WEBVTT - Surveillance: Equity Markets Still Pretty Good, Patel Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leie. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:31.120 Bloomberg dot Com, and of course, on the Bloomberg. So 0:00:31.240 --> 0:00:34.680 the top story the President raising the pressure on Beijing 0:00:34.800 --> 0:00:37.240 once again to strike a trade deal, announcing he would 0:00:37.240 --> 0:00:40.879 increase tariffs on two hundred billion dollars of Chinese imports 0:00:40.920 --> 0:00:46.440 Friday from ten percent, also floating the possibility of extending 0:00:46.440 --> 0:00:50.199 a new duty on another three hundred and twenty five 0:00:50.240 --> 0:00:53.040 billion dollars of imports not already covered. So the judgment 0:00:53.120 --> 0:00:55.600 call you've got to make this morning is this material 0:00:55.800 --> 0:01:00.160 escalation or the beginning of intensified negotiations? Here in the 0:01:00.200 --> 0:01:02.279 studio to help us answer that question in New York 0:01:02.400 --> 0:01:05.640 is tiny too kind of call. Generacy, Chief market strategist, 0:01:05.640 --> 0:01:08.360 Good morning to Tony. Good morning. So help me answer 0:01:08.440 --> 0:01:11.200 that question. Which one is it? It's impossible to say. 0:01:11.240 --> 0:01:13.280 I would guess more and it's a guess is that 0:01:13.319 --> 0:01:16.720 it's more intensified negotiations. You know, I just remember two 0:01:16.760 --> 0:01:19.120 weeks ago or over the last couple of weeks, we've 0:01:19.160 --> 0:01:20.640 been looking for a little bit of a pause in 0:01:20.680 --> 0:01:23.280 the upside. You know, wrote a report called cause for Pause, 0:01:23.319 --> 0:01:25.320 and part of it is volatility was so low in 0:01:25.440 --> 0:01:28.840 expectations had become so good that when it gets like that, 0:01:29.560 --> 0:01:32.840 if it wasn't the trade negotiations, it would be something else. 0:01:32.880 --> 0:01:34.679 It would be a fed comment, it would be an 0:01:34.680 --> 0:01:37.680 earnings comment, it would be a political comment. There would 0:01:37.720 --> 0:01:40.120 be a reason for a pullback. And I think the 0:01:40.120 --> 0:01:44.400 tariffs and the tweets kind of certainly have have that excuse. Well, 0:01:44.400 --> 0:01:46.600 the comment is broken. The VIX up five points this 0:01:46.680 --> 0:01:50.240 morning to eighteen point two one on the VIX. The 0:01:50.320 --> 0:01:54.279 judgment call also involves what you anticipate the Chinese do next? 0:01:54.480 --> 0:01:57.120 How the Chinese response. From what we understand here in Bloomberg, 0:01:57.120 --> 0:01:59.680 there has been what could be considered a media blackout 0:01:59.760 --> 0:02:02.320 on the president's tweets. Within China, we understand from the 0:02:02.320 --> 0:02:05.040 Foreign Ministry and Shanna the officials are still planning to 0:02:05.080 --> 0:02:06.680 travel to the Nut of States for the next round 0:02:06.720 --> 0:02:09.160 of talks. We don't know when there is a subtle 0:02:09.200 --> 0:02:12.919 sign there that they are considering delaying the trip. How 0:02:12.960 --> 0:02:15.639 do you anticipate that town is a mockup participant this morning. 0:02:15.680 --> 0:02:18.160 That's the big on note. How China responds, how do 0:02:18.200 --> 0:02:23.200 you think about it? I think it's impossible to make 0:02:23.240 --> 0:02:25.920 an investment decision off of a tweet. And if there's 0:02:26.000 --> 0:02:28.480 one thing that I can convey to the listeners, please 0:02:28.520 --> 0:02:30.880 don't listen to people like me when they actually make 0:02:30.919 --> 0:02:33.920 an investment recommendation off of a guest like that. I 0:02:33.960 --> 0:02:36.520 think what I would ask the listeners as they're driving 0:02:36.520 --> 0:02:39.239 in their car, if interests the tenure not yields it 0:02:39.320 --> 0:02:42.200 at two forty eight, the five years down five basis point, 0:02:42.680 --> 0:02:45.520 you've had an extraordinary drop in interest rates. At the 0:02:45.560 --> 0:02:49.720 same time money available. Money is still available via bank lending. 0:02:49.760 --> 0:02:53.560 So I asked the question, does the presidential tweet prevent 0:02:53.680 --> 0:02:57.400 you from refinancing your debt or taking out new debt 0:02:57.400 --> 0:02:59.919 at the lower debt level. Every house and in nor 0:03:00.040 --> 0:03:02.600 than Bergen County where I live that was for sale 0:03:02.639 --> 0:03:05.240 is now under contract because mortgage rates have dropped a 0:03:05.280 --> 0:03:08.560 hundred basis points. Those people don't really care about the tweet. 0:03:08.639 --> 0:03:11.800 So has anything changed this morning for Tony Twat and 0:03:11.919 --> 0:03:14.320 kind of cool Genuitcy in the team over that? No, 0:03:14.520 --> 0:03:17.680 because we've you know, people like me are famous for 0:03:17.720 --> 0:03:19.799 saying this, we've actually been looking for a pause. The 0:03:19.880 --> 0:03:23.000 question isn't whether the market can correct. The question is 0:03:23.040 --> 0:03:26.840 whether you use it to take advantage of better opportunities 0:03:26.880 --> 0:03:29.480 and equities. Well, we try to do here, folks, is 0:03:29.560 --> 0:03:32.600 frame moves. Obviously there were two presidential tweets among a 0:03:32.720 --> 0:03:36.800 zillion of them. This weekend obviously had an effect on 0:03:36.880 --> 0:03:40.440 Mark because but John and I kill ourselves every day 0:03:40.600 --> 0:03:51.560 to framewords like cratered crushed numbers with them. Okay, folks, 0:03:51.680 --> 0:03:54.800 let's frame it right now. From the peak Dow was 0:03:54.880 --> 0:03:58.400 down three point six. It's it's not even a mini 0:03:58.520 --> 0:04:02.200 correction or whatever. And very importantly, John, to the more 0:04:02.240 --> 0:04:04.960 short term space people that are looking at the markets, 0:04:05.120 --> 0:04:08.400 since you're the real yield. On Friday, we're down just 0:04:08.520 --> 0:04:13.440 a little over two standard deviations on Dow, which statistically 0:04:13.560 --> 0:04:17.880 is totally normal, totally normal. And I'm seeing the headlines 0:04:17.920 --> 0:04:22.400 plant the Dow plunging right now. Well, you know, I 0:04:22.400 --> 0:04:25.920 think let's do the best service we can for the listeners. Okay, 0:04:25.960 --> 0:04:28.080 so let's say it's down three percent. How do you 0:04:28.120 --> 0:04:30.640 know if it's gonna be down five percent? Versus down 0:04:30.720 --> 0:04:34.880 fift and the answer this cycle, the three major drops 0:04:34.920 --> 0:04:37.480 two thousand, two thousand and fifteen, sixteen, and two thousand 0:04:37.480 --> 0:04:41.719 and eighteen were all driven by expectations for significantly higher 0:04:41.800 --> 0:04:45.120 rates from the Federal Reserve. QUWI two was being withdrawn 0:04:45.160 --> 0:04:47.719 in two thousand and eleven. That was driving rates higher. 0:04:48.040 --> 0:04:51.000 Two thousand fifteen sixteen, the Fed had started raising rates. 0:04:51.040 --> 0:04:54.120 Two thousand eighteen, they really raised rates. That's not the 0:04:54.240 --> 0:04:58.000 scenario here. If anything, the trade tension is gonna lower 0:04:58.080 --> 0:05:01.000 expectations of rates. I want to go Tony just away 0:05:01.000 --> 0:05:03.800 from China and US and all that. How do you 0:05:04.000 --> 0:05:08.800 veil you now differently double digit revenue growth without naming 0:05:08.839 --> 0:05:13.000 any companies. If it's a low yield environment, that revenue 0:05:13.000 --> 0:05:16.160 growth is ever more vailue, isn't it? It is? It 0:05:16.200 --> 0:05:18.520 allows it allows you to do so many things. Time, 0:05:18.560 --> 0:05:21.520 you could buy backstock, you can increase. What ratios do 0:05:21.600 --> 0:05:25.400 you use to show those differentials of of better than 0:05:25.480 --> 0:05:28.800 good revenue growth? Well, it's it's it's more of don't 0:05:28.839 --> 0:05:32.080 tell me the pe ratio. It's more. Well, there's two 0:05:32.080 --> 0:05:34.080 things that go into the valuation. There's price, and there's 0:05:34.120 --> 0:05:36.600 earnings and and what you're willing to pay for those 0:05:36.640 --> 0:05:40.719 earnings goes up significant. Revenue goes up significantly when interest 0:05:40.800 --> 0:05:43.200 rates are down because you don't have as many alternatives 0:05:43.200 --> 0:05:45.920 to that money. Taylor from San Francisco email and John 0:05:45.920 --> 0:05:48.880 and said, what about price to sales? Do you use price? 0:05:48.920 --> 0:05:51.000 Are you on the edge of Tom Galvin, the giant 0:05:51.000 --> 0:05:54.680 at Donaldson, Loveking, Generate and Credit Suite years ago? Price 0:05:54.760 --> 0:05:59.240 to sales matter? This is for over time. It matters 0:05:59.279 --> 0:06:02.920 in price to else ratio has been very, very high 0:06:03.080 --> 0:06:05.560 for a very long time, and it hasn't mattered. What 0:06:05.680 --> 0:06:08.200 I try to do is focus on whether something's right 0:06:08.279 --> 0:06:10.520 or wrong. I don't really care. I what I care 0:06:10.520 --> 0:06:14.080 about is what other investors used to value what they're doing. 0:06:14.240 --> 0:06:17.920 And price to earnings is what the institutions use to 0:06:18.120 --> 0:06:20.919 price their equities and price the overall market. So I 0:06:21.000 --> 0:06:24.479 focus on that rather than other ratios that might make 0:06:24.520 --> 0:06:26.400 more sense. So, Tony, I think this morning is a 0:06:26.400 --> 0:06:29.080 great morning to to recycle something we often do with you, 0:06:29.160 --> 0:06:32.960 and that's discipline. Maintaining discipline when there's so much drama 0:06:33.120 --> 0:06:35.840 going on around you, like me in the studio right now, 0:06:35.839 --> 0:06:39.320 trying to anchor with Tom Keane if you remember December. 0:06:39.480 --> 0:06:42.400 December is the world seemingly is falling apart, and Tony 0:06:42.480 --> 0:06:45.640 comes on with us and talks about maintaining discipline and 0:06:45.680 --> 0:06:49.119 ignoring the drama around you. At the time, it's easy 0:06:49.160 --> 0:06:51.359 just to say Tony is a perma boil he's always saying. 0:06:51.400 --> 0:06:53.680 By then, when we reflect on it, it's easy just 0:06:53.720 --> 0:06:55.880 to say, you know what, with hindsight was so obvious, 0:06:55.880 --> 0:06:57.680 Why wouldn't you buy that weakness the FETE was going 0:06:57.720 --> 0:07:00.640 to back away? Help us on a morning this morning, 0:07:01.200 --> 0:07:05.000 maintain discipline as you see all these dramatic headlines about 0:07:05.040 --> 0:07:07.640 an escalation in the trite war and how it could 0:07:07.680 --> 0:07:11.960 get a whole lot worse from here. Discipline is not 0:07:12.160 --> 0:07:15.520 making a decision based on a guess. Two days ago, 0:07:15.800 --> 0:07:19.800 we're close to a deal, everybody's on TV, everything's looking good, 0:07:20.160 --> 0:07:24.800 and then over the weekend, no deal, everything looks horrifically bad. Ultimately, 0:07:24.880 --> 0:07:27.960 what should drive, in my opinion, what should drive an 0:07:28.000 --> 0:07:32.280 investment decision again falls back to do the people listening 0:07:32.320 --> 0:07:36.400 to this show have access to money, to companies that 0:07:36.440 --> 0:07:38.920 are on this show and pay for the advertising have 0:07:39.120 --> 0:07:42.600 access to money, And as long as that answer is yes, 0:07:42.720 --> 0:07:47.880 I am obviously not very good and calling for drops 0:07:47.880 --> 0:07:50.640 because I didn't expect what we got in December. But 0:07:50.880 --> 0:07:53.040 I I will say the reason that it was to 0:07:53.080 --> 0:07:55.400 be bought was because the answer that those two questions 0:07:55.400 --> 0:07:58.760 are yes, we have access to money. And he says 0:07:58.960 --> 0:08:01.600 kind dis regards to Anthony Dwyer as well. Mr cast 0:08:01.600 --> 0:08:04.080 will join us later today. I believe ye, Dougie's the 0:08:04.120 --> 0:08:07.480 best some of our selected when he's coming on later, 0:08:07.600 --> 0:08:12.480 he's during your always well here's you've got so many 0:08:12.520 --> 0:08:15.560 other properties. I mean topic for a second. Here's a 0:08:15.560 --> 0:08:18.920 great example. Doug and I over the last two weeks 0:08:19.120 --> 0:08:21.120 have been on the same side of the trade. I've 0:08:21.160 --> 0:08:23.240 been looking for a pull back and he's, I think 0:08:23.240 --> 0:08:25.920 looking for a bigger pullback than me. But the whole 0:08:26.000 --> 0:08:29.280 status of what listen to what people like us say, 0:08:29.960 --> 0:08:33.520 don't don't buy what you know, you think you believe 0:08:33.520 --> 0:08:38.440 in the Yankees, of course I do. Come on Yankees giants, Tony, 0:08:38.600 --> 0:08:55.520 thank you so much, Tony Dwyer, Knichordan Juyker. Book is 0:08:55.520 --> 0:08:58.560 why presidents fail and how they can see succeed again. 0:08:59.200 --> 0:09:02.760 Ellen e. Lane comarc Rather Elane Comarca Brookins. She's been 0:09:02.760 --> 0:09:05.520 on many times of Foreign Elane instead of all the 0:09:05.640 --> 0:09:08.440 Mueller stuff in that, I just want to talk to 0:09:08.480 --> 0:09:14.160 you with your scholarship about our tweets policy. As Mr 0:09:14.240 --> 0:09:19.439 Faroll just mentioned, are these tweets policy? Well, I haven't 0:09:19.480 --> 0:09:22.280 actually sat down and counted them. Although it's a good 0:09:22.320 --> 0:09:24.719 it's probably a good thing for a scholar to do. 0:09:25.400 --> 0:09:29.000 The fact is that sometimes the tweets are literally the 0:09:29.040 --> 0:09:34.240 president's random thoughts, and at other times they change policy. Now, 0:09:34.400 --> 0:09:38.079 I've been scouring the newspapers this morning trying to see 0:09:38.320 --> 0:09:42.560 if this looked like it was a concentrated effort to 0:09:43.480 --> 0:09:47.760 move the China talks in some direction, or whether the 0:09:47.880 --> 0:09:52.600 president's negotiators were as surprised about this tweet as everybody 0:09:52.600 --> 0:09:56.400 else wants. These China talks are nearing their end um 0:09:56.440 --> 0:10:00.000 and suddenly the President throws this into the middle of them. 0:10:00.120 --> 0:10:04.480 It could be a considered negotiating tactic, or as we 0:10:04.520 --> 0:10:06.800 know with Donald Trump, they could be just something he 0:10:06.880 --> 0:10:11.960 woke up and decided, what's your experience of what staff? Does? 0:10:12.160 --> 0:10:14.520 I mean? There's you know, let's say as a round number, 0:10:14.559 --> 0:10:17.120 like the Lincoln White House, there's twenty people in the 0:10:17.120 --> 0:10:19.800 White House trying to get through the day. How do 0:10:20.000 --> 0:10:24.280 they respond at seven fifty Wall Street time to these 0:10:24.320 --> 0:10:28.480 tweets of the weekend? Well, I think they go screring 0:10:28.520 --> 0:10:30.800 to the press into the Oval Office as soon as 0:10:30.800 --> 0:10:34.520 they can, and they say, look, here's where we are 0:10:34.640 --> 0:10:38.520 with the negotiations. Um, the Chinese are supposed to be 0:10:38.720 --> 0:10:42.760 here soon. Um, what does this mean? Is this something 0:10:42.800 --> 0:10:46.360 you're doing for tactical purposes? Or do we have to 0:10:46.480 --> 0:10:50.960 now negotiate with this in mind? Is something full? And 0:10:51.160 --> 0:10:55.520 you know, these these negotiations were going on quite well, right, 0:10:55.600 --> 0:10:58.520 There's still a lot of things. However, the Americans want 0:10:58.559 --> 0:11:02.040 out of them, as they're always are. And Um, it's 0:11:02.120 --> 0:11:08.040 possible that this is a sound negotiating stance that has 0:11:08.080 --> 0:11:10.920 happened before. But it's also possible that this is the 0:11:10.960 --> 0:11:15.360 President being disconnected and randomly throwing something out there. And 0:11:15.280 --> 0:11:18.000 there was a belief just to jump in quickly. Now, 0:11:18.200 --> 0:11:20.760 there was a belief that the president wanted a quick deal. 0:11:20.840 --> 0:11:23.160 Going into the weekend last week, many people were saying 0:11:23.160 --> 0:11:25.079 that the president wants a quick deal, He's giving up 0:11:25.120 --> 0:11:26.920 on certain issues, he just wants to get this over 0:11:26.960 --> 0:11:30.880 the line. With these two tweets, can we put that 0:11:30.920 --> 0:11:35.679 to bed? You know, it depends because we have seen 0:11:35.920 --> 0:11:39.560 other presidential tweets. We've seen the tweet come out, and 0:11:39.600 --> 0:11:43.360 then we've seen his advisors walk it back and really 0:11:43.440 --> 0:11:47.080 change it around. So we don't really know right now 0:11:47.240 --> 0:11:51.360 whether this will they'll walk it back and say, oh, no, no, 0:11:51.480 --> 0:11:55.360 he really actually didn't mean this, and we'll we'll get 0:11:55.360 --> 0:11:58.920 a deal, or whether if this is going to disrupt 0:11:58.960 --> 0:12:02.200 the negotiations and keep him from getting that quick deal 0:12:02.320 --> 0:12:06.080 that he said he wanted. This is policymakings from the U. S. Side. 0:12:06.120 --> 0:12:07.920 Let's try and get in the heads of the Chinese 0:12:07.960 --> 0:12:10.160 just for a moment as well, elone, if we may, 0:12:10.320 --> 0:12:13.080 How do the Chinese respond to this? This clearly comes 0:12:12.960 --> 0:12:15.920 as a surprise. The President puts out two tweets over 0:12:15.960 --> 0:12:18.079 the weekend, the gearing up more than a hundred of 0:12:18.120 --> 0:12:20.200 them to come to Washington, d c. And what many 0:12:20.200 --> 0:12:22.600 people thought would be the final round of trade talks 0:12:22.600 --> 0:12:28.000 between the big bilateral. How do they think about this? Well, 0:12:28.120 --> 0:12:30.400 look the world, you know, in the first year of 0:12:30.440 --> 0:12:35.080 the Trump presidency, whether the issue was NATO, the NATO Alliance, 0:12:35.400 --> 0:12:39.160 or trade or other things. Um, the world was very 0:12:39.280 --> 0:12:44.000 very confused about Donald Trump because he behaved and continues 0:12:44.080 --> 0:12:49.080 to behave without the stability of a normal president and 0:12:49.120 --> 0:12:52.520 a normal policy making process. This is and we are 0:12:52.559 --> 0:12:57.000 now three years into this, and I suspect that people 0:12:57.120 --> 0:12:59.400 around the world there's a lot of evidence that oh, 0:12:59.440 --> 0:13:02.520 they're getting used to this guy, and that they have 0:13:02.679 --> 0:13:06.239 to wait at least twenty four hours after their presidential 0:13:06.280 --> 0:13:09.760 tweet to see if that is American policy or not. 0:13:10.320 --> 0:13:13.040 That's my guests, and um, I think we'll know in 0:13:13.080 --> 0:13:15.200 a couple will probably know by the end of the 0:13:15.240 --> 0:13:18.520 business day today whether this is going to disrupt the 0:13:18.600 --> 0:13:21.960 talks or whether or not people will simply ignore it. 0:13:22.040 --> 0:13:25.600 Elane Kimark whether Brooks Elane one more question. You know, 0:13:25.600 --> 0:13:28.719 I went into Kissingers Diplomacy, which is a classic textbook 0:13:28.720 --> 0:13:32.000 that you read folks on like the Walls from Westphalian 0:13:32.080 --> 0:13:35.600 Europe forward, and I just randomly picked out August of 0:13:35.679 --> 0:13:40.160 ninety nine, an actual handshake treaty, and this of course 0:13:40.160 --> 0:13:43.880 a Stalin and the Nazis Molotov ribbitrof pack, which folks 0:13:43.960 --> 0:13:46.560 was you know, basically Joe Stalin lining up what he 0:13:46.600 --> 0:13:49.800 wanted to do with Germany before the US got into 0:13:49.880 --> 0:13:52.600 the war. We we have the thing in our mind 0:13:52.679 --> 0:13:56.240 of like photo ops and shaking hands and pen's being 0:13:56.320 --> 0:13:59.320 signed and papers being signed and all that. Are we 0:13:59.400 --> 0:14:03.920 completely removed from that on this U S. China discussion. No, 0:14:04.160 --> 0:14:06.560 I don't. I don't think so. I mean, I think 0:14:06.640 --> 0:14:10.680 we will still have um papers being signed. I think 0:14:10.720 --> 0:14:13.760 eventually we'll have we'll have some agreement on this. The 0:14:14.240 --> 0:14:17.559 difficulty here, I mean look to to on the U 0:14:17.800 --> 0:14:22.080 S side is that China does it doesn't have a 0:14:22.240 --> 0:14:26.720 legal structure that guarantees that what we sign will actually 0:14:26.760 --> 0:14:30.680 happen in its government. Now, before they entered into these talks, 0:14:30.920 --> 0:14:33.840 they did make some changes in their laws trying to 0:14:33.960 --> 0:14:36.720 sort of pre empt the U S objections to the 0:14:36.760 --> 0:14:39.880 way they do business. But China, when it comes to 0:14:39.920 --> 0:14:42.360 the rule of law, is not really where we are, 0:14:42.640 --> 0:14:46.440 and I think that that makes the negotiating more difficult. 0:14:46.800 --> 0:14:48.720 I'll get to leave there, Lane, Thank you so much. 0:14:48.760 --> 0:14:51.640 Well time Mark with us with a wonderful book sort 0:14:51.640 --> 0:14:54.000 of on presidents and how they behave in the White House. 0:15:07.600 --> 0:15:10.560 Let's bring in Markett's house, shall we? Was? Fargosset Management 0:15:10.600 --> 0:15:13.840 Senior portfolio manager, See joins us on the phone. Great 0:15:13.880 --> 0:15:15.680 to catch up with your Margie what are your tanning 0:15:15.720 --> 0:15:17.600 clients this morning, What are you doing with your portfolio? 0:15:17.720 --> 0:15:20.720 If anything, it's all well. I think the old book 0:15:20.760 --> 0:15:24.680 fundamentally is still pretty positive for the equity market and 0:15:24.760 --> 0:15:27.080 for interest rate stability. So I think this is just 0:15:27.200 --> 0:15:30.320 another blip we've seen relating to tariffs. Isn't gonna have 0:15:30.360 --> 0:15:32.920 a material effect on our economic growth, And if the 0:15:32.960 --> 0:15:36.800 market stays down materially, I'd say it's a great opportunity 0:15:36.840 --> 0:15:39.200 to add a little bit pretty cheap prices. So Margie 0:15:39.200 --> 0:15:40.840 talked to me about troceriies and the way they've been 0:15:40.880 --> 0:15:43.720 responding to the data quite recently. Even though the output 0:15:43.800 --> 0:15:46.920 numbers on payrolls were pretty good, beneath the surface down submerged. 0:15:46.960 --> 0:15:49.280 The I s M s fueled further doubts both on 0:15:49.360 --> 0:15:53.000 manufacturing and non manufacturing too. Have we hit the limits 0:15:53.000 --> 0:15:56.520 of where trotory yards can break out too? I think 0:15:56.560 --> 0:15:58.960 we're still trapped in the trading range. I haven't seen 0:15:58.960 --> 0:16:01.800 any material change age. Inflation still looks like it's going 0:16:01.840 --> 0:16:05.080 to stay under two percent. The economy looks as if 0:16:05.080 --> 0:16:07.440 it's growing, maybe a little slower than last year, but 0:16:07.640 --> 0:16:11.320 enough to sustain continued growth. And the short part of 0:16:11.360 --> 0:16:14.320 the curve continues to be distorted by the FED actions 0:16:14.360 --> 0:16:17.480 and holding such a large proportion those shorter security So 0:16:17.880 --> 0:16:20.480 I think things look pretty good and we're still in 0:16:20.560 --> 0:16:23.000 that two to two and a half percent range market. 0:16:23.040 --> 0:16:25.320 The number one thing I get from people on a 0:16:25.400 --> 0:16:29.280 high yield. If I quote an average yield of six 0:16:29.400 --> 0:16:33.000 point for eight percent, as you do in your note, 0:16:33.720 --> 0:16:38.160 when I get to a bundled portfolio, the yield always 0:16:38.200 --> 0:16:41.760 comes in lower. Where can I actually get a six 0:16:41.800 --> 0:16:45.520 and a half percent yield? And how do I do that? Well? 0:16:45.600 --> 0:16:47.520 These days, that would mean you would be buying a 0:16:47.600 --> 0:16:50.080 single B or a single B minus, in other words, 0:16:50.080 --> 0:16:54.200 a very lower limit of respectable quality below investment grade 0:16:54.240 --> 0:16:57.520 high yield bonds. Uh, there's not a lot of spread 0:16:57.600 --> 0:17:00.080 between the better quality and lower quality high You'll on 0:17:00.360 --> 0:17:03.720 double bees and you would have to buy a longer 0:17:03.760 --> 0:17:08.399 maturity newly issued tenure bond. Can I diversify my This 0:17:08.480 --> 0:17:11.120 is critical? Folks with MS Hotel just said, can I 0:17:11.160 --> 0:17:15.719 take risk out by buying many of those longer dated 0:17:16.280 --> 0:17:22.000 garbag bonds? Well, I wouldn't say to garbage. I would 0:17:22.040 --> 0:17:24.879 I would stick away from the triple seas, But really 0:17:24.960 --> 0:17:28.680 duration isn't the risk in high yield bonds, it's really default. 0:17:29.160 --> 0:17:32.480 So I think it's better to take longer duration get 0:17:32.520 --> 0:17:34.800 that extra yield because it's certainly it's worked for the 0:17:34.880 --> 0:17:36.840 last top of half a dozen years. I see no 0:17:36.960 --> 0:17:39.199 sign in all yield spreads blowing. Did you guys just 0:17:39.240 --> 0:17:41.240 make up a word? So Alf from New Jersey just 0:17:41.320 --> 0:17:45.399 emailed in and he says more garbage bargie? Is that 0:17:45.400 --> 0:17:47.920 a new bond market? So I've been doing this for 0:17:48.080 --> 0:17:51.600 year l five, Margie. Let's talk about how high yield 0:17:51.680 --> 0:17:53.560 is priced at the moment. As Tom points out, the 0:17:53.560 --> 0:17:56.440 absolute yield is just not the six percent on that basis, 0:17:56.720 --> 0:17:59.160 I think with the lowest in about twelve months, looking 0:17:59.200 --> 0:18:01.600 at the spread of a treasury is what are we 0:18:01.640 --> 0:18:05.560 out now? Three fifty ish? That's not even the tightest 0:18:05.600 --> 0:18:08.119 since October. So how do you sort of look at 0:18:08.119 --> 0:18:10.479 things at the moment? Are we richly valued? What do 0:18:10.520 --> 0:18:13.920 you think? I think our yield is quite fairly valued. 0:18:14.040 --> 0:18:16.480 And when you look at the default rates and expected 0:18:16.520 --> 0:18:20.679 default rates right now defaults unbelievably or less than one percent, 0:18:21.119 --> 0:18:24.080 it seems to me that you're actually getting extra yield 0:18:24.359 --> 0:18:26.800 compared to the true risk that you're really taking. So 0:18:26.840 --> 0:18:29.400 I would see spread staying where they are or even 0:18:29.440 --> 0:18:32.440 going nearer. Markeys. Interesting to have you on the program 0:18:32.440 --> 0:18:35.080 to get those calls market battel there whilst Sarko Masset Management, 0:18:35.160 --> 0:18:52.399 Senior portfolio manager. What we thought we'd do was go 0:18:52.480 --> 0:18:57.000 to somebody with perspective long agoing far away. For example, 0:18:59.440 --> 0:19:02.399 when I received in the gold colored reporter or the 0:19:02.520 --> 0:19:07.800 dark green colored thin report in very typewritten, fought Doug 0:19:07.920 --> 0:19:10.600 Cass and I would look at the same line. There's 0:19:10.600 --> 0:19:14.879 no reason to do hand springs over games. This was 0:19:14.920 --> 0:19:17.320 a year in which any fool could make a bundle 0:19:17.320 --> 0:19:21.760 in the stock market, and we did. To paraphrase President Kennedy, 0:19:22.200 --> 0:19:25.800 a rising tide lifts all yachts. His yacht is so 0:19:25.960 --> 0:19:28.520 large it can barely turn around at the Gulf of Mexico. 0:19:28.880 --> 0:19:33.199 We welcome Douglas Cass of Sea Breeze Partners. Doug, this 0:19:33.400 --> 0:19:36.200 is not the Berkshire of twenty years ago, is it? 0:19:36.960 --> 0:19:42.080 As you know, back in two thousand, um Warren invited 0:19:42.160 --> 0:19:44.320 me to sit on the days with him and Charlie 0:19:44.359 --> 0:19:48.840 mu the Credential Bear, and I wrote up an article 0:19:49.000 --> 0:19:52.960 on Real Money this morning about it UM. I spent 0:19:53.119 --> 0:19:55.800 a long period of time two months and had two 0:19:55.840 --> 0:19:59.560 of my analyst, Nick and Kelly, embarking on a research 0:19:59.640 --> 0:20:04.440 project aimed at asking them questions that were respectful, hard 0:20:04.520 --> 0:20:08.280 hitting and that never been asked before. And considering how 0:20:08.320 --> 0:20:11.760 what research Buffett and the company was. It wasn't easy. 0:20:12.000 --> 0:20:15.560 And I went back this weekend because Yahoo Finance actually 0:20:15.600 --> 0:20:19.840 just published the videos for the old But the first 0:20:19.840 --> 0:20:22.720 time I saw myself and I looked very young then um. 0:20:23.280 --> 0:20:26.480 But I made a bunch of points in the questions, 0:20:26.840 --> 0:20:30.040 the most important of which and my first question was 0:20:30.080 --> 0:20:35.920 that size matters. And I made the case um with 0:20:36.080 --> 0:20:39.280 Charlie or and Warren. Although Warren said, you have not 0:20:39.400 --> 0:20:42.800 convinced me to sell or short my own stock. Um. Well, 0:20:43.920 --> 0:20:48.080 that the company, that the company was becoming almost like 0:20:48.200 --> 0:20:52.520 in an SMP fund of passive fund on the spiders, Well, 0:20:52.600 --> 0:20:55.040 I mean, I mean Golden Sacks last ten years trailing 0:20:55.080 --> 0:20:59.960 six percent a year. Berkshire has done way better per 0:21:00.200 --> 0:21:03.360 ear But how do we compare that? I mean, does 0:21:03.400 --> 0:21:06.040 Doug Cass think that Berkshire for the last decades been 0:21:06.080 --> 0:21:08.800 a successful investment? I have to say it has been 0:21:09.040 --> 0:21:14.000 as a bundled conglomerate. It has been successful, but increasingly, 0:21:14.160 --> 0:21:19.679 tom UM the relative performance visa VI, let's say, the 0:21:19.760 --> 0:21:25.119 senior index, the SNP has been deflating, and he disgusted. 0:21:25.240 --> 0:21:28.600 Charlie disgusted, and weren't disgusted. On Saturday, I watched the 0:21:28.680 --> 0:21:33.080 full annual meeting on Yahoo Finance, and he basically said, 0:21:33.080 --> 0:21:35.080 it's something we can deal with. We made so much 0:21:35.119 --> 0:21:37.760 money uh in the past, and this is what one 0:21:37.840 --> 0:21:41.120 would expect. Size does matter. I think he did make 0:21:41.160 --> 0:21:44.479 a couple UH. I think the one important thing that 0:21:44.520 --> 0:21:50.760 came out of the meeting on Saturday UM was that 0:21:50.880 --> 0:21:55.679 he highlighted that UM the unusual circumstances that exist today, 0:21:55.760 --> 0:21:59.879 that unemployment remains low, yet interest rates and inflation are 0:22:00.040 --> 0:22:02.680 not rising, and at the same time, the U. S. 0:22:02.760 --> 0:22:05.560 Government continues to spend more money than it takes in, 0:22:06.080 --> 0:22:09.199 and as Buffett says, these conditions are not sustainable for 0:22:09.240 --> 0:22:12.679 the long term. And he said, quote no economics textbook 0:22:12.760 --> 0:22:14.959 I know that was written in the first couple of 0:22:14.960 --> 0:22:18.960 thousand years that discussed even the possibility that you could 0:22:18.960 --> 0:22:22.600 have this sort of situation continue and have all variables 0:22:22.640 --> 0:22:27.240 stay more or less the same didn't exist. I agree So, Doug, 0:22:27.280 --> 0:22:29.520 I know you. I've been following this for such a 0:22:29.600 --> 0:22:31.879 long time. You've been out in Omaha so many times. 0:22:31.880 --> 0:22:35.199 In your perspective is certainly appreciated here, which brings me 0:22:35.240 --> 0:22:39.119 to my question, which is succession. How comfortable are you 0:22:39.440 --> 0:22:42.560 with what Mr Buffett has done in terms of planning 0:22:42.560 --> 0:22:45.240 for the future of the company. Did you get access 0:22:45.280 --> 0:22:50.160 to uh, did you feel enough access to the heirs apparent? Well, 0:22:50.200 --> 0:22:52.959 one of my questions back in two thousand thirteen, which 0:22:53.240 --> 0:22:55.800 I tried to make respectful, and it was a tough 0:22:55.920 --> 0:22:58.480 question to ask, and I think it made him uncomfortable 0:22:59.520 --> 0:23:02.480 that year. In two thousand thirteen, leading into the annual meeting, 0:23:03.359 --> 0:23:07.199 Warren says his son Howard would become non executive chairman 0:23:07.240 --> 0:23:10.760 on his death. And my question was given the fact 0:23:10.800 --> 0:23:14.520 that he basically has never made large capital allocation decisions, 0:23:14.640 --> 0:23:17.879 never traded stocks, and was basically a farmer his whole life. 0:23:18.480 --> 0:23:21.000 Was that appropriate and um, he sort of shifted in 0:23:21.080 --> 0:23:23.639 his seat. Um, And I didn't think he gave me 0:23:23.680 --> 0:23:28.399 a very good answer now in terms of operating people 0:23:28.440 --> 0:23:31.360 to replace him. After all, he's eighty nine years old, 0:23:31.400 --> 0:23:37.200 Charlie's almost Um, he's got ag and George Abel, and 0:23:37.280 --> 0:23:39.960 I think both of them would be a great addition. 0:23:40.240 --> 0:23:43.320