WEBVTT - The Market is Forward-Looking, Miletti Says 0:00:00.080 --> 0:00:12.960 Yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:16.960 Jay Leye. We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.520 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.160 Bloomberg dot Com, and of course, on the Bloomberg Yeah. 0:00:33.720 --> 0:00:36.320 Your main story. Following a weekend of claims by President 0:00:36.320 --> 0:00:38.040 Donald Trump that he has the upper hand in a 0:00:38.080 --> 0:00:41.800 trade war with China, Beijing responding through state media by 0:00:41.800 --> 0:00:44.120 saying the nation is ready to endure the economic fallout. 0:00:44.200 --> 0:00:47.880 China is prepared for a protracted war and doesn't fear 0:00:47.960 --> 0:00:51.440 sacrificing short term economic interest. That's according to an editorial 0:00:51.720 --> 0:00:54.920 in the nationalist Global Times on Sunday evening joined me 0:00:54.960 --> 0:00:57.560 to discusses. Jeffrey you ubs wef Management, head of UK 0:00:58.040 --> 0:01:00.880 Investment Office, and he joins us from landon. Good morning 0:01:00.920 --> 0:01:02.720 to your Jeffrey, get me up to speed on where 0:01:02.760 --> 0:01:06.000 on earth we are with this trade dispute. Well, I 0:01:06.000 --> 0:01:08.600 mean know, firstly in the Global Times and probably will 0:01:08.800 --> 0:01:11.520 have its own let's just say in the readership to 0:01:12.240 --> 0:01:15.200 h to a cater to us. I wouldn't put it 0:01:15.240 --> 0:01:17.160 that far yet, but at the same time, you're going 0:01:17.200 --> 0:01:20.760 to see a combination of retric and restraint as what 0:01:20.840 --> 0:01:24.160 our economists start calling it. Uh And I think there 0:01:24.200 --> 0:01:26.520 are plenty of opportunities that China seas as well. I 0:01:26.520 --> 0:01:29.400 think there's a similar editorial, you know, and it was 0:01:29.440 --> 0:01:31.200 on the People's Daily or are somewhere else, So we 0:01:31.280 --> 0:01:34.360 noted external pressure is going to be an opportunity for 0:01:34.560 --> 0:01:37.240 reform in China and stressing that they need to play 0:01:37.280 --> 0:01:40.000 the long game as well, beyond a US political cycle 0:01:40.160 --> 0:01:43.240 or even any other economical business cycle there. So I 0:01:43.240 --> 0:01:45.960 don't think consure they're too fuss about it, but the prerogative, 0:01:46.120 --> 0:01:50.200 but the priority remains to stabilize growth. I think that's 0:01:50.200 --> 0:01:51.800 what Beijing is looking at right ye if that's a 0:01:51.840 --> 0:01:55.320 really interesting perspective because for many people, the external pressures 0:01:55.400 --> 0:01:59.240 and not an incentive to reform domestically, it's perhaps an 0:01:59.240 --> 0:02:02.000 incentive to deep away from those reforms. The big push 0:02:02.040 --> 0:02:05.280 to de leverage is perhaps a little bit too ambitious 0:02:05.320 --> 0:02:08.680 at this point. Why is it an incentive to reform um? 0:02:08.680 --> 0:02:10.519 I think there are two things there. You know. Firstly, 0:02:10.560 --> 0:02:12.640 in the China is realized that can't be dependent on 0:02:12.639 --> 0:02:15.600 and exports forever. The current account and export and value 0:02:15.600 --> 0:02:18.400 bad that's been coming down anyway over the last a 0:02:18.480 --> 0:02:21.440 few years or so. We've just had the fourtieth anniversary 0:02:21.480 --> 0:02:23.800 of reform and opening up exports did the job to 0:02:23.800 --> 0:02:26.079 start off with. Now there's a new growth model that's 0:02:26.120 --> 0:02:28.400 needed going up the value chain. The second part is 0:02:28.480 --> 0:02:31.359 and on the technology side. For example, various Chinese companies 0:02:31.360 --> 0:02:34.640 have realized how dependent they are on overseas and technology 0:02:34.639 --> 0:02:36.160 as well as parts of their supply chain. So the 0:02:36.160 --> 0:02:38.960 supply chain story works both ways. Right, So now is 0:02:39.000 --> 0:02:41.440 this the time for domestic innovation? Now? Does this need 0:02:41.480 --> 0:02:44.160 perform in the education system in terms of how incentives 0:02:44.160 --> 0:02:46.920 work in China? Those discussions ongoing right now. They just 0:02:46.919 --> 0:02:48.680 need to draw the right conclusions. Is it fair to 0:02:48.720 --> 0:02:51.520 say that we can draw the following conclusion that it 0:02:51.600 --> 0:02:53.520 seems to me that the US does have the upper 0:02:53.520 --> 0:02:56.840 hand in this trade dispute, at least in the short term. Jeff, Well, 0:02:56.880 --> 0:03:00.639 it's clear US um international exposure as far less and 0:03:00.680 --> 0:03:03.400 you're compared to other major economies around the world. If 0:03:03.440 --> 0:03:05.799 you just look at the overseas earnings and the Dow 0:03:06.000 --> 0:03:08.880 own verses those in the dacks that see um SMI 0:03:09.000 --> 0:03:10.959 for example, it's far lower in the US, so I 0:03:11.000 --> 0:03:13.240 would say the US is less to lose at this point. 0:03:13.680 --> 0:03:16.040 But again China probably wants to play the longer game here. 0:03:16.080 --> 0:03:17.800 It just seems to me, Jeff, that we viewed China 0:03:17.800 --> 0:03:20.799 at the moment almost exclusively through the trade prison, when 0:03:20.840 --> 0:03:22.720 there seems to me there is a lot more going 0:03:22.720 --> 0:03:26.160 on domestically. Just where are we with the Chinese economy 0:03:26.160 --> 0:03:27.800 at the moment and what kind of policy leavers are 0:03:27.800 --> 0:03:30.440 they pulling to address the issues? Um, So, two things really, 0:03:30.480 --> 0:03:33.080 you know, Firstly, on the financial side you just mentioned 0:03:33.120 --> 0:03:37.000 deleveraging has the downside liquidity and growth impact like extension 0:03:37.040 --> 0:03:39.880 being stronger, a bit stronger than asipated and perhaps so 0:03:39.960 --> 0:03:42.600 now and the conditioning is clear now the PBS, so 0:03:42.640 --> 0:03:45.120 the people's daily against stress. Now is the time for 0:03:45.240 --> 0:03:47.960 leverage stability, you know, rather than deleveraging. It's achieved them, 0:03:47.960 --> 0:03:51.160 it's required results. So that's the first point. Again, it's 0:03:51.200 --> 0:03:53.440 not pumping liquidity back into the system, but make sure 0:03:53.440 --> 0:03:56.640 it's no further tightening of financial conditions. Secondly, if we 0:03:56.640 --> 0:03:58.760 go back to two thousand and fifteen, two thou sixteen, 0:03:58.760 --> 0:04:01.480 perhaps the financial authority use the fiscal authorities and the 0:04:01.480 --> 0:04:03.720 PBOC the monetary authorities are not on the same page 0:04:03.760 --> 0:04:04.840 there In the end, you know, a lot could have 0:04:04.840 --> 0:04:06.920 been done, but nothing was done or very little was 0:04:06.960 --> 0:04:10.600 done um uh in good time. So this time around, 0:04:10.760 --> 0:04:14.560 it's very clear coordinated fiscal and a monetary response that's 0:04:14.600 --> 0:04:16.920 going to come through. But again within reason. I think 0:04:16.920 --> 0:04:19.800 the pre BOC is clear keen and the regulators as well, 0:04:19.839 --> 0:04:22.200 not to unwind some of the reforms that have been achieved. 0:04:22.320 --> 0:04:24.000 But on the fiscal side, if you look at where 0:04:24.000 --> 0:04:26.200 the budget deficit is, especially on the central level, there's 0:04:26.240 --> 0:04:27.719 a lot more room they can deploy, but they're being 0:04:27.760 --> 0:04:30.520 sparing about it. On Friday they stepped in, the authorities 0:04:30.520 --> 0:04:33.279 stepped into stabilize the Chinese currency, and Jeff, I'm trying 0:04:33.279 --> 0:04:35.960 to work out whether the authorities are uncomfortable with the 0:04:35.960 --> 0:04:39.080 pace of the decline or the overall level of dollar Shina. 0:04:39.320 --> 0:04:41.440 I think it's always about pace rather than level. And 0:04:41.480 --> 0:04:44.520 again we've been above seven before, right, and so in 0:04:44.560 --> 0:04:46.599 the level, I think it's less of an issue pace. 0:04:46.760 --> 0:04:49.560 You don't want to precipitate um You know, these are 0:04:49.600 --> 0:04:53.280 a vicious circle master appreciation expectations. But if you look 0:04:53.279 --> 0:04:55.120 at reserve holdings, and if you look at the fact 0:04:55.200 --> 0:04:57.080 that between two thousand and sixteen when we have that 0:04:57.200 --> 0:05:00.159 major wobble, right be seen two thousand and sixteen, and 0:05:00.279 --> 0:05:04.120 now they really haven't unwound you know, capital controls. They 0:05:04.120 --> 0:05:07.279 were limiting you know, overseas expenditures, and I've got in 0:05:07.400 --> 0:05:09.280 laws you know here right now, and they're probably not 0:05:09.440 --> 0:05:11.880 gonna be able to buy ten handbags, you know in 0:05:11.880 --> 0:05:15.120 the sulverages, right so because of the purchase restrictions. So 0:05:15.560 --> 0:05:18.560 all of that is in place. So I think they've 0:05:18.600 --> 0:05:20.240 got a lot more to control. It's about the level 0:05:20.279 --> 0:05:23.159 they don't want to fand appreciation and expectations on shore. Jeff, 0:05:23.240 --> 0:05:25.520 let's talk about your risk, asset exposure at the moment 0:05:25.520 --> 0:05:27.200 and how you put money to work. Five weeks of 0:05:27.279 --> 0:05:29.880 solid gains on the S and P five coming into 0:05:29.920 --> 0:05:32.080 this week. The trade story is kind of humming away 0:05:32.080 --> 0:05:33.719 in the background, but for US assets, so I don't 0:05:33.720 --> 0:05:35.800 see it's shaping things too much. You have you on 0:05:35.839 --> 0:05:37.880 how you put money to work at the moment. Still 0:05:38.480 --> 0:05:42.640 overweight equities, but global equities were not particularly overweight any 0:05:42.640 --> 0:05:45.520 individual market. But again it's a case of managing risk 0:05:45.600 --> 0:05:48.560 it's more turbulent up ahead. You want to be decorrelated. 0:05:48.600 --> 0:05:51.640 So still you know, have that general risk on exposure, 0:05:52.080 --> 0:05:55.359 but if there are ways to actually benefit or limit 0:05:55.360 --> 0:05:57.120 your draw downs, and that's the message we're giving to 0:05:57.200 --> 0:05:59.560 clients right now. If the markets are going to suffer 0:05:59.560 --> 0:06:02.400 from bolit Lucie, especially any correlated sell off in bonds 0:06:02.440 --> 0:06:04.720 and equities as we saw in January, then you want 0:06:04.760 --> 0:06:07.200 to have be at alternatives, you know, be it through 0:06:07.200 --> 0:06:10.080 you know, off market assets which could actually benefit from 0:06:10.120 --> 0:06:12.560 that decorrelation. So that's our approach at this point. One 0:06:12.600 --> 0:06:14.760 trade haven in the United States was the small caps. 0:06:14.800 --> 0:06:17.800 That position is unwound and quite significant way Jeff do 0:06:17.800 --> 0:06:21.839 if you want small camps in America, Well, that's actually 0:06:21.839 --> 0:06:24.080 a less of a focus on the part of our clients, 0:06:24.240 --> 0:06:27.000 especially outside of the US. We've had more questions about 0:06:27.000 --> 0:06:29.480 tech you know, of late for example, to be honest, 0:06:29.480 --> 0:06:31.200 to give them the cell often. But again we want 0:06:31.200 --> 0:06:33.760 to take the medium to longer a point, a longer 0:06:33.880 --> 0:06:36.440 term approach here for small caps. You know, if they 0:06:36.480 --> 0:06:39.680 actually do have the potential to benefit from the domestic similars, 0:06:39.680 --> 0:06:41.719 you actually tend to see a much stronger you know, 0:06:41.760 --> 0:06:43.880 support for current policies on the part of small and 0:06:43.920 --> 0:06:46.600 medium as sized enterprises. You know they pulled on them, 0:06:46.640 --> 0:06:48.680 for example, often likes a higher idea n f IB 0:06:48.800 --> 0:06:51.160 survey server for example. I think that's quite well correlated 0:06:51.160 --> 0:06:54.200 with them small caps sentiment. Then I think the sentiment 0:06:54.520 --> 0:06:56.520 is there. And again if they're less exposed to the 0:06:56.520 --> 0:06:59.159 global trade picture. Um, if you just look at the 0:06:59.160 --> 0:07:01.200 over sea no revenues, I think for the broader Dow 0:07:01.279 --> 0:07:03.320 Jones in dust ronage about forty percent. For small captain 0:07:03.320 --> 0:07:04.960 it's going to be lower, and then they're in a 0:07:04.960 --> 0:07:07.559 better spot. But again we're not really interested in adding 0:07:07.560 --> 0:07:09.679 to risk at this point. It's about managing risk. Jeff. 0:07:09.680 --> 0:07:11.720 You they're great to catch up with your Jeff Ubs 0:07:11.720 --> 0:07:14.840 Wealth Management ahead of the UK Investment Office joining us 0:07:14.880 --> 0:07:32.760 out of London. As the sanctions clock is ticking, the 0:07:32.800 --> 0:07:36.600 first round kicking at midnight tonight on Iran. The next 0:07:36.680 --> 0:07:39.080 round of sanctions all important for the all market kicking 0:07:39.400 --> 0:07:43.280 in several months time. Let's discuss them show with Dantanna 0:07:43.320 --> 0:07:46.240 bum PwC Principal and Global Sanctions leader joins us here 0:07:46.240 --> 0:07:48.360 in New York. Always great to catch up with your Dann. 0:07:48.400 --> 0:07:50.120 Good morning, to you. Good morning, John. So what do 0:07:50.160 --> 0:07:52.400 we learn later today? What happens and then what happens 0:07:52.440 --> 0:07:56.240 again in three months. So the first tranche of sanctions 0:07:56.240 --> 0:08:00.680 being reimposed focuses on the reimposition of secondary sanction and essentially, 0:08:00.760 --> 0:08:05.040 broadly speaking, it forces foreign companies to choose between doing 0:08:05.040 --> 0:08:07.600 business with Iran or doing business with the US, but 0:08:07.720 --> 0:08:11.760 not both. So it criminalizes in the US lens UH 0:08:11.920 --> 0:08:15.160 European companies, for example, continuing to do business with Iran, 0:08:15.560 --> 0:08:19.040 with the later phase focusing primarily on oil and gas 0:08:19.040 --> 0:08:22.320 transactions being wound down in November, So before midnight to night, 0:08:22.920 --> 0:08:26.360 how busy of companies in Iran being to secure business 0:08:26.360 --> 0:08:29.800 and execute on deals before midnight? Well, I mean, let's 0:08:29.840 --> 0:08:33.160 be clear, this is not a popular move by the 0:08:33.240 --> 0:08:35.719 United States. This is not something that even many in 0:08:35.760 --> 0:08:38.680 the US wanted. As United States companies got into the 0:08:38.679 --> 0:08:42.920 market and created transactions with the Iranian space. Now financial 0:08:42.960 --> 0:08:47.000 services is largely out of the market and didn't engage, 0:08:47.200 --> 0:08:49.920 and there were much more limited supply. I don't think 0:08:49.920 --> 0:08:52.080 there's necessarily going to be a mad rush because this 0:08:52.120 --> 0:08:54.080 has been out there for months now. Everyone knew this 0:08:54.200 --> 0:08:56.920 was coming. What's going to be interesting is who's still 0:08:56.920 --> 0:09:00.760 transacting tomorrow and the rest of the week. There's been 0:09:00.800 --> 0:09:04.319 talks now in the EU, and I believe a regulation 0:09:04.360 --> 0:09:06.720 went into effect across the EU member states this week 0:09:07.120 --> 0:09:10.320 that is a resurrection of the anti blocking boycott from 0:09:11.400 --> 0:09:15.959 on Cuba, basically telling European companies or companies operating Europe, 0:09:16.000 --> 0:09:18.400 you can't comply with the u S sanctions on Cuba. 0:09:18.679 --> 0:09:21.680 They've amended them to include that with Iran. Now, how 0:09:21.720 --> 0:09:24.480 that looks from an enforcement standpoint, what the US does 0:09:24.520 --> 0:09:27.320 from an enforcement standpoint really unclear at this point. And Dan, 0:09:27.400 --> 0:09:30.800 if you're a European multinational with operations in Iran, do 0:09:30.840 --> 0:09:33.440 you have the confidence in the regulation that the EU 0:09:33.559 --> 0:09:36.120 brings forward or do you just are on the side 0:09:36.120 --> 0:09:39.160 of caution and go with the u S sanctions? You 0:09:38.920 --> 0:09:42.640 are you are on the side of caution. The EU 0:09:42.679 --> 0:09:45.480 anti blocking statute on Cuba was never enforced, it was 0:09:45.520 --> 0:09:49.280 never used, it wasn't even universally adopted. Um. This is 0:09:49.320 --> 0:09:51.800 a little different. Um. This is a bit more of 0:09:51.840 --> 0:09:54.560 a hot potato issue than Cuba was even twenty plus 0:09:54.679 --> 0:09:57.200 years ago. That being said, I mean a number of 0:09:57.280 --> 0:09:59.600 large insurers and if you think about kind of how 0:09:59.640 --> 0:10:02.360 globe commerce works. Most of the major global insurers have 0:10:02.360 --> 0:10:05.080 already announced in May that they're backing out of Iran. 0:10:05.400 --> 0:10:08.200 If you can ensure trade, I mean, what chance does 0:10:08.240 --> 0:10:10.280 trade have to exist anyway. We're going to talk about 0:10:10.280 --> 0:10:11.839 the old market in just a moment, but I want 0:10:11.880 --> 0:10:14.880 to explore that concept backing out of Iran. It's it's 0:10:14.880 --> 0:10:16.360 something a lot of us will say, but I want 0:10:16.400 --> 0:10:19.160 to know what it actually means, because the sanctions regime 0:10:19.200 --> 0:10:21.840 over the last few years has always been uncertain, and 0:10:21.880 --> 0:10:24.319 it's been incredibly fluid, and we've seen it change again. 0:10:24.679 --> 0:10:27.400 If you're a multinational, let's just say you're a European 0:10:27.440 --> 0:10:30.520 company with operations on Iran. Does backing out mean you 0:10:30.559 --> 0:10:34.559 stop executing deals with Iran? Does it mean you move offices? 0:10:34.840 --> 0:10:37.240 Does it mean you move equipment? How does it work 0:10:37.280 --> 0:10:39.679 logistically just in terms of operations? Do you maintain a 0:10:39.720 --> 0:10:42.520 presence there? What you do? So? Given the uncertainty when 0:10:42.640 --> 0:10:45.160 the j c p o A the Iran Deal was enacted, 0:10:45.520 --> 0:10:49.480 um not many companies necessarily established a physical presence, but 0:10:49.520 --> 0:10:52.680 they did start dealing with Iran, shipping goods and services 0:10:52.679 --> 0:10:56.840 into Iran, sending people on temporary assignments into Iran. It's 0:10:56.840 --> 0:11:01.439 really elimination of deals, less so about movement of physical resources. 0:11:01.760 --> 0:11:03.440 I mean. The important thing to note though, is with 0:11:03.480 --> 0:11:05.840 all the rhetoric around sanctions this year, this has been 0:11:05.840 --> 0:11:08.280 the slowest year from an enforcement standpoint in the U 0:11:08.360 --> 0:11:10.760 S that I've ever seen. There's been one enforcement action 0:11:11.080 --> 0:11:13.720 at the federal level. Usually there's ten to fifteen at 0:11:13.760 --> 0:11:16.800 this time in the year. So how this looks in 0:11:16.920 --> 0:11:20.520 terms of the stick versus that can speak, It's really 0:11:20.600 --> 0:11:22.679 unclear what the administration is going to do. So how 0:11:22.679 --> 0:11:24.760 may it makes sense of that. Is it not being 0:11:24.840 --> 0:11:27.600 enforced as heavily in terms of the issues that arise 0:11:27.679 --> 0:11:30.080 because more people are abiding by some of the rules, 0:11:30.520 --> 0:11:33.440 or is it not happening because the US administration isn't 0:11:33.440 --> 0:11:37.240 actually being that forceful. So it's interesting. These cases that 0:11:37.320 --> 0:11:41.040 you've historically seen come out take years to get adjudicated 0:11:41.080 --> 0:11:44.680 to settle. So this isn't anything about near term activity. 0:11:44.720 --> 0:11:47.360 You could be settling a case in eighteen for activity. 0:11:47.400 --> 0:11:51.600 In so, even with a budget increase that Treasury has 0:11:51.600 --> 0:11:53.840 had in this area for the first time in years, 0:11:54.360 --> 0:11:57.360 there's still a very slow move on enforcement. Despite all 0:11:57.400 --> 0:11:59.800 of the changes to the different sanctions regimes. So the 0:11:59.800 --> 0:12:01.880 big question I think is in several months time for 0:12:01.920 --> 0:12:04.280 a lot of our listeners who maybe have exposure to 0:12:04.320 --> 0:12:06.880 the all market, is what happens in several months time 0:12:06.920 --> 0:12:09.440 when that round of sanctions kicks in the target of 0:12:09.480 --> 0:12:12.960 this administration that the objective overall. I imagine they'd like 0:12:13.080 --> 0:12:16.760 to see Iranian oil exports drop down to zero. The 0:12:16.880 --> 0:12:18.920 Chinese are saying they're not going to go with it. 0:12:18.960 --> 0:12:22.520 How does that work? It would have been simpler if 0:12:22.520 --> 0:12:24.560 we didn't have the trade spat that was kind of 0:12:24.640 --> 0:12:27.400 underpinning all of the U S. China related issues. That 0:12:27.559 --> 0:12:29.200 is going to be the real test. China has been 0:12:29.280 --> 0:12:31.559 very clear that they're going to continue to buy oil 0:12:31.640 --> 0:12:33.600 from Iran, and that doesn't look like it's going to start. 0:12:33.679 --> 0:12:35.720 I mean, frankly, you used to have a bit more 0:12:35.800 --> 0:12:38.839 predictability in the space. Right now, it's a lot harder 0:12:38.840 --> 0:12:41.160 to tell. But based on all of the different issues 0:12:41.200 --> 0:12:43.439 that Trump is picking with China, where this could actually 0:12:43.520 --> 0:12:45.120 land in a few months time. See, I want to 0:12:45.120 --> 0:12:47.600 know how the enforcement works. Because the Chinese is settling 0:12:47.600 --> 0:12:50.600 those deals in yuan. How does the United States not 0:12:50.640 --> 0:12:55.240 incentivized but prevent the Chinese from wanting to deal with Iran, 0:12:55.360 --> 0:12:58.160 from from not coming back those crude all impacts. There's 0:12:58.240 --> 0:13:00.520 likely going to need to be some balance, and potentially 0:13:00.520 --> 0:13:02.520 who knows, all of the tariffs speak could be the 0:13:02.600 --> 0:13:05.320 stick that you know, easing back on that for allowing 0:13:05.360 --> 0:13:08.000 them to transact at certain levels of ranny and crude. 0:13:08.240 --> 0:13:10.520 That could be part of the deal creating the issue 0:13:10.559 --> 0:13:12.320 to allow him to come in and create a deal. 0:13:12.320 --> 0:13:15.080 From the Trump administration standpoint, what's fascinating about this for 0:13:15.080 --> 0:13:16.640 a lot of people as this is three months away 0:13:16.640 --> 0:13:18.960 and we've still got zero clarity on how this is 0:13:18.960 --> 0:13:21.960 going to work. India, for instance, says we abide by 0:13:22.240 --> 0:13:24.480 U N sanctions and now they've got a really nuance 0:13:24.520 --> 0:13:27.040 approach and no one knows what India is going to do. 0:13:27.200 --> 0:13:29.200 Have you ever seen anything like this where three months 0:13:29.200 --> 0:13:32.000 out we could have a huge sanctions push on a 0:13:32.080 --> 0:13:34.839 country of oil exports and we have zero clarity on 0:13:34.880 --> 0:13:36.960 who's going to do what I mean, these are somewhat 0:13:37.040 --> 0:13:40.000 unprecedented times to begin with, and you know, Secretary Low 0:13:40.040 --> 0:13:42.680 as he was leaving its the Obama administration was ending 0:13:42.920 --> 0:13:46.240 spoke about sanctions over use. Were there I mean last 0:13:46.280 --> 0:13:49.840 week there were sanctions levied against the NATO Allies government 0:13:49.840 --> 0:13:54.160 ministers as a result for the kidnapping or the perceived 0:13:54.240 --> 0:13:57.240 kidnapping of a US pastor in Turkey. I mean, this 0:13:57.320 --> 0:14:00.400 is not how sanctions have generally been used historically. And 0:14:00.440 --> 0:14:03.080 then North Korea as well on the right part, because 0:14:03.120 --> 0:14:04.920 it doesn't look like those talks a going as well 0:14:04.960 --> 0:14:08.360 as maybe this administration hoped. Yeah that that is not 0:14:08.760 --> 0:14:11.800 entirely a surprise for those who really watched the space closely, 0:14:11.840 --> 0:14:14.920 that the North Koreans aren't eagerly handing over their nuclear 0:14:14.920 --> 0:14:17.520 weapons regime. I mean that being said, North Korea is 0:14:17.520 --> 0:14:20.200 another interesting one. Unlike Iran. People don't want to do 0:14:20.280 --> 0:14:22.800 business in North Korea, so all of the focus and 0:14:22.840 --> 0:14:26.240 making them kind of a good guy and sharing in 0:14:26.720 --> 0:14:29.360 kind of global prosperity, I mean, Iran was a very 0:14:29.400 --> 0:14:33.240 different situation. European companies, global companies have been Iran for years. 0:14:33.680 --> 0:14:36.240 No one had been in North Korea. Dan Sanna Baum 0:14:36.320 --> 0:14:38.040 always great to catch up with you and get the 0:14:38.040 --> 0:14:41.160 inside on what happens next and potentially how companies have 0:14:41.200 --> 0:14:43.640 got a deal with a new sanctions regime that is 0:14:43.680 --> 0:14:46.680 implemented once again, the clock is ticking. The first round 0:14:46.680 --> 0:14:49.760 of sanctions kick out tonight at midnight. The next round 0:14:50.040 --> 0:14:52.720 on oil kicks in in about three months time. PWC's 0:14:52.760 --> 0:14:55.200 principal and at Global Sanctions Leader great to catch Hell 0:14:55.240 --> 0:15:09.680 we do down and Milletty is a managing director lead 0:15:09.720 --> 0:15:14.760 portfolio manager for Wells Fargo Asset Management, and she joins 0:15:14.840 --> 0:15:18.000 us from the lovely state of Wisconsin. And thank you 0:15:18.080 --> 0:15:21.480 very much for being here. Happy summer to you. Is 0:15:21.560 --> 0:15:25.840 there no is there no worry in your life right now? 0:15:25.920 --> 0:15:29.160 Do you want something to worry about? Oh, pim, I 0:15:29.240 --> 0:15:34.640 have plenty to worry about. And for anyone who really 0:15:34.640 --> 0:15:37.960 knows me, they know that I am a professional warrior 0:15:38.040 --> 0:15:41.200 at heart. Um, I spent all of my time worrying 0:15:41.320 --> 0:15:44.520 and having a job in this market and dealing with 0:15:44.560 --> 0:15:46.960 the stock market every day. I think most of us 0:15:47.000 --> 0:15:50.160 spend a good majority of our time worrying. But you 0:15:50.280 --> 0:15:52.920 also have to have a lot of conviction and a 0:15:53.040 --> 0:15:56.960 process and other things to extract the emotion out and 0:15:57.520 --> 0:15:59.640 to be able to operate every day. Okay, Well, the 0:15:59.680 --> 0:16:02.160 reason I bring up the concept of worrying is that 0:16:02.240 --> 0:16:05.520 you've described your the current situation is no matter how 0:16:05.600 --> 0:16:09.000 much time you spend worrying about the market, all you 0:16:09.120 --> 0:16:13.560 do is experience accelerating growth. Yeah, well, the the economy 0:16:13.640 --> 0:16:19.120 is certainly experiencing that accelerating growth, and the market, I know, 0:16:19.440 --> 0:16:23.200 is forward looking, and the market also has been going up, 0:16:23.320 --> 0:16:26.840 and so certainly the market anticipated the economy to be strong. 0:16:27.360 --> 0:16:31.320 It has been, And even with a lot of fears 0:16:31.320 --> 0:16:34.400 and challenges that we hear every day in the headlines, 0:16:34.880 --> 0:16:38.840 the market continues to kind of slowly march higher. And 0:16:38.880 --> 0:16:41.600 I think that tells us that for the most part, 0:16:42.480 --> 0:16:44.840 we you know, the market at least is predicting that 0:16:44.920 --> 0:16:49.600 the the stock market will continue in the economy will 0:16:49.760 --> 0:16:53.800 continue to accelerate from here. And then I think, you know, 0:16:55.000 --> 0:16:57.200 I know, certainly for the last two years, one of 0:16:57.240 --> 0:16:59.920 the headlines that I see quite often and that I 0:17:00.080 --> 0:17:02.600 hear about and people challenge me on all the time 0:17:02.720 --> 0:17:05.560 is the length of this bowl market and how long 0:17:05.600 --> 0:17:09.360 it has lasted. That when you think about the cumulative 0:17:09.440 --> 0:17:13.600 returns that we've gotten over the last nine plus years, 0:17:14.280 --> 0:17:18.560 it's actually twenty five lower the cumulative return of this 0:17:18.680 --> 0:17:22.840 last ball market cycle than it than historical bowl market 0:17:22.880 --> 0:17:27.159 cycles have been um And so again, you know, history 0:17:27.320 --> 0:17:29.760 is no certain judge of what's going to happen in 0:17:29.840 --> 0:17:33.600 the future. But if the headline read that this bowl 0:17:33.680 --> 0:17:40.720 market cycle has produced lower cumulative returns with an accelerating economy, 0:17:41.160 --> 0:17:44.880 there's a possibility that we might look at things differently. Certainly, 0:17:44.920 --> 0:17:47.280 the market probably wouldn't act any different. The story would 0:17:47.280 --> 0:17:49.760 still be the story, but the headlines might be a 0:17:49.800 --> 0:17:53.399 little different. Right. Well, here here's a just maybe just 0:17:53.440 --> 0:17:55.640 to put it into a little bit of short term context. 0:17:55.840 --> 0:17:57.920 If you look at what the SMP has done since 0:17:57.960 --> 0:18:00.399 the beginning of May, we've seen an increase of about 0:18:00.480 --> 0:18:05.199 nine so it's worked off all of the turmoil that 0:18:05.280 --> 0:18:07.760 we experienced from the beginning, let's say, from the end 0:18:07.840 --> 0:18:10.320 of January. Do you do you think that that's going 0:18:10.320 --> 0:18:14.200 to continue or is this sort of a head fake? 0:18:14.280 --> 0:18:17.800 In in a certain way, I think that the market 0:18:17.920 --> 0:18:22.679 strength will continue, but not without volatility. So would I 0:18:22.800 --> 0:18:27.399 be surprised if we get a correction? Now, I wouldn't be. 0:18:27.600 --> 0:18:29.760 I wouldn't be surprised at that at all. In fact, 0:18:30.200 --> 0:18:33.120 as a bottom up stock picker and a money manager, 0:18:33.480 --> 0:18:37.320 I would actually welcome, you know, this, some volatility to 0:18:37.359 --> 0:18:41.679 allow us to continue to find names and companies selling 0:18:41.680 --> 0:18:44.280 at a discount UM, and that's what we continue to 0:18:44.320 --> 0:18:48.040 look for in this market. But there's also been some 0:18:48.160 --> 0:18:51.639 divergence between the names that have really outperformed in this 0:18:51.760 --> 0:18:55.880 market and names that have truly lagged while their fundamentals 0:18:55.920 --> 0:18:59.240 continue to improve. And so that's what we're paying attention to, 0:18:59.359 --> 0:19:03.840 because I think the risk reward is what the you 0:19:03.880 --> 0:19:06.440 know what what investors should be paying attention to right 0:19:06.480 --> 0:19:09.080 now and making sure that each investment they make they 0:19:09.119 --> 0:19:13.920 try to chip the risk reward into their favor. Well, 0:19:13.960 --> 0:19:17.120 just to give one example of a fund that you 0:19:17.200 --> 0:19:22.399 hold some responsibility over is the Wells Fargo Opportunity Fund. Correct, Okay, 0:19:22.440 --> 0:19:26.080 so you're today you're up nearly seven percent, So good 0:19:26.119 --> 0:19:28.639 on you. That's really up there with the S and 0:19:28.680 --> 0:19:33.080 P of five. When I look at the holdings, alphabet 0:19:33.240 --> 0:19:37.000 E Trade, Financial, Sales Force, okay, those are pretty well known. 0:19:37.359 --> 0:19:40.680 But then you start to get to things like Leva, Nova, 0:19:42.320 --> 0:19:48.080 Sherwin Williams and Webster Financial and bio rad Laboratories. Can 0:19:48.160 --> 0:19:51.880 you offer a guide as to what counts as an 0:19:51.920 --> 0:19:57.280 opportunity for that fund? Sure? Absolutely, I mean that's exactly. 0:19:57.520 --> 0:20:01.520 We do have some names that are all known, um, 0:20:01.560 --> 0:20:06.679 in the market. Certainly Alphabet, but even that name represents 0:20:06.680 --> 0:20:09.320 a name that has lagged some of the other thing 0:20:09.600 --> 0:20:14.040 names and actually looks more attractive relatively on evaluation based 0:20:14.119 --> 0:20:16.760 the name that we can justify. But a name like 0:20:16.960 --> 0:20:20.639 live and Nova certainly a name in the medical space 0:20:20.720 --> 0:20:23.960 that we think is you know, although the stock has 0:20:23.960 --> 0:20:27.240 performed well, we think it's a name that's been ignored 0:20:27.440 --> 0:20:30.240 by a lot of the market. And you know, this 0:20:30.320 --> 0:20:33.639 is a MidCap company, you know, around a six billion 0:20:33.800 --> 0:20:39.040 dollars heart lung machines based in the UK, based in London, 0:20:39.520 --> 0:20:43.280 right right, But they have some technology and development that's 0:20:43.280 --> 0:20:48.480 even more dynamic technology that will show some good growth, 0:20:48.560 --> 0:20:51.600 we believe. And this is you know, a good quality 0:20:51.640 --> 0:20:56.560 management team showing some great growth. We they have trials 0:20:56.600 --> 0:20:59.120 that are going on right now that looks to expand 0:20:59.160 --> 0:21:01.400