1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,280 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We're 7 00:00:32,280 --> 00:00:35,040 Speaker 1: talking earlier about the jobs report came out today, highly 8 00:00:35,080 --> 00:00:38,919 Speaker 1: distorted data, thirty three thousand jobs lost, but better than 9 00:00:38,960 --> 00:00:42,559 Speaker 1: expected wage gains, So a kind of convoluted picture. You've got. 10 00:00:42,640 --> 00:00:45,400 Speaker 1: Trader has taken the better information out of that and 11 00:00:45,440 --> 00:00:48,680 Speaker 1: trading on that. Meanwhile, you have Jonathan Pharaoh of Bloomberg 12 00:00:48,720 --> 00:00:51,919 Speaker 1: Television saying this is just confirmation bias that traders are 13 00:00:51,960 --> 00:00:54,080 Speaker 1: trading off of. Here to weigh in on that and 14 00:00:54,120 --> 00:00:59,040 Speaker 1: perhaps confirm that or perhaps debate that, Constance Hunter, chief 15 00:00:59,080 --> 00:01:02,880 Speaker 1: economist at KP joining US. Now, Constance, do you think 16 00:01:02,920 --> 00:01:05,680 Speaker 1: that it's totally ridiculous to try to trade around number 17 00:01:05,720 --> 00:01:10,440 Speaker 1: that is so hard to decipher given the hurricane disruption? Well, 18 00:01:10,480 --> 00:01:12,240 Speaker 1: I think that depends on how good you are trading, 19 00:01:13,280 --> 00:01:16,120 Speaker 1: So for some people it might be worth it. While others, 20 00:01:16,200 --> 00:01:19,440 Speaker 1: it might not be um. Certainly for a retail investor 21 00:01:19,760 --> 00:01:25,080 Speaker 1: trading around this number is ridiculous. And and there's there's 22 00:01:25,080 --> 00:01:27,120 Speaker 1: looking through the long term data, and I think I 23 00:01:27,160 --> 00:01:29,240 Speaker 1: think what we're seeing here is not just the traders 24 00:01:29,240 --> 00:01:31,320 Speaker 1: of trading on the wage games, but they're trading they're 25 00:01:31,319 --> 00:01:34,000 Speaker 1: looking through this long term data. So if we look at, 26 00:01:34,480 --> 00:01:37,679 Speaker 1: for example, comparing this to one of our last major 27 00:01:37,720 --> 00:01:43,520 Speaker 1: her train hurricanes, Katrina. In Katrina, one point five percent 28 00:01:43,760 --> 00:01:45,880 Speaker 1: of the workforce said they were either not at work 29 00:01:46,040 --> 00:01:48,080 Speaker 1: or at work part time, but they usually work full time. 30 00:01:48,160 --> 00:01:51,360 Speaker 1: Due to the hurricane, and with the combination of IRMA 31 00:01:51,400 --> 00:01:54,880 Speaker 1: and Harvey, that number jumped to almost three percent of 32 00:01:54,880 --> 00:01:57,640 Speaker 1: the workforce. So that is a lot of lost jobs. 33 00:01:57,880 --> 00:02:00,400 Speaker 1: But you can also see that it's temporary, right that 34 00:02:00,440 --> 00:02:01,880 Speaker 1: these people are going to come back to work. The 35 00:02:01,920 --> 00:02:04,760 Speaker 1: biggest sector that lost jobs was leisure and hospitality a 36 00:02:04,880 --> 00:02:09,239 Speaker 1: hundred and eleven thousand workers. And obviously those institutes, those 37 00:02:09,320 --> 00:02:12,320 Speaker 1: establishments were closed, they're going to reopen, those people are 38 00:02:12,320 --> 00:02:14,320 Speaker 1: going to go back to work. So if you look forward, 39 00:02:14,400 --> 00:02:17,320 Speaker 1: you can see that the momentum in the economy is 40 00:02:17,320 --> 00:02:19,840 Speaker 1: still there. What I tweeted out earlier this morning is 41 00:02:19,840 --> 00:02:23,200 Speaker 1: the streak is broken, but the economy is not. I 42 00:02:23,200 --> 00:02:25,600 Speaker 1: thought that was a great headline. By the way, Constance, 43 00:02:25,639 --> 00:02:29,519 Speaker 1: I thought, yeah, once in a while there was really 44 00:02:29,720 --> 00:02:32,280 Speaker 1: a commend you because it really captures exactly, you know, 45 00:02:32,360 --> 00:02:36,240 Speaker 1: the perspective that you're offering. And in that context, I'm 46 00:02:36,240 --> 00:02:40,560 Speaker 1: wondering if you can offer your thoughts that these one 47 00:02:40,600 --> 00:02:44,000 Speaker 1: off events that are no longer seemingly one off, whether 48 00:02:44,040 --> 00:02:50,400 Speaker 1: they are natural disasters, uh, like hurricanes or um you 49 00:02:50,520 --> 00:02:54,960 Speaker 1: had of course, uh, I think back to Fukushima in Japan. 50 00:02:55,360 --> 00:02:59,120 Speaker 1: You have these events which you know, you always hear 51 00:02:59,120 --> 00:03:01,800 Speaker 1: those debates about whether they're more frequent or less frequent. 52 00:03:02,280 --> 00:03:04,480 Speaker 1: But to put that aside, the fact that they exist 53 00:03:04,520 --> 00:03:08,320 Speaker 1: on a semi regular basis, does that mean that you 54 00:03:08,360 --> 00:03:11,040 Speaker 1: need to adjust your focus when when you're thinking about 55 00:03:11,080 --> 00:03:16,840 Speaker 1: where to put your money? Well, I think certainly there's uh, 56 00:03:16,880 --> 00:03:19,079 Speaker 1: there's a there's a perception that they're more frequent in 57 00:03:19,120 --> 00:03:22,079 Speaker 1: the data would suggest that with the warmer water temperatures, 58 00:03:22,280 --> 00:03:26,000 Speaker 1: they're going to continue to be more frequent. But in 59 00:03:26,080 --> 00:03:29,360 Speaker 1: thinking about the economy overall, what you have to think 60 00:03:29,400 --> 00:03:32,120 Speaker 1: about is is the economy strong enough to withstand the 61 00:03:32,200 --> 00:03:35,680 Speaker 1: shock that such an event would prevent but would cause. 62 00:03:35,800 --> 00:03:38,240 Speaker 1: Rather I'm sorry, or I was going to say, or 63 00:03:38,320 --> 00:03:41,040 Speaker 1: big enough. I didn't want to give it any characterization, 64 00:03:41,080 --> 00:03:43,320 Speaker 1: just that the U. S. Economy is so big and 65 00:03:43,320 --> 00:03:46,440 Speaker 1: the country is so big that it can it accommodates 66 00:03:46,480 --> 00:03:50,080 Speaker 1: these large shocks. Yes, it can. If we're if we're 67 00:03:50,120 --> 00:03:51,560 Speaker 1: in a period of strong growth, if we're in a 68 00:03:51,600 --> 00:03:53,480 Speaker 1: period of wheat growth, it could have a it could 69 00:03:53,520 --> 00:03:55,640 Speaker 1: have a greater effect. And understand, we haven't seen the 70 00:03:55,640 --> 00:03:58,200 Speaker 1: full effect of the hurricane, so you know, our estimate 71 00:03:58,280 --> 00:04:01,320 Speaker 1: is that it could shave zero point eight two off 72 00:04:01,320 --> 00:04:04,200 Speaker 1: of GDP in the third quarter, and a lot of 73 00:04:04,200 --> 00:04:06,440 Speaker 1: that is going to be from this lost income that 74 00:04:06,480 --> 00:04:08,360 Speaker 1: we've had UM, and a lot of it's going to 75 00:04:08,440 --> 00:04:10,400 Speaker 1: be from the fact that a lot of these people 76 00:04:10,440 --> 00:04:13,240 Speaker 1: that were hit, certainly in in Harvey, we're not in 77 00:04:13,320 --> 00:04:16,880 Speaker 1: flood zones, so they were not appropriately insured. Uh So 78 00:04:17,080 --> 00:04:18,760 Speaker 1: it is going to take a bite out of GDP. 79 00:04:19,600 --> 00:04:23,000 Speaker 1: But um, overall, I think the economy is strong enough 80 00:04:23,040 --> 00:04:25,600 Speaker 1: to withstand it. The big question mark is if you 81 00:04:25,640 --> 00:04:28,960 Speaker 1: look at the pressure point in the economy in terms 82 00:04:28,960 --> 00:04:32,279 Speaker 1: of employment, it really isn't that construction sector so we've 83 00:04:32,279 --> 00:04:35,120 Speaker 1: seen wages grow up in that sector, we see scarcy 84 00:04:35,120 --> 00:04:38,039 Speaker 1: of workers in that sector. And if people are deployed 85 00:04:38,240 --> 00:04:41,520 Speaker 1: down into UH, Florida and Texas to take care of 86 00:04:41,520 --> 00:04:44,239 Speaker 1: this rebuilding, it's going to put pressure on the rest 87 00:04:44,240 --> 00:04:47,400 Speaker 1: of the economy and that sector throughout the entire economy, 88 00:04:47,400 --> 00:04:50,080 Speaker 1: and you could see ripple effects that that do impact 89 00:04:50,120 --> 00:04:52,920 Speaker 1: the entire economy. So constant, we're probably going to get 90 00:04:52,960 --> 00:04:58,279 Speaker 1: this muddy data from the hurricane for another couple of months, uh, 91 00:04:58,360 --> 00:05:02,640 Speaker 1: at the least. Frankly, I'm just wondering, from your perspective, 92 00:05:02,760 --> 00:05:05,360 Speaker 1: what are you looking to in the meantime to already 93 00:05:05,360 --> 00:05:10,240 Speaker 1: get a better read on the true economic progress being made. Well, 94 00:05:10,320 --> 00:05:12,920 Speaker 1: let's let's just take this job report in general, right, 95 00:05:12,960 --> 00:05:15,360 Speaker 1: So you have the household survey, where you saw big 96 00:05:15,360 --> 00:05:18,159 Speaker 1: improvements in the labor force participation rate, you saw the 97 00:05:18,200 --> 00:05:22,560 Speaker 1: unemployment down to four point um. You can look at 98 00:05:22,600 --> 00:05:25,080 Speaker 1: a lot of real time data, so you you can 99 00:05:25,080 --> 00:05:27,919 Speaker 1: look geographically around the rest of the country, not just 100 00:05:28,080 --> 00:05:30,800 Speaker 1: in in Florida and Texas. But if you look at 101 00:05:30,839 --> 00:05:33,039 Speaker 1: the rest of the economy and look at some of 102 00:05:33,320 --> 00:05:35,800 Speaker 1: the regional data, you're able to see the strength of 103 00:05:35,839 --> 00:05:41,200 Speaker 1: the economy overall constants. Earlier today, Martin Feldstein, who is 104 00:05:41,440 --> 00:05:44,280 Speaker 1: President Emeritus at the National Bureau of Economic Research, he 105 00:05:44,360 --> 00:05:47,080 Speaker 1: was speaking on Bloomberg Television and one thing that really 106 00:05:47,120 --> 00:05:49,480 Speaker 1: just struck me was he said that the US needs 107 00:05:49,480 --> 00:05:54,040 Speaker 1: a corporate tax overhaul. He said they need this overhaul 108 00:05:54,240 --> 00:05:58,000 Speaker 1: and that it is crucial if the US that increases 109 00:05:58,040 --> 00:06:00,279 Speaker 1: and that we have to bring our practice is in 110 00:06:00,360 --> 00:06:03,960 Speaker 1: line with other industrialized countries. Do you agree with that 111 00:06:04,080 --> 00:06:08,640 Speaker 1: and do you think it will happen? Uh? Well, um, So, 112 00:06:08,839 --> 00:06:11,240 Speaker 1: Martin Balstein has been giving a series of talks. He 113 00:06:11,400 --> 00:06:13,280 Speaker 1: um he gave a tract at the National Association for 114 00:06:13,320 --> 00:06:17,560 Speaker 1: Business Economics last week in Cleveland which address this. And so, 115 00:06:17,960 --> 00:06:20,080 Speaker 1: just to put in perspective, he's looking at a at 116 00:06:20,080 --> 00:06:23,279 Speaker 1: a headline rate of about um is what he thinks 117 00:06:23,360 --> 00:06:26,240 Speaker 1: is realistic and and of course keeps in mind the 118 00:06:26,279 --> 00:06:28,560 Speaker 1: fact that we don't want to increase debt levels or 119 00:06:28,640 --> 00:06:31,920 Speaker 1: increase our our budget deficits substantially, but we do want 120 00:06:31,920 --> 00:06:34,800 Speaker 1: to bring our tax um policies more in line with 121 00:06:34,839 --> 00:06:36,760 Speaker 1: the rest of the world. I have a little bit 122 00:06:36,800 --> 00:06:40,520 Speaker 1: of a disagreement though on the worldwide income taxation. I 123 00:06:40,520 --> 00:06:42,160 Speaker 1: think we should have a holiday. I think we should 124 00:06:42,440 --> 00:06:45,000 Speaker 1: get that money back on shore. But we are also 125 00:06:45,040 --> 00:06:47,400 Speaker 1: the only country in the world that is the reserve currency, 126 00:06:47,760 --> 00:06:50,479 Speaker 1: and that is a privilege that costs money. Um it 127 00:06:50,600 --> 00:06:53,119 Speaker 1: is a benefit to all US companies. They are able 128 00:06:53,160 --> 00:06:58,160 Speaker 1: to transact in dollars, means they're they're exposure to currency 129 00:06:58,279 --> 00:07:03,240 Speaker 1: risk is much more limited than other other countries companies, 130 00:07:03,640 --> 00:07:06,200 Speaker 1: and and and this costs money. It costs money to 131 00:07:07,120 --> 00:07:10,880 Speaker 1: maintain a military that that um it works all over 132 00:07:10,920 --> 00:07:14,080 Speaker 1: the world and and guards the trade of those goods. 133 00:07:14,440 --> 00:07:16,920 Speaker 1: And so I think something like a three or five 134 00:07:16,960 --> 00:07:20,520 Speaker 1: percent permanent tax on offshore income would be reasonable. And 135 00:07:20,520 --> 00:07:22,120 Speaker 1: there are a lot of other countries that do this. 136 00:07:22,200 --> 00:07:24,640 Speaker 1: They give a much lower tax rate the money earned 137 00:07:24,640 --> 00:07:28,080 Speaker 1: off shore. UM. So that that would I think would 138 00:07:28,120 --> 00:07:31,040 Speaker 1: be one disagreement between me and Marty Felstine. But but 139 00:07:31,160 --> 00:07:34,880 Speaker 1: he he is right that our code has become overly complex. 140 00:07:34,920 --> 00:07:38,840 Speaker 1: It's overly comtelex for individuals, it's overly complex for firms, 141 00:07:38,920 --> 00:07:41,880 Speaker 1: and so simplifying it would certainly free of resources to 142 00:07:41,920 --> 00:07:44,400 Speaker 1: be used for other things of the economy. Yeah, I 143 00:07:44,440 --> 00:07:46,960 Speaker 1: just want to just make a quick note that US 144 00:07:47,000 --> 00:07:49,680 Speaker 1: Treasury yields are actually coming in, and there's a bit 145 00:07:49,680 --> 00:07:52,840 Speaker 1: of a rally in treasuries, and one trade or noted 146 00:07:52,880 --> 00:07:56,120 Speaker 1: that it's because of new reports coming out that UH Pyongyang, 147 00:07:56,360 --> 00:07:59,680 Speaker 1: North Korea is preparing to test a missile capable of 148 00:07:59,680 --> 00:08:02,280 Speaker 1: reach in the U. S. Coast. That is according to 149 00:08:02,600 --> 00:08:05,000 Speaker 1: a Russian lawmaker, and so this is what people are 150 00:08:05,000 --> 00:08:09,440 Speaker 1: attributing into. So well, we will certainly keep keep abreast 151 00:08:09,440 --> 00:08:12,560 Speaker 1: to that and bring up any news headlines that are 152 00:08:12,600 --> 00:08:14,560 Speaker 1: related to that. Of course, I want to thank you 153 00:08:14,640 --> 00:08:18,760 Speaker 1: very much. Constance Hunter is the chief US economist at KPMG, 154 00:08:19,320 --> 00:08:21,680 Speaker 1: giving us her views about the jobs report and the 155 00:08:21,720 --> 00:08:37,520 Speaker 1: potential for any kind of corporate tax reform. Right now, 156 00:08:37,520 --> 00:08:40,120 Speaker 1: I want to turn our attention to markets. We saw 157 00:08:40,480 --> 00:08:45,760 Speaker 1: a real sort of gain in treasuries, yields come down 158 00:08:45,960 --> 00:08:49,360 Speaker 1: after news was reported that a Russian lawmaker says that 159 00:08:49,400 --> 00:08:52,960 Speaker 1: North Korea may test long range missiles that could potentially 160 00:08:53,040 --> 00:08:56,080 Speaker 1: hit the West coast of the United States. The stock 161 00:08:56,120 --> 00:09:00,520 Speaker 1: market unphased. Really nothing can shake this market. Really talk 162 00:09:00,559 --> 00:09:02,760 Speaker 1: about that. I want to bring in Ernesto Ramo's head 163 00:09:02,760 --> 00:09:06,440 Speaker 1: of Equities for BEMO Global Asset Management, portfolio manager of 164 00:09:06,480 --> 00:09:09,600 Speaker 1: the BEMO Low Volatility Equity Fund, which trades under the 165 00:09:09,600 --> 00:09:13,800 Speaker 1: ticker m l V e x um Ernesto. I'm struck 166 00:09:13,880 --> 00:09:17,520 Speaker 1: by the fact that you're seeing a longer lasting effect 167 00:09:17,920 --> 00:09:21,560 Speaker 1: from these sort of nuclear scares in the bond market 168 00:09:21,840 --> 00:09:25,360 Speaker 1: then in stocks, and and in stocks just shrug everything off. 169 00:09:25,440 --> 00:09:27,800 Speaker 1: What do you make of that? Well, that's one of 170 00:09:27,800 --> 00:09:30,840 Speaker 1: the things that I've been personally surprised about how much 171 00:09:30,920 --> 00:09:35,560 Speaker 1: the stock market has ignored the potential for geopolitical risks 172 00:09:35,600 --> 00:09:39,800 Speaker 1: and conflagation. But what's driving the market is earnings to 173 00:09:39,840 --> 00:09:41,520 Speaker 1: be to be honest with you, if you look at 174 00:09:41,520 --> 00:09:45,439 Speaker 1: the SMP five under the earnings growth that consensus estimates 175 00:09:45,440 --> 00:09:49,240 Speaker 1: for next year is strong double digits closer and for 176 00:09:49,320 --> 00:09:52,640 Speaker 1: the following twelve months is another ten percent. So that 177 00:09:52,720 --> 00:09:56,640 Speaker 1: kind of earnings growth, if it comes down to t 178 00:09:56,880 --> 00:10:00,240 Speaker 1: to fruition, will continue to drive the market higher. Now, 179 00:10:00,240 --> 00:10:02,360 Speaker 1: of course, if you actually get some kind of a 180 00:10:03,000 --> 00:10:08,160 Speaker 1: war with North Korea, um that that that that scenario 181 00:10:08,280 --> 00:10:11,240 Speaker 1: will will definitely not happen and and you're gonna get 182 00:10:11,280 --> 00:10:14,520 Speaker 1: some some serious retrashment in the market. And that's why 183 00:10:14,880 --> 00:10:17,520 Speaker 1: the Low Futility Fund would be a good way to 184 00:10:17,559 --> 00:10:21,120 Speaker 1: stay exposed to the market, but with a fair amount 185 00:10:21,120 --> 00:10:24,240 Speaker 1: of downside protection because that's the way we've designed it 186 00:10:24,559 --> 00:10:28,240 Speaker 1: to to behave ter national Can you use the stock 187 00:10:28,320 --> 00:10:32,480 Speaker 1: the company aligned technology as an example of the kind 188 00:10:32,600 --> 00:10:36,160 Speaker 1: of company and investment that you look for for your fund. 189 00:10:36,160 --> 00:10:42,680 Speaker 1: They make the Invisiligne UH dental product. Sure Invisiligne it's 190 00:10:42,720 --> 00:10:47,760 Speaker 1: actually the as you said, They make the the the 191 00:10:47,880 --> 00:10:51,600 Speaker 1: seamless braces without without wires, and the two things are 192 00:10:51,679 --> 00:10:54,640 Speaker 1: driving their growth. Number One, they're starting to penetrate the 193 00:10:54,679 --> 00:10:57,760 Speaker 1: team market. They had previously been focused on the adult 194 00:10:57,800 --> 00:11:00,839 Speaker 1: market because adults on one wires in their mouth to show. 195 00:11:00,920 --> 00:11:05,280 Speaker 1: But now UH teenagers are also becoming very very self 196 00:11:05,320 --> 00:11:08,720 Speaker 1: conscious and aware that that the this technology can help 197 00:11:08,720 --> 00:11:12,959 Speaker 1: them stay less less visible in terms of their braces, 198 00:11:13,000 --> 00:11:16,520 Speaker 1: and they're embracing that. That's in the US, they're also 199 00:11:16,559 --> 00:11:20,559 Speaker 1: beginning to tap into overseas markets. And as you are 200 00:11:20,600 --> 00:11:23,559 Speaker 1: aware of you travel around the world, you are aware 201 00:11:23,640 --> 00:11:26,880 Speaker 1: the United States has the best teeth in the world 202 00:11:27,440 --> 00:11:31,640 Speaker 1: and everybody else not so much. So there's a huge 203 00:11:31,679 --> 00:11:35,680 Speaker 1: market outside the US for better looking smiles, and that's 204 00:11:35,679 --> 00:11:39,360 Speaker 1: what investil Ligne is starting to tap into and deriving 205 00:11:39,400 --> 00:11:42,040 Speaker 1: a lot of growth from that, ernesto, is it possible 206 00:11:42,080 --> 00:11:46,640 Speaker 1: to create a low volatility fund without using derivatives? Sure, 207 00:11:47,120 --> 00:11:50,400 Speaker 1: we just focus on h First of all, there's two 208 00:11:50,400 --> 00:11:52,480 Speaker 1: parts of our process. First of all, selecting the stocks 209 00:11:52,480 --> 00:11:56,480 Speaker 1: and they're combining them in a way to reduce the risk. 210 00:11:56,920 --> 00:12:00,120 Speaker 1: And UH we what we do is we have a 211 00:12:00,120 --> 00:12:02,280 Speaker 1: lot of data and a lot of computing power to 212 00:12:02,520 --> 00:12:05,360 Speaker 1: at our disposal. We look at the risk in five 213 00:12:05,400 --> 00:12:08,719 Speaker 1: different ways and we're able to rank the stocks from 214 00:12:08,760 --> 00:12:11,800 Speaker 1: highest to lowest risk and then also from highest to 215 00:12:11,920 --> 00:12:15,400 Speaker 1: lowest in terms of a return potential. And what we 216 00:12:15,480 --> 00:12:18,920 Speaker 1: do is we seek a good combination of very low 217 00:12:19,040 --> 00:12:22,680 Speaker 1: risk stocks with attractive return potential. And that's what we 218 00:12:22,720 --> 00:12:28,840 Speaker 1: deliver in a very well calculated and balanced UH portfolio, 219 00:12:28,840 --> 00:12:31,120 Speaker 1: which is is what our fun turns at the end 220 00:12:31,160 --> 00:12:33,040 Speaker 1: of the day to be. I'm sorry to just keep 221 00:12:33,080 --> 00:12:35,440 Speaker 1: you in the weeds about invisile line, because I'm always 222 00:12:35,440 --> 00:12:39,600 Speaker 1: interested in how much something costs, right, and so you're 223 00:12:39,640 --> 00:12:43,440 Speaker 1: willing currently to pay fifteen billion for a company that 224 00:12:43,520 --> 00:12:47,680 Speaker 1: does a billion two of sales and has net of 225 00:12:47,760 --> 00:12:51,840 Speaker 1: about two hundred and forty million. That works for you. 226 00:12:51,920 --> 00:12:53,760 Speaker 1: That math works for you. How fast they have to 227 00:12:53,760 --> 00:12:56,920 Speaker 1: grow to justify that. So yeah, so our scoring system, 228 00:12:57,120 --> 00:13:00,080 Speaker 1: I know it trades out about fifty times next your 229 00:13:00,200 --> 00:13:03,040 Speaker 1: learnings and that it seems very expensive. But our scoring 230 00:13:03,160 --> 00:13:07,360 Speaker 1: system for for return potential has three parts fundamentals, valuation, 231 00:13:07,440 --> 00:13:10,720 Speaker 1: and sentiment. And they scored not so well in valuation, 232 00:13:10,800 --> 00:13:14,200 Speaker 1: in fact, rather poorly, but well enough in terms of 233 00:13:14,200 --> 00:13:17,920 Speaker 1: fundamentals and the sentiment part that the overall score is 234 00:13:17,920 --> 00:13:20,600 Speaker 1: still attractive enough to make the grade in our fund. 235 00:13:20,800 --> 00:13:24,120 Speaker 1: And we're very very disciplined about not trying to second 236 00:13:24,120 --> 00:13:27,240 Speaker 1: guess our our scoring system and and and we will 237 00:13:27,280 --> 00:13:29,760 Speaker 1: stick to that because that's how we've achieved that kind 238 00:13:29,800 --> 00:13:33,240 Speaker 1: of performance that we've delivered so far. Well, we want 239 00:13:33,240 --> 00:13:35,600 Speaker 1: to appreciate you coming in and shedding light on this. Uh, 240 00:13:35,920 --> 00:13:39,160 Speaker 1: this is an interesting fund. M l uh c i 241 00:13:39,559 --> 00:13:42,040 Speaker 1: X is the symbol for the fund. Thanks very much 242 00:13:42,080 --> 00:13:45,240 Speaker 1: for being here. That is the BEMO Large Cap Growth Fund. 243 00:13:45,320 --> 00:13:48,520 Speaker 1: And I want to thank Ernesto for being here. He 244 00:13:48,960 --> 00:13:52,840 Speaker 1: always great pleasure. Ernesta Ramos. He is the manager of 245 00:13:52,840 --> 00:13:56,160 Speaker 1: the funding co manager as well, okay co manager as well. 246 00:13:56,240 --> 00:13:59,880 Speaker 1: He's the head of Equities at b MO Global Asset Management. 247 00:14:13,440 --> 00:14:15,920 Speaker 1: We want to learn more about municipal bonds and that 248 00:14:15,920 --> 00:14:18,440 Speaker 1: means we need to learn more about Puerto Rico. And 249 00:14:18,520 --> 00:14:20,680 Speaker 1: joining us, of course, is Joe Maiasac. He is the 250 00:14:20,800 --> 00:14:24,560 Speaker 1: editor in charge of our Muni Brief product, and Joe, 251 00:14:24,640 --> 00:14:26,760 Speaker 1: I want to just read you the quote that from 252 00:14:26,800 --> 00:14:31,080 Speaker 1: President Trump when he was in uh, Puerto Rico recently. 253 00:14:31,160 --> 00:14:33,520 Speaker 1: He said, they owe a lot of money to your 254 00:14:33,560 --> 00:14:36,440 Speaker 1: friends on Wall Street. We're going to have to wipe 255 00:14:36,480 --> 00:14:38,200 Speaker 1: that out. That's going to have to be you know, 256 00:14:38,320 --> 00:14:40,640 Speaker 1: you're gonna have to say goodbye to that. I don't 257 00:14:40,640 --> 00:14:43,480 Speaker 1: know if it's Goldman Sachs, but whoever it is, you 258 00:14:43,560 --> 00:14:48,760 Speaker 1: can wave goodbye to that. What was your reaction when 259 00:14:48,760 --> 00:14:51,240 Speaker 1: you heard that? And then tell us is there a 260 00:14:51,280 --> 00:14:54,040 Speaker 1: basis for using any of that in order to make 261 00:14:54,080 --> 00:14:56,520 Speaker 1: the situation and the lives of the people in Puerto 262 00:14:56,640 --> 00:15:03,000 Speaker 1: Rico better? Well, when I h I missed the first 263 00:15:03,040 --> 00:15:06,480 Speaker 1: go round of that, and about three am, when I 264 00:15:06,520 --> 00:15:11,120 Speaker 1: was looking to put together the brief, I saw that 265 00:15:11,680 --> 00:15:19,040 Speaker 1: comment and I was dumb struck. I just said, this 266 00:15:19,120 --> 00:15:22,880 Speaker 1: is historic. I've never heard of president sort of take 267 00:15:22,920 --> 00:15:26,520 Speaker 1: out the whole entire municipal bond market, which is as 268 00:15:26,560 --> 00:15:30,360 Speaker 1: you know, uh, sort of based on law, the rule 269 00:15:30,400 --> 00:15:36,680 Speaker 1: of law. Um, would it make the people's lives on 270 00:15:36,920 --> 00:15:40,960 Speaker 1: Puerto Rico would have improved there a lot. I you know, 271 00:15:41,760 --> 00:15:45,160 Speaker 1: if you somehow thought that the president ruling by FIAT 272 00:15:45,520 --> 00:15:47,360 Speaker 1: and taking away all the debt, I don't know who 273 00:15:47,360 --> 00:15:50,320 Speaker 1: would lend to them? Well, okay, So, so stepping aside 274 00:15:50,360 --> 00:15:53,840 Speaker 1: to sort of improbability and the unprecedented nature of the 275 00:15:53,960 --> 00:15:56,920 Speaker 1: suggestion that President Trump threw out there, let's talk about 276 00:15:56,920 --> 00:16:00,560 Speaker 1: the reaction right. Bond prices plunged on Puerto Eco's dept, 277 00:16:00,560 --> 00:16:03,880 Speaker 1: particularly the general Obligation bond that matures in, which is 278 00:16:03,920 --> 00:16:06,800 Speaker 1: sort of their benchmark issue. Uh, there is a big 279 00:16:06,880 --> 00:16:11,240 Speaker 1: question as to why, given the fact that pretty universally 280 00:16:11,360 --> 00:16:15,400 Speaker 1: it's totally understood that President Trump is does not necessarily 281 00:16:15,440 --> 00:16:17,920 Speaker 1: have the power to throw out this debt, or does 282 00:16:17,920 --> 00:16:21,640 Speaker 1: he have the inclination to do so. The administration walked 283 00:16:21,640 --> 00:16:26,600 Speaker 1: back his comments subsequently, and yet prices are still depressed 284 00:16:26,640 --> 00:16:29,480 Speaker 1: from where they were, and I'm wondering what we can 285 00:16:29,520 --> 00:16:31,760 Speaker 1: make of this. Does this mean that all of a sudden, 286 00:16:31,840 --> 00:16:36,480 Speaker 1: in some ways the bond market is actually getting more 287 00:16:36,520 --> 00:16:39,800 Speaker 1: realistic with respect to what recoveries are going to be 288 00:16:39,960 --> 00:16:43,080 Speaker 1: like with the Puerto Rico debt negotiations. All right, see 289 00:16:43,120 --> 00:16:46,560 Speaker 1: now you've you've put your finger right on it. Um. 290 00:16:46,600 --> 00:16:51,600 Speaker 1: You know, bonds trade thirty sixty or ninety above. Everything 291 00:16:51,720 --> 00:16:56,640 Speaker 1: is fine, sixty, bonds are getting into stress. Thirty that's 292 00:16:56,680 --> 00:16:59,280 Speaker 1: sort of the salvage value. People are speculating at the 293 00:16:59,280 --> 00:17:02,760 Speaker 1: salvage level. And at forty four cents on the dollar, 294 00:17:02,920 --> 00:17:06,800 Speaker 1: which was the the day previous, I guess was Tuesday, 295 00:17:06,840 --> 00:17:09,520 Speaker 1: at forty four cents on the dollar, Puerto Rico was 296 00:17:09,560 --> 00:17:13,280 Speaker 1: probably still too expensive. Those bonds had not dropped enough. 297 00:17:14,080 --> 00:17:17,080 Speaker 1: Uh So perhaps that you know, perhaps it was the 298 00:17:17,160 --> 00:17:23,560 Speaker 1: Trump comments. Perhaps it was also final realization that well, 299 00:17:23,600 --> 00:17:26,520 Speaker 1: there's a lot of damage in Puerto Rico, and there's 300 00:17:26,560 --> 00:17:29,760 Speaker 1: a lot of devastation, and people are leaving the island. 301 00:17:30,640 --> 00:17:33,280 Speaker 1: And finally, you know, there was that break and it 302 00:17:33,320 --> 00:17:35,280 Speaker 1: was a funny. It was not funny, it was it 303 00:17:35,359 --> 00:17:38,919 Speaker 1: was a very interesting thing to watch because the thirty 304 00:17:38,920 --> 00:17:43,119 Speaker 1: and a quarter price was uh that was you know, 305 00:17:43,160 --> 00:17:45,720 Speaker 1: on a four hundred and seventy five dollar block of 306 00:17:45,800 --> 00:17:48,840 Speaker 1: bonds tossed out at nine sixteen in the morning. You're 307 00:17:48,880 --> 00:17:51,280 Speaker 1: talking about the low point that we saw in these 308 00:17:51,320 --> 00:17:53,760 Speaker 1: general obligation bonds, which is one slice of the seventy 309 00:17:53,800 --> 00:17:55,920 Speaker 1: four billion dollars of deat the Puerto Rico has, right, 310 00:17:56,800 --> 00:18:00,520 Speaker 1: So thirty and a quarter some dealer throughout that, you know, 311 00:18:00,880 --> 00:18:04,240 Speaker 1: and and the owners what kind of what kind of volume? Um, 312 00:18:04,280 --> 00:18:07,159 Speaker 1: this was a four hundred and seventy five thousand dollar block. 313 00:18:07,600 --> 00:18:12,400 Speaker 1: So that low price was was printed at nine sixteen 314 00:18:12,440 --> 00:18:14,320 Speaker 1: in the morning. So a lot of the coverage you 315 00:18:14,400 --> 00:18:19,160 Speaker 1: saw made you think that there was this horrific uh, 316 00:18:19,200 --> 00:18:21,000 Speaker 1: you know, people are rushing for the gates, but the 317 00:18:21,040 --> 00:18:23,119 Speaker 1: volumes were high. By the end of the day, I 318 00:18:23,280 --> 00:18:26,719 Speaker 1: was about eighty five million dollars traded, which was a 319 00:18:26,840 --> 00:18:30,000 Speaker 1: very large amount for that bond. Haven't seen that much 320 00:18:30,119 --> 00:18:33,240 Speaker 1: volume in the eights and two thousand thirty five in 321 00:18:33,680 --> 00:18:37,240 Speaker 1: you know, certainly weeks and weeks, probably months, um. But 322 00:18:37,520 --> 00:18:40,760 Speaker 1: what really happened was that there wasn't this rush for 323 00:18:40,800 --> 00:18:43,840 Speaker 1: the gates at the end. In fact, there were twice 324 00:18:43,840 --> 00:18:48,639 Speaker 1: as many buyers as sellers of these bonds, and the 325 00:18:48,680 --> 00:18:53,200 Speaker 1: prices started climbing, you know, after that thirty and a quarter. Basically, 326 00:18:53,280 --> 00:18:55,480 Speaker 1: you know, they banged around a little bit, but it 327 00:18:55,560 --> 00:18:58,399 Speaker 1: was very orderly and uh, you know, by the end 328 00:18:58,400 --> 00:18:59,919 Speaker 1: of the day, I think we were up, but you know, 329 00:19:00,000 --> 00:19:02,400 Speaker 1: around thirty nine cents. So what does that tell you? 330 00:19:04,840 --> 00:19:10,399 Speaker 1: I really do not know why someone is buying Puerto 331 00:19:10,480 --> 00:19:13,560 Speaker 1: Rico geos at this point, and yet they were buying 332 00:19:13,760 --> 00:19:17,840 Speaker 1: and in all various sizes. Well, but somebody could argue 333 00:19:17,880 --> 00:19:22,000 Speaker 1: that if the US federal government does give money to 334 00:19:22,160 --> 00:19:25,720 Speaker 1: Puerto Rico to help restore its structure and keep people there, uh, 335 00:19:25,960 --> 00:19:28,399 Speaker 1: that this will actually be a net benefit for the island. 336 00:19:28,400 --> 00:19:30,240 Speaker 1: Down the road, there's still those clinging to the hope. 337 00:19:30,400 --> 00:19:36,119 Speaker 1: What's the rebuttal to that. Well, the island did say 338 00:19:36,200 --> 00:19:39,960 Speaker 1: the debt was not payable and entered into the Promisa 339 00:19:40,440 --> 00:19:45,720 Speaker 1: and Title three bankruptcy, and they the island, you know, 340 00:19:45,880 --> 00:19:51,120 Speaker 1: says we need some relief here, and uh, there will 341 00:19:51,119 --> 00:19:55,359 Speaker 1: be negotiation. What are you gonna get? Obviously, the people 342 00:19:55,400 --> 00:19:59,080 Speaker 1: who are buying at thirty three and thirty four and 343 00:19:59,160 --> 00:20:02,119 Speaker 1: thirty eight cents are are betting on a higher recovery value, 344 00:20:02,160 --> 00:20:06,720 Speaker 1: maybe fifty cents, maybe sixty cents. Who knows, um, but 345 00:20:06,880 --> 00:20:10,919 Speaker 1: it's it's difficult to imagine. Uh, you know, for the 346 00:20:10,960 --> 00:20:14,000 Speaker 1: longest time, the hedge fund guys were saying geo's at 347 00:20:14,000 --> 00:20:17,880 Speaker 1: par and they really believed it. Well, not anymore, Joe 348 00:20:17,920 --> 00:20:19,600 Speaker 1: Mi Sac, thank you so much for joining us. It's 349 00:20:19,600 --> 00:20:24,920 Speaker 1: always a pleasure. Thanks for listening to the Bloomberg P 350 00:20:25,040 --> 00:20:28,000 Speaker 1: and L podcast. You can subscribe and listen to interviews 351 00:20:28,040 --> 00:20:32,080 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 352 00:20:32,520 --> 00:20:36,080 Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm 353 00:20:36,119 --> 00:20:39,400 Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast, 354 00:20:39,440 --> 00:20:42,040 Speaker 1: you can always catch us worldwide on Bloomberg Radio.