a couple of years ago in terms of
Speaker 1: the asset allocation conversations that we were having, they were
Speaker 1: looking to mitigate risk, they were looking to lower their
Speaker 1: equity allocations. Now that we're you know, several years, in
Speaker 1: ten years into the bowl market equity assets have outperformed,
Speaker 1: you know, certainly what their expectations are. We're now actually
Speaker 1: seeing the opposite conversations having and clients wanting to increase risk,
Speaker 1: willing to take more risk on potentially more a liquidity
Speaker 1: risk as well, in order to earn a higher return.
Speaker 1: And so the question I think is prudent, which is
Speaker 1: is this the right point in the cycle to be
Speaker 1: doing that? And I think given how well really, you know, um,
Speaker 1: private market assets have performed, there is a willingness to
Speaker 1: be able to take that illiquidity risk. The one thing
Speaker 1: I will say is there are from our asset allocation studies,
Speaker 1: there are benefits to diversification, to expanding the asset classes
Speaker 1: and the remit in which you're investing in. You know,
Speaker 1: the question can you be too diversified? I'm sorry, can
Speaker 1: you be too diversified. Absolutely, you can be huge risk. Absolutely.
Speaker 1: It's been one of our themes for the show today.
Speaker 1: I mean, not that you want to own only Apple
Speaker 1: or only Amazon and look like a genius, but you
Speaker 1: know it's Peter Lynch called a diversifications a tangible issue,
Speaker 1: and that's why I think you really have to be
Speaker 1: critical in terms of the interplay between tactical asset allocation,
Speaker 1: which we define as inside is twelve months and longer
Speaker 1: term asset allocation, which we define as twelve months. How
Speaker 1: do you respond to clients very quickly or how do
Speaker 1: you respond to clients that diversified out and we're underinvested
Speaker 1: in equities and they're angry. I mean, so a lot
Speaker 1: of the studies we're doing now are for those types
Speaker 1: of clients. And we think that it's right now in
Speaker 1: the cycle you should still be long and be overweight equities,
Speaker 1: and we don't think that it's too late to be
Speaker 1: overweight equities at this point, but we understand that over
Speaker 1: the next three years we're predicting that we will have
Speaker 1: our recession. So you have to be really managed that
Speaker 1: tactical risk as well. Aaron Brown, thank you so much
Speaker 1: with you will be yesterday on the Battle of Alice
Speaker 1: asset allocation. This is a great pim to have Fred
Speaker 1: Lane with us in the Aaron Brown really, you know,
Speaker 1: it's it's like that timy year. Yes, and also just
Speaker 1: to you know, be a little patient and don't get emotional. Well,
Speaker 1: that were easier said than done, particularly with do you
Speaker 1: talk to James Travitis earlier about the navy and John
Speaker 1: McCain is appropriate to talk to the twenty second Attorney
Speaker 1: General of Arizona about John McCain in Arizona. And this
Speaker 1: is Grant Woods, who is the rarest or rare in
Speaker 1: American politics, someone within the middle territory of his Republican party.
Speaker 1: Grant was wonderful to have you with us in particularly,
Speaker 1: I would suggest out of New York and Washington, the
Speaker 1: focuses on John McCain of the east of Annapolis and
Speaker 1: of the Naval Academy where he'll be buried. How divisive
Speaker 1: was John McCain within Arizona Republican politics. Well, that's a
Speaker 1: good question. Thank and thank you for all you're doing
Speaker 1: here to honor Senator McCain and talk about his amazing life.
Speaker 1: Um well, I think as time went on. Uh, there's
Speaker 1: a big difference as but I think we see around
Speaker 1: the country between the hardcore activists and the Republican Party,
Speaker 1: and they were generally not very supportive of Senator McCain
Speaker 1: and haven't been for a long time. And then you
Speaker 1: had the general um pop elation there that you know,
Speaker 1: just Republicans throughout Arizona, and obviously he was very popular there.
Speaker 1: He won handily every time that that he ran. So
Speaker 1: you know, when you go to the Republican meetings with
Speaker 1: the hardcore, it wasn't pretty. Uh, you know, when when
Speaker 1: he when he ran for president in O eight and
Speaker 1: they they did their little election at the state Republican
Speaker 1: meeting and they endorsed Duncan Hunter for president now John McCain,
Speaker 1: and that didn't work out too well for them, I
Speaker 1: don't think. But it was typical, you know, it's just
Speaker 1: this just the way it goes. It was they were
Speaker 1: pretty hardcore and they didn't like the fact that he
Speaker 1: regularly worked with people across party lines. Can you explain
Speaker 1: the what seemed to be the personal enmity between President
Speaker 1: Donald Trump and Senator m team Why did that exist?
Speaker 1: I don't think, um, I think it's a one Way Street.
Speaker 1: To be honest with you, I think Senator McCain, Um,
Speaker 1: you know, he's, as everyone knows now and and has
Speaker 1: reflected upon, he had quite the remarkable life, and he
Speaker 1: had been up against different powerful forces his entire life.
Speaker 1: So here in his latter years, when Donald Trump entered
Speaker 1: the picture, that was no big deal for John McCain.
Speaker 1: John McCain is going to be John McCain, and that
Speaker 1: means he was going to say what he thought and
Speaker 1: do what he thought was right for the country. And
Speaker 1: he didn't really didn't really engage in any of this
Speaker 1: um personal enmity. On the other hand, it really did
Speaker 1: seem to get under Donald Trump's skin. And I think
Speaker 1: that's just because it's reflective of the men um and um.
Speaker 1: President Trump has been very um, very good at ridiculing
Speaker 1: people to the point where they ultimately backed down and
Speaker 1: go away or um or get on board, and that
Speaker 1: that just wasn't gonna happen with John. But I can
Speaker 1: tell you over the last couple of years, so since
Speaker 1: since Trump announced until until now, um, it really wasn't personal.
Speaker 1: It didn't really bother him. These insults or slights are
Speaker 1: all of that. The only one that got that bothered
Speaker 1: John was when he said that John wasn't a hero
Speaker 1: um because he was captured. And I promise you it
Speaker 1: was not because of him taking a personal insult to
Speaker 1: that there less, it was about the other po debuts
Speaker 1: and the fact that here in their later years they
Speaker 1: had to deal with this that's not and he really
Speaker 1: resented that. I will say Grant was one of the
Speaker 1: most employant images we've seen as we speak of John McCain,
Speaker 1: was him going up in airplane stairs with Rob Portman
Speaker 1: of Ohio. I would suggest you and Senator Portman represent
Speaker 1: the dinosaurs of the Republican Party, the dying breed, maybe
Speaker 1: with Olympia Snow of Maine of some form of Montorism.
Speaker 1: How risky is your Republican Party of doing a wig,
Speaker 1: if you will, of wandering into the trap of the
Speaker 1: Whigs of eighteen fifty, eighteen fifty two and on to
Speaker 1: the death of eighteen fifty six. Is that a legitimate
Speaker 1: risk out in Arizona. I I think so for sure,
Speaker 1: and I think it will happen here in Arizona, and
Speaker 1: I think it will happen across the United States if
Speaker 1: things don't change. And as Senator McCain always said, if
Speaker 1: if for no other reasons, He'd like for you to
Speaker 1: do things for the right reason. But if for no
Speaker 1: other reasons, look at the demographic and if if the
Speaker 1: Republican Party is going to be anti hispanding UH, anti minorities,
Speaker 1: if it's going to be um AH, if it really
Speaker 1: isn't going to stand up for the Constitution and just
Speaker 1: be divisive between groups, then there really is no future there.
Speaker 1: And if you talk to people who are under the
Speaker 1: age of I don't know, it's a thirty five, they
Speaker 1: don't understand why the Republican Party acts that way. They
Speaker 1: don't see race necessarily as as even an issue. They
Speaker 1: don't see discrimination against UM people because of their sexual
Speaker 1: orientation as as an issue. Why are you people still
Speaker 1: talking about these things? And I think as we go forward,
Speaker 1: UM Republicans are going to have to remember what they're
Speaker 1: all about, which is limited government, which is a strong
Speaker 1: national defense and working with our allies. And most importantly
Speaker 1: for John McCain's perspective, we have to stand for what
Speaker 1: he's it for, and that is free basic human rights
Speaker 1: in the United States around the world. And if we
Speaker 1: don't stand for that, if it's just a party about me,
Speaker 1: me mean, which is the opposite of John McCain. Then, um,
Speaker 1: then it probably deserves to go away. Well, I just
Speaker 1: want to reintroduce, uh, speaking with Grant Woods, former Attorney
Speaker 1: General of the State of Arizona and the former chief
Speaker 1: of staff for a Senator John McCain when he was
Speaker 1: in Congress as a congressman. Grant, just tell if you
Speaker 1: can a little. There's a story that maybe not a
Speaker 1: lot of people know, having to do with how Senator
Speaker 1: John McCain requested a combat assignment in the Vietnam War.
Speaker 1: And he was thirty years old when he was assigned
Speaker 1: to the U. S. S. Forestal and he escaped death
Speaker 1: on the forest all during a horrendous fire. Yes, yes,
Speaker 1: well yeah, that's where he he wanted to be where
Speaker 1: the action was. You know, he was, Um, he was
Speaker 1: quite the character. Um always and in those days he
Speaker 1: was kind of your Tom Cruise stereotypical fighter pilot, you know,
Speaker 1: a little hard, play hard, and and he wanted to
Speaker 1: be he wanted to be in combat. And then when
Speaker 1: he went on he was on the forest call, he
Speaker 1: was on the deck that day, and uh, that was
Speaker 1: just one of the big tragedies of all time in
Speaker 1: our military. And I know, I know, Jona. I mean,
Speaker 1: there was a guy, I forget, I forget what his
Speaker 1: nickname was, but there was a guy who would wash
Speaker 1: your window of your of your jet just before you
Speaker 1: were getting ready to take off. So they were all
Speaker 1: lined up and this guy always gave him a thumbs
Speaker 1: up and and he said something, some little phrase. And
Speaker 1: so there's John in there in the cockpit. The guy
Speaker 1: does that, and then all of a sudden there's this
Speaker 1: huge explosion with one of these bombs that gone up
Speaker 1: in the and he looked down, Uh there was a fire,
Speaker 1: and then another big explosion, and when he looked down
Speaker 1: that that guy who he knew very well, who was
Speaker 1: his friend, was gone. He had evaporated into the air.
Speaker 1: And somehow John got out of that plane before the
Speaker 1: next huge explosion and made his way across the deck,
Speaker 1: whereas you know, many many people didn't um. And I
Speaker 1: think the remarkable thing there, which doesn't surprise anyone, is
Speaker 1: that almost immediately he asked to uh go to another
Speaker 1: ship so he could get back in the air and
Speaker 1: back fighting for our adventure. Well, great Woods, thank you
Speaker 1: so much. Was greatly greatly appreciate your attendis today. Mr
Speaker 1: Woods a close, close friend and adviser to John McCain
Speaker 1: in Arizona. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to views on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio