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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: This is a Bloomberg Business Flash and as Bloomberg Business

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Speaker 1: Common an NBA from Bentley University, where you will explore

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Speaker 1: innovation and leadership because business is everywhere. Prepare here. Stocks advancing,

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Speaker 1: but all the best levels of the session so far

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Speaker 1: today taking a respite from the steepest cell alter global

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Speaker 1: ecquitacence January before the FEDS a policy decision this afternoon.

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Speaker 1: The British pound rebounding from a two week low as

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Speaker 1: the Braxit the vote approaches. There British pound scaling right now,

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Speaker 1: that's up about two half a percent. SMP futures are

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Speaker 1: rough four points, the Dow futures now eat many futures

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Speaker 1: of forty. That's up to tenths, and then as they

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Speaker 1: even a futures are eight points higher while following a

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Speaker 1: global markets higher. The foot see in London up nine

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Speaker 1: tenths today, the attack and parents up one point two,

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Speaker 1: and the German decks is up just shy of the

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Speaker 1: one percent. Today, we have a Nimax crew that is

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Speaker 1: lower down forty three cents of barrel at OH six today,

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Speaker 1: this after falling for a fifth day after the American

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Speaker 1: Patrolling Institute reported a one point one six billion barrel

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Speaker 1: increase at US oil inventories for last week. Also, Nigerian

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Speaker 1: militants are set for the first time to be considering

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Speaker 1: a peace talks, so that is weighing on oil today.

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Speaker 1: And we check the market story every fifteen minutes during

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Speaker 1: the trading day right here on Bloomberg Radio. I'm back

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Speaker 1: to Michael and Tom. John Tucker, thank you very much.

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Speaker 1: Interesting day so far. Tom, to see um, a little

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Speaker 1: bit of optimism in the markets given the news out

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Speaker 1: there has been up to this point relatively negative. And

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Speaker 1: what we're heading is a is a tightening in the

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Speaker 1: race over in the UK where another poll, the fifth

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Speaker 1: shows Leave ahead. And what I found interesting today is

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Speaker 1: the folks at Betfair, Uh yeah, they see there. Um,

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Speaker 1: they still have the remain camp ahead, but up to

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Speaker 1: this point of the money has been going to the

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Speaker 1: leave camp in the last twenty four hours. That's up

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Speaker 1: to so dramatic momentum shift in the feeling about bricks

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Speaker 1: when I was just for those of you in the

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Speaker 1: United Kingdom you're living at We're not. But speaking to

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Speaker 1: our colleague John Farroll, who will join us in London

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Speaker 1: next week, John was adamant how unusual it felt to

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Speaker 1: see two Chancellors of the Exchequer from two different parties

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Speaker 1: up on the same stage. And Chancellor Osborne is the

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Speaker 1: public officer. Now, I'm sure my hast to gauge his

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Speaker 1: words former as Lord Darling of the Labor Party equivalent

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Speaker 1: to our Democrats, Mike. He didn't mince any words. He

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Speaker 1: was brutal in his criticism of the Brexit campaign. Indeed, Um,

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Speaker 1: and now we get you this morning, Well there we

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Speaker 1: do on Brexit. David Sowerby joins us out with Looma Sales.

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Speaker 1: As we look at equity markets, how they link into

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Speaker 1: what the FET is doing. Maybe we can get through

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Speaker 1: this without a talk on Brexit. Uh, David, equities and

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Speaker 1: good good to talk to you again. Um, Brexit maybe

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Speaker 1: front center or the FED meeting, maybe front center or

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Speaker 1: the politics. At the moment, what's front and center for

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Speaker 1: equity investors is a lot of worthies are coming out

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Speaker 1: with very gloomy statements. How do you judge or gauge

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Speaker 1: the new round of caution about equity ownership. I think

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Speaker 1: it's that proverbial you fight through the noise. You you

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Speaker 1: you do your best to determine what's meaningful and what's

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Speaker 1: simply a distraction. And with Brexit, I think the best

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Speaker 1: view is as it's been written, is to look at

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Speaker 1: the betting odds, which still only put it at about

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Speaker 1: sixty uh. I think that will ultimately be more noise

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Speaker 1: than than than meaningful. Presidential election years. More is written

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Speaker 1: about presidential election years and how to play it in

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Speaker 1: the market, and my experience over the years is about

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Speaker 1: it is simply interesting reading, but not not how to

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Speaker 1: make money. But what's going to matter to me is

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Speaker 1: what's the path of US corporate profits after this mini

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Speaker 1: profit recession and what's the cost of capital for companies

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Speaker 1: to uh to invest and perhaps take that at low

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Speaker 1: cost to capital, neither increase their dividends with better profit news.

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Speaker 1: Some people are I guess more than some. A lot

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Speaker 1: of people are saying July brings us the June payrolls report,

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Speaker 1: which will be important to the Fed, but to investors

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Speaker 1: it's also second quarter earnings and there has been much

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Speaker 1: concerned about the direction thereof it's profits, profits and more

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Speaker 1: profits might and and and that's the case. Year on

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Speaker 1: your profits have fallen about eight percent. But if you

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Speaker 1: look a little deeper and you look at not what

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Speaker 1: the weight that average has done, but what the median

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Speaker 1: company has done, it's better. It's to the plus side.

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Speaker 1: It's running between three and five ahead a year ago

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Speaker 1: levels for the median company. I think that that suggests

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Speaker 1: that the more cyclical small caps have held up better

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Speaker 1: in many respects than the than the large caps dominated

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Speaker 1: by energy and financials. I would suspect that by the

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Speaker 1: end of this year will be seeing profit growth in

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Speaker 1: a respectable five to six percent year on your game.

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Speaker 1: That puts the probabil ability of an economic recession at

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Speaker 1: less than two percent. And that can, I think be

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Speaker 1: quite soothing for those who are still skeptical on the markets.

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Speaker 1: And I'll quickly add skepticism is actually pretty good, because

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Speaker 1: you know, it's when everybody's r fork about the market

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Speaker 1: that you want to run hard. The other way within

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Speaker 1: that is use of cash. And then the whole new

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Speaker 1: phrase financial engineering. I would suggest as a general statement

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Speaker 1: that mid caps and small caps are less prone to

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Speaker 1: financial engineering because the lights aren't so bright on their

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Speaker 1: quarterly conference call. Would you agree with that? I would,

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Speaker 1: And I think simply because we know that the average

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Speaker 1: number of analysts following many small and MidCap companies is

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Speaker 1: less than ten. In many respects, one of the best

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Speaker 1: ways to make money in the small and MidCap market

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Speaker 1: are to find those undiscovered companies where only five or

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Speaker 1: six animals follow them. There's less of a spotlight. As

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Speaker 1: you said, Tom, and we know in the long term

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Speaker 1: that small caps have compounded a full percentage point better

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Speaker 1: than large caps. And I always quip that that's how

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Speaker 1: my kids are going to get to college on the

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Speaker 1: back of small cap and value leaning stocks, because they

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Speaker 1: still remain one of the better gems in the market.

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Speaker 1: Why has value struggled so much versus growth? It tends

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Speaker 1: to move in cycles. I think Wall Street spends too

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Speaker 1: much time trying to look at the macro variables that

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Speaker 1: that correlate well to the growth value debate. You and

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Speaker 1: I won't solve that debate today. I think value uh

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Speaker 1: is a way of life for many people. Probably the

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Speaker 1: most important variable that I think bodes well for value

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Speaker 1: or or investors who pay greater heat e valuation will

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Speaker 1: be that the valuation spreads within sectors or industries, whether

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Speaker 1: it's on a price to earnings basis or even more importantly,

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Speaker 1: a cash flow basis. When the spreads widened out between

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Speaker 1: the hot the most expensive stocks and the and the

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Speaker 1: less expensive stocks, that bodes well for value. It had

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Speaker 1: tightened up considerably. There has been delight to quality and

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Speaker 1: momentum that has become somewhat crowded. And I think if

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Speaker 1: you pay heat to valuation and you lean a little

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Speaker 1: bit to value after big run to growth, I think

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Speaker 1: that's that's going to be quite well. And in the

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Speaker 1: portfolios I manage, I have been tilting the value. What

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Speaker 1: are small caps doing now? I think, on folks, one

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Speaker 1: of the great criticisms of surveillance, which is value? Which

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Speaker 1: is value? Which is valid? I should say, is it

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Speaker 1: we only focus on like four stocks and Apple, Google,

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Speaker 1: Apple and Apple? Okay? Fine? What are small caps doing?

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Speaker 1: O wise one? I think the inflection point still remains.

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Speaker 1: February eleventh, Despite the last couple of days of weakness,

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Speaker 1: large cap stocks give or take her up fourteen to

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Speaker 1: fifteen percent. Small cap stocks are up better than uh

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Speaker 1: I think that is a sign that this rally has

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Speaker 1: the potential for the legs to be firm because of

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Speaker 1: the rally and small caps off their lows also quickly

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Speaker 1: the rally and high yield corporate debt, so small caps

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Speaker 1: have done quite well, and the relative valuations now between

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Speaker 1: large cap and small cap make it a more even

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Speaker 1: fight and perhaps a slight nod to small caps after

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Speaker 1: it being a very much more robust large cap market

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Speaker 1: since roughly marched two thousand fourteen. I mean, I look

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Speaker 1: at the nasty comp which I believe is tech waited,

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Speaker 1: and the SMP five does better. Folks looking at the

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Speaker 1: Bloomberg quickly the SMP call it negative one flat, whatever

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Speaker 1: you want to call it. Mid caps negative, my eyes

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Speaker 1: are failing. The year David negative three percent, small caps

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Speaker 1: negative three as well. There there really isn't much differential,

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Speaker 1: is there in the last year. Now there's not. So

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Speaker 1: what you tend do is look at those major inflection points,

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Speaker 1: and sometime around February eleven, when investor sentiment got unusually

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Speaker 1: bearish more than investors were either barrish or neutral, that

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Speaker 1: was usually the more often than not, the time to

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Speaker 1: be a bit more courageous in in that type of environment,

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Speaker 1: the small and mid caps have realied quite well. David Harvey,

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Speaker 1: thank you so much. Aluma sales are great to speak

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Speaker 1: to you again on away from the blue chips and

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Speaker 1: those that have let me, let me see what Microsoft's

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Speaker 1: cash is right now. Number just slipped out of my

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Speaker 1: little brain. Have cash of a hundred and six billion dollars.

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Speaker 1: It's that we're not talking about stuffs like that here.

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Speaker 1: We're talking about those of a smaller cap. But yeah,

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Speaker 1: and one of six twenty three week or yeah, over

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Speaker 1: the last hours are constructively better tape than what we

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Speaker 1: saw twenty eight hours ago. Futures up for the yield

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Speaker 1: one point five eight all the way out to one

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Speaker 1: point six three. Higher yields is what it waits share

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Speaker 1: yelling our coverage the Safternoon's Scarlet Food Michael McKee myself

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Speaker 1: one pm. Join us at one pm. Good morning,