WEBVTT - RBC's Golub on Investing in a Slow Growth Environment (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellotto. A big recovery for stocks today. Stock

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<v Speaker 1>spent much of the day trading lawer, but right now

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<v Speaker 1>we've got the SMP five hundred index climbing three tenths

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<v Speaker 1>of one percent of six points to two thousand, seventy seven.

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<v Speaker 1>Equities recovering after a five day retreat. The pound erased

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<v Speaker 1>losses after the death of a UK lawmaker coincided with

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<v Speaker 1>diminished odds Britain will elect to leave the European Union.

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<v Speaker 1>Down industrials of one two points, gaining six tenths of

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<v Speaker 1>one percent, as stack of eight gain of two tenths

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<v Speaker 1>of one percent. Ten year yield one point five seven percent,

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<v Speaker 1>Gold down four to twelve eighty four, a drop of

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<v Speaker 1>three tenths of one percent. We are now looking at

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<v Speaker 1>a four point one percent drop in West Texas intermediate

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<v Speaker 1>crewed down almost two dollars of barrel to forty six

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<v Speaker 1>dollars and four cents. I'm Charlie Pellett. That's a Bloombird

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<v Speaker 1>Business slash. Thank you very much, Charlie Pellett. It's time

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<v Speaker 1>now for the e t F Report. It is brought

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<v Speaker 1>to you by Vaneck Vectors et F s. Expect more

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<v Speaker 1>Visit vanek dot com slash Muni Vanek access the opportunities.

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<v Speaker 1>Let's go to Katherine Cowdery and our e t F report.

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<v Speaker 1>E t F investors are no longer dancing around the

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<v Speaker 1>federalis or that's the word from Bloomberg Intelligence analyst Eric Beltunis.

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<v Speaker 1>He says e t F flows indicate investors focus has changed.

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<v Speaker 1>Instead of looking to spaed proof their portfolio, they're looking

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<v Speaker 1>to stockproof it. And the evidence comes in a few places.

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<v Speaker 1>One we've seen inverse stock ets taken six billion dollars.

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<v Speaker 1>That's way more than normal. The ones that go short

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<v Speaker 1>treasuries they've taken in they've actually lost money. So that

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<v Speaker 1>clearly says people are looking to hedge on stocks, not

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<v Speaker 1>rising rates. Baltni says there's also increased interest and so

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<v Speaker 1>called low volatility ets, which seems to minimize volatility. A

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<v Speaker 1>final example, Beltoona sites a bond market where aggregate bond

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<v Speaker 1>ETFs have led all bond categories with a combined fifteen

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<v Speaker 1>point six billion dollars in new cash. He says, that's

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<v Speaker 1>an indication that investors are rebalancing their portfolios as they

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<v Speaker 1>trim their core stock position. That's your Bloomberg ETF report.

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<v Speaker 1>I'm Catherine Cowlery. This is taking stock with Kathleen Hayes

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<v Speaker 1>and Prim Fox on Bloomberg Radio. Conventional wisdom holds that

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<v Speaker 1>the stock market would like to hear about an easier FED,

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<v Speaker 1>a FED that's going to go much more slower when

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<v Speaker 1>it comes to raising interest rates. Our next guest points out,

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<v Speaker 1>in fact, that when we're in a very low rate environment,

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<v Speaker 1>arising rates could be good for stocks, helping the banks

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<v Speaker 1>with their net interest margins. For example. In fact, the

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<v Speaker 1>last couple of days, we've seen a pullback and energy

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<v Speaker 1>shares because Janet Yellen signal the FED is going to

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<v Speaker 1>go very very slower, even slower than we thought, perhaps

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<v Speaker 1>on raising rates. Jonathan Golivers back. He's chief US market

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<v Speaker 1>strategist for RBC Capital Markets based right here in New

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<v Speaker 1>York City. So John, let's start with this, were you

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<v Speaker 1>surprised by Janet Yellin's comments at the press conference, maybe

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<v Speaker 1>there's some long term economic problems that aren't going away.

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<v Speaker 1>And then at the right out of the gate at

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<v Speaker 1>two o'clock, the forecast the dots suggesting, hey, more and

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<v Speaker 1>more FED officials only see one rate heck this year. Well,

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<v Speaker 1>I think the reality is that we are in a

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<v Speaker 1>slower economy on a long term secular basis. So this

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<v Speaker 1>three and a half percent GDP number that we experience

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<v Speaker 1>for the fifty years up until the financial crisis is

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<v Speaker 1>probably not a trend that we're going to see um

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<v Speaker 1>going forward. And and it's taken the FED awhile and

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<v Speaker 1>you've seen this not with the FED, with the I

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<v Speaker 1>m F and other forecasters, that it's taken them a

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<v Speaker 1>while to actually lower that number back towards something closer

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<v Speaker 1>to a trend of two percent, which is reality. And

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<v Speaker 1>I think the FET is just reflecting that in in

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<v Speaker 1>their comments about growth UM as far as do I

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<v Speaker 1>you know one meeting versus UM two meetings? If if

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<v Speaker 1>if we are at a sub five percent UM, employ

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<v Speaker 1>unemployment is below five and corese c P I, which

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<v Speaker 1>just came out today is running a two point two.

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<v Speaker 1>We are so close to the exact numbers that the

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<v Speaker 1>FETE is looking for under their mandate that unless there's

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<v Speaker 1>some real global instability, they really should be obligated. But

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<v Speaker 1>I just have to jump in because you know that

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<v Speaker 1>the c p I you're over here is not their

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<v Speaker 1>their key measure. It's the PC, which measures inflation somewhat differently,

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<v Speaker 1>and that is that is down closer on the headline

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<v Speaker 1>to one. It's as higher on the core maybe one

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<v Speaker 1>point seven, one eight. But the c p I isn't

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<v Speaker 1>really their main target, right, So, and you can't look

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<v Speaker 1>at the So if you look at the the the

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<v Speaker 1>the PC, which is what the FED looks like, and

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<v Speaker 1>you said it's it's in the in the high ones. Again,

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<v Speaker 1>you're so close to two percent number. There is no

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<v Speaker 1>such thing is as economic nirvana. There's no such thing

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<v Speaker 1>is exactly perfect. But if you're running inflation of even

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<v Speaker 1>just with the Fed's measure just under two and unemployment

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<v Speaker 1>under five, you just you should have higher rates. And

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<v Speaker 1>so as we move through the year, if we get

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<v Speaker 1>through these concerns about Brexit and other things, and volatility

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<v Speaker 1>drifts down a little bit lower, UM, I think the

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<v Speaker 1>FED is going to really be forced to take to

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<v Speaker 1>continue to gradually raise rates. I don't know why, Jonathan,

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<v Speaker 1>but that made me think of a nods as good

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<v Speaker 1>as a wink to a blind bat. In other words,

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<v Speaker 1>you just have to deal with things as they are.

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<v Speaker 1>I don't know whether I can test you on pop

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<v Speaker 1>your culture, but remember that scene some Monty Python sketch

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<v Speaker 1>in which you're sitting in the prison cell and you

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<v Speaker 1>get those weighty, blurry lines that take you off into Nirvana,

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<v Speaker 1>and then you realize, no, no, you're not really in nirvana.

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<v Speaker 1>You're really still in the cell. If you're still in

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<v Speaker 1>the cell, how can you get out? Now? What are

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<v Speaker 1>you recommending to investors to put their money in two

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<v Speaker 1>investments or assets that will yield more than just let's

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<v Speaker 1>say one and a half to two, right, So the

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<v Speaker 1>first thing is if IF, and it's the way I

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<v Speaker 1>look at it when you when companies. Right now in

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<v Speaker 1>the US, the SMP is returning to shareholders in dividends

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<v Speaker 1>plus buybacks. They're returning about four point seven percent capital

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<v Speaker 1>back to shareholders. If you compare that to sub one six,

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<v Speaker 1>which is what you're getting on a treasury bond or

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<v Speaker 1>or whatever you get on IMMUNI, that is an extraordinarily

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<v Speaker 1>attractive return of capital. It is much more attractive than

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<v Speaker 1>European stocks. It's more attractive than bonds. And I think

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<v Speaker 1>it's why even in a really low growth environment, stocks

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<v Speaker 1>are still going to be a you know, maybe not

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<v Speaker 1>a fantastic place to be, but a better alternative than

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<v Speaker 1>anything else. And US stock should be the best on

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<v Speaker 1>a global basis. So, uh, what kind of stocks? How

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<v Speaker 1>do I invest and make money in a slow growth environment? Right?

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<v Speaker 1>So there's in in simple terms, companies that are growth

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<v Speaker 1>companies should do better in a slow growth environment than

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<v Speaker 1>traditional value companies. UM and we're looking for and it's

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<v Speaker 1>really kind of multiple buckets of growth. But the first

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<v Speaker 1>is the ones that we hear about, the fangs and

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<v Speaker 1>the biotechs and and those companies that have some kind

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<v Speaker 1>of UM unique brand or intellectual property. Those should be

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<v Speaker 1>the most attractive companies. Interestingly, healthcare, the fundamentals are fantastic.

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<v Speaker 1>There's concerns about the impact of the elect Michael on that,

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<v Speaker 1>so that's holding it down, but fundamentally it looks attractive.

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<v Speaker 1>There's another category of companies that are not as compelling

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<v Speaker 1>in their growth but they're stable and visible that you know,

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<v Speaker 1>the kind of companies that you can depend on them

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<v Speaker 1>as companies that are in what I would call business services,

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<v Speaker 1>those would be companies that hallway store, a company like

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<v Speaker 1>a Syntas that that you know, makes uniforms, and those

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<v Speaker 1>kind of companies. Again, not high growth rate companies, but

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<v Speaker 1>stable growth companies. And they've done extremely well over the

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<v Speaker 1>last several years, and I think that category will continue

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<v Speaker 1>to do well. Jonathan, what about investing in energy companies?

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<v Speaker 1>Is that in the context of the most unloved asset

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<v Speaker 1>class right now? What is the most unloved asset class? Well, well,

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<v Speaker 1>there's there's no question the most unloved asset class right

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<v Speaker 1>now is the health care sector. You know, these these

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<v Speaker 1>companies are down substantially and yet they have the fastest

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<v Speaker 1>growth rates, the best, the best fundamentals, and it's it's

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<v Speaker 1>all about election related concerns. The energy stocks while they've

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<v Speaker 1>h well, when you know they've they've they've been up

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<v Speaker 1>there in the last few months as we've you know,

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<v Speaker 1>as we've got over all those concerns that we had

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<v Speaker 1>in January and February about are we going into recession

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<v Speaker 1>when we all realize that we're not. You had a

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<v Speaker 1>big rally in many of those materials and energy related companies,

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<v Speaker 1>and in a in a strange way, they look actually

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<v Speaker 1>quite expensive. Just a quick comment on bonds in this

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<v Speaker 1>world where more and more yields are negative and there's

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<v Speaker 1>there's this redheart rolley continues with you know, who knows

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<v Speaker 1>the bubble or what's going to happen? Just stay away

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<v Speaker 1>from bonds. Is there any kind of fixed income that

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<v Speaker 1>looks good? You know? I the only way to make

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<v Speaker 1>you know, money and bonds right now is for interest

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<v Speaker 1>rates to just continue to go lower. And what most

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<v Speaker 1>bond investors um people who aren't bond you know, mutual

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<v Speaker 1>funds and portfolios, they're they're focusing more on taking credit risk,

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<v Speaker 1>you know, the investing in corporates, corporates or mortgages or

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<v Speaker 1>other instruments like that as opposed to treasuries. If you're

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<v Speaker 1>a global bond investor, I mean you have a zero

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<v Speaker 1>interest rate on Swiss government bonds out so I think

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<v Speaker 1>seventeen years um. Japanese bonds I think are zero interest

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<v Speaker 1>right out to fifteen years. German paper is hovering right

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<v Speaker 1>or round zero out to ten. It's it's really a

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<v Speaker 1>an extraordinary period and very very uncomfortable for people who

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<v Speaker 1>depend on, you know, interest rate instruments to the safe retirement. Jonathan,

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<v Speaker 1>you don't paint a pretty picture at least in the

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<v Speaker 1>credit market. Is there anything that you have to offer

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<v Speaker 1>in terms of gold and commodities? Well, well, first, in

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<v Speaker 1>terms of not painting a pretty picture, I think that

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<v Speaker 1>that you know, interest rates are not a loan or

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<v Speaker 1>not going to provide it. But if you look at

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<v Speaker 1>in the current economic environment, either there's there's very low

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<v Speaker 1>corporate defaults. If you if you're investing in higher yield

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<v Speaker 1>you know, debtor or corporate credit there there there their

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<v Speaker 1>loans are performing extremely well. So if you are taking

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<v Speaker 1>that credit risk, you are likely to be well rewarded.

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<v Speaker 1>So there are places that that you can go gold.

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<v Speaker 1>I'm never a fan of gold because the one end

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<v Speaker 1>instrument you know never returns you a dividend is is

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<v Speaker 1>a bar gold. Thank you very much, Jonathan goll have

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<v Speaker 1>always returning with the information and insight, Chief US market strategist,

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<v Speaker 1>RBC Capital Markets. We're going to take you through to

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<v Speaker 1>the close on Wall Street right now. This is Bloomberg

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<v Speaker 1>Radio