WEBVTT - GeoQuant Model Predicts Trump Wins In Bernie Matchup 0:00:02.640 --> 0:00:05.280 Welcome to the Bloomberg Penel podcast on Paul Swing You. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.440 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.520 that Bloomberg dot com. Just to give you a picture 0:00:21.600 --> 0:00:23.840 of what's going on in the bond world, you see 0:00:23.840 --> 0:00:27.160 the thirty year yield reaching new all time lows one 0:00:27.240 --> 0:00:31.960 point eight nine percent on the thirty year treasury. You 0:00:32.000 --> 0:00:34.440 see the dollar having its worst sell off versus its 0:00:34.479 --> 0:00:39.400 peers of gold shooting higher. A big question of what's 0:00:39.440 --> 0:00:42.440 driving this. Is it just the fear that the coronavirus 0:00:42.560 --> 0:00:46.600 is spread, is bleeding into the services and industries in 0:00:46.640 --> 0:00:49.479 the United States previously thought to be a little more immune, 0:00:49.760 --> 0:00:52.000 or is this something large or joining us now? Is 0:00:52.120 --> 0:00:56.200 Mark Rosenberg, founder and chief executive officer of Geoquad, which 0:00:56.400 --> 0:00:59.960 is based in San Francisco and looks at the geopolitical 0:01:00.000 --> 0:01:02.800 will risk generally in the global picture. He's also an 0:01:02.840 --> 0:01:05.800 adject professor at Columbia University Mark, can you give us 0:01:05.800 --> 0:01:08.760 a landscape here. We talk a lot about the coronavirus 0:01:08.800 --> 0:01:11.240 and what the potential bleed through could be on industries, 0:01:11.280 --> 0:01:13.480 but an economists say, well, there's going to be a 0:01:13.560 --> 0:01:16.840 v shaped recovery. But on the political front, is there 0:01:16.880 --> 0:01:21.440 something that's going to be equally potentially difficult for markets 0:01:21.480 --> 0:01:24.959 to digest on the political sphere? Sure, I think. I 0:01:25.000 --> 0:01:28.160 think with with a health risk like the coronavirus, UM, 0:01:28.240 --> 0:01:31.280 you want to look at the implications for social instability 0:01:31.280 --> 0:01:34.679 and the country is affected and in turn the stability 0:01:34.680 --> 0:01:38.000 of the government. Those generally have more latent effect on markets. 0:01:38.000 --> 0:01:40.440 But I think when it comes to a large economy 0:01:40.480 --> 0:01:44.120 like China, UM, if there were indications that this that 0:01:44.240 --> 0:01:48.520 this virus was disrupting kind of social stability in the country, 0:01:48.640 --> 0:01:51.160 or if there was news as there has been of late, 0:01:51.200 --> 0:01:53.960 that it may be weakening the government, UM, then I 0:01:54.000 --> 0:01:56.960 think you can get some concern around the potential of 0:01:57.000 --> 0:01:59.680 the government to respond to a shock like like like 0:01:59.720 --> 0:02:04.200 a how um, like a disease outbreak like like the coronavirus. So, Mark, 0:02:04.280 --> 0:02:06.680 we obviously are getting into the heat of the election 0:02:06.880 --> 0:02:10.200 cycle here. We kind of know where President Trump stands 0:02:10.240 --> 0:02:12.680 on a number of issues that are important to markets 0:02:12.680 --> 0:02:14.840 and investors. How are you, we talk to clients, how 0:02:14.840 --> 0:02:17.480 are you framing up the Democratic side of the field. 0:02:18.600 --> 0:02:21.680 For us, it's really about the strength of the Democratic 0:02:21.760 --> 0:02:24.600 Party and kind of more generically the opposition to the 0:02:24.639 --> 0:02:28.880 incumbent versus UM, you know, the Trump administration or the 0:02:28.880 --> 0:02:32.560 current incumbent. And you know, according to our models that's 0:02:32.600 --> 0:02:36.200 probably the primary driver of Trump's likely reelection right now. 0:02:36.280 --> 0:02:39.120 Is in fact the weakness, the relative weakness of the 0:02:39.160 --> 0:02:43.160 Democratic Party as an opposition party has demonstrated, I think 0:02:43.160 --> 0:02:45.880 by some of the dysfunction in the primary process, by 0:02:45.919 --> 0:02:50.200 the UM still unclear field, the the growing likelihood that 0:02:50.320 --> 0:02:54.720 a more kind of divisive extreme candidate like Bernie Sanders 0:02:54.720 --> 0:02:58.000 will be the nominee. Those are the factors driving you know, 0:02:58.040 --> 0:03:02.640 what we call kind of UM intitutional institutional support risk 0:03:03.680 --> 0:03:07.000 uh for the administration. That risk is down as the 0:03:07.040 --> 0:03:10.560 Democratic Party looks weaker and weaker. So let's talk a 0:03:10.639 --> 0:03:13.120 little bit about the Democratic Party. It seems like after 0:03:13.160 --> 0:03:15.840 this week's debate. It was the first of Michael Bloomberg, 0:03:15.840 --> 0:03:18.240 who was founder a majority owner of Bloomberg LP, and 0:03:18.280 --> 0:03:22.640 this radio station was a participant that Bernie Sanders appeared 0:03:22.639 --> 0:03:26.160 to consolidate a lot of his support. People thought that 0:03:26.200 --> 0:03:29.239 he emerged a winner. They also thought, though, that President 0:03:29.280 --> 0:03:32.320 Trump consolidated his win. Given the fact that there was 0:03:32.360 --> 0:03:36.080 a lot of cross uh, circular firing squad type of activity, 0:03:36.560 --> 0:03:39.560 how significantly do you think the Democrats were set back? 0:03:41.040 --> 0:03:43.920 I'm not sure the debate itself was any kind of 0:03:43.920 --> 0:03:47.000 critical juncture and setting back the Democrats. UM. I think 0:03:47.000 --> 0:03:49.400 it was more a symptom of you know, what we 0:03:49.440 --> 0:03:52.360 saw in the previous debates and then and then the 0:03:52.400 --> 0:03:55.520 primaries and CAUCUSUS so far, which is um, you know, 0:03:55.600 --> 0:03:59.600 a field that's that's heavily divided, um. And and a 0:03:59.640 --> 0:04:04.200 group candidates that um all you know, ostensibly agree on 0:04:05.000 --> 0:04:09.000 the goal of defeating Donald Trump and uniting to do so. UM, 0:04:09.000 --> 0:04:11.520 but are now just inherently engaged in the process, the 0:04:11.560 --> 0:04:15.360 primary process, UM, where they're they're in some ways making 0:04:15.400 --> 0:04:17.920 that less likely because they are fighting against each other 0:04:17.960 --> 0:04:21.240 as opposed to the common you know, quote unquote enemy. 0:04:21.520 --> 0:04:24.440 So Mark Bernie Sanders is leading in the polls right now, 0:04:24.800 --> 0:04:31.160 can he be President Trump in in according to our models? 0:04:31.160 --> 0:04:33.760 And again, um, you know, these are kind of generic 0:04:33.800 --> 0:04:38.839 incumbent survival models, No UM. In that Bernie Sanders UM, 0:04:39.279 --> 0:04:42.080 it will be a candidate that would have trouble uniting 0:04:42.160 --> 0:04:45.160 the Democratic Party UM, and as such would weaken the 0:04:45.240 --> 0:04:49.320 strengths of the opposition VISAVI the incumbent, and so the 0:04:49.360 --> 0:04:52.040 incumbent will be more likely to win UM, and so 0:04:52.360 --> 0:04:55.239 UM in our the scenarios we're running with our models, 0:04:55.240 --> 0:05:00.760 the sanders Um candidacy makes a Trump real sin more likely. 0:05:01.160 --> 0:05:05.360 What about Pete Boudage? What about Michael Bloomberg whose performance 0:05:05.760 --> 0:05:08.920 was panned pretty significantly by almotions of the coverage following 0:05:08.920 --> 0:05:15.920 the debate. Again, generically, a more moderate candidate, candidate more 0:05:15.960 --> 0:05:19.240 capable of winning, of winning, of winning swing voters, of 0:05:19.240 --> 0:05:22.880 winning suburban white voters and key swing states that are 0:05:23.080 --> 0:05:26.520 in many cases the the key to the election. UM 0:05:27.040 --> 0:05:29.640 is likely to be Trump right and more like and 0:05:29.720 --> 0:05:32.919 certainly makes Trump's reelection less likely. So in our models, 0:05:32.920 --> 0:05:37.359 it's a relatively simple trade off between UM a a 0:05:37.400 --> 0:05:39.359 candidate that is more likely to win you know what 0:05:39.400 --> 0:05:42.960 political scientists called the median voter UM, and which in 0:05:43.000 --> 0:05:45.400 the case of of key states, is really a swing 0:05:45.480 --> 0:05:48.760 voter or one less likely to win those voters, and 0:05:49.240 --> 0:05:51.680 in our model, Sanders is less likely, whereas a more 0:05:51.720 --> 0:05:55.200 moderate candidate is more likely. So, Mark, is there any 0:05:55.240 --> 0:06:00.159 indication that if Bernie Sanders gets the nomination, that he 0:06:00.400 --> 0:06:03.000 or the Democratic Party could move him more to the 0:06:03.040 --> 0:06:05.440 center to maybe appeal to some of those swing voters. 0:06:05.480 --> 0:06:06.800 Do you kind of put any of those odds in 0:06:06.839 --> 0:06:11.080 your model? We don't model that directly. That does make 0:06:11.120 --> 0:06:14.119 kind of common political sense and is generally the way 0:06:14.720 --> 0:06:18.960 UH Party candidates run in the general election. They generally 0:06:19.000 --> 0:06:22.560 pivot um more to the center, UM, in order to 0:06:22.600 --> 0:06:25.640 capture a larger swat at the electorate. Sanders has made 0:06:25.640 --> 0:06:31.919 a career um of not doing that, and so just anecdotally, UM, 0:06:32.120 --> 0:06:35.240 it suggests that that kind of dynamic is maybe less 0:06:35.240 --> 0:06:39.000 likely this time around. UM. But but to be sure, 0:06:39.240 --> 0:06:42.360 you know, in a in a more with a more 0:06:42.400 --> 0:06:45.640 generic candidate, that's exactly what you would expect to happen. 0:06:46.480 --> 0:06:50.120 And given again that all Democratic candidates are at least 0:06:50.160 --> 0:06:53.680 vocally saying their priority is beating Trump, that would be 0:06:53.720 --> 0:06:56.400 the right strategy. It's just not clear that that is 0:06:56.400 --> 0:06:59.360 what will actually happen. Mark, just real quickly here, I'm 0:06:59.400 --> 0:07:03.159 wondering ston history how soon does the Democratic field have 0:07:03.360 --> 0:07:07.600 to shrink or consolidate support behind one or two candidates 0:07:07.839 --> 0:07:09.840 in order to have a better chance going forward of 0:07:09.920 --> 0:07:14.800 defeating President Trump. So there isn't really a clear historical pattern. UM. 0:07:15.080 --> 0:07:20.240 I think, UM, you know, the primary calendar in terms 0:07:20.280 --> 0:07:23.800 of opposition beating incumbents. UM. You know, the primary calendar 0:07:23.840 --> 0:07:26.880 is relatively set in the United States. Um. And so 0:07:26.920 --> 0:07:28.880 there isn't really a kind of date by which the 0:07:28.920 --> 0:07:32.320 Democrats need to um, you know, coalesced or form a 0:07:32.400 --> 0:07:35.600 coalition by which they make um, their success in the 0:07:35.640 --> 0:07:38.520 election more likely. I think the general rule in this 0:07:38.560 --> 0:07:42.280 case is the sooner the better. Mark Rosenberg, thanks so 0:07:42.360 --> 0:07:45.520 much for joining us. We appreciate your thoughts. Mark Rosenberg, 0:07:45.520 --> 0:07:48.280 founder and CEO of geo Quant, also an adjunct professor 0:07:48.800 --> 0:07:52.120 at Columbia University. He is based in San Francisco. Some 0:07:52.160 --> 0:07:55.080 interesting commentary about the election and kind of what their 0:07:55.120 --> 0:07:57.960 models are showing, and uh appears to be, you know, 0:07:58.000 --> 0:08:02.520 from Mark's comments, you know, pretty predisposed or you know, 0:08:02.560 --> 0:08:06.120 towards President Trump getting re elected, unless you know, maybe 0:08:06.120 --> 0:08:10.280 the field somehow coalesces around candidate and maybe can put 0:08:10.360 --> 0:08:12.000 up a stronger fight. Yeah, and then they'll be the 0:08:12.080 --> 0:08:15.040 question of whether any candidate on the Democratic side could 0:08:15.080 --> 0:08:18.360 get something done without the both sides of Congress. Meanwhile, 0:08:18.360 --> 0:08:20.880 I should just mentioned that right now FED funds futures 0:08:20.880 --> 0:08:24.160 are pricing in a full half a percentage point rate 0:08:24.240 --> 0:08:27.000 cut through the end of twenties, so really shifting their 0:08:27.080 --> 0:08:33.360 rate cut expectations forward. This morning, everyone was watching thirty 0:08:33.440 --> 0:08:36.200 year treasury yields, which were covering on the precipice of 0:08:36.240 --> 0:08:39.559 an all time new record, and it reached it after 0:08:39.920 --> 0:08:42.240 the p m I data that came out this morning 0:08:42.240 --> 0:08:45.120 from market US business activity shrank this month for the 0:08:45.160 --> 0:08:49.200 first time since twenty with the services section of the 0:08:49.240 --> 0:08:52.880 index seeing a particularly big drop off. The question here 0:08:53.000 --> 0:08:55.800 is what is the message being sent by bonds which 0:08:55.800 --> 0:08:59.319 are reaching new all time loads and how in canherent 0:08:59.520 --> 0:09:02.880 in cohere? Arn is it with equities reaching or hovering 0:09:02.920 --> 0:09:06.040 near all time high joining us now Ben Emmon's Managing director, 0:09:06.160 --> 0:09:09.000 Global Strategy at Medley Global Advisors, joining us here in 0:09:09.040 --> 0:09:12.040 our interactive broker studios. So let's start there. What is 0:09:12.080 --> 0:09:14.679 the message being sent by thirty year yields at all 0:09:14.720 --> 0:09:18.160 time lows? So the one hand, Lisa, it's a technical message, 0:09:18.360 --> 0:09:22.280 right there is a aparent positioning going on with hedge 0:09:22.280 --> 0:09:24.559 funds going short and the as you managers going long, 0:09:24.600 --> 0:09:27.440 and it's probably very much driven by different views about 0:09:27.520 --> 0:09:30.120 whether the economy and be heading as well as hedging 0:09:30.160 --> 0:09:33.480 against the downside risk of this virus outbreak. On the 0:09:33.480 --> 0:09:36.800 other hand, it's it's to that fundamental picture. I think 0:09:36.800 --> 0:09:41.160 the inflation picture is gonna see a significant moderation this year. 0:09:41.240 --> 0:09:44.680 If if the collapse in China's as we speak happening, 0:09:45.400 --> 0:09:48.280 you know, in terms of production data, then inflation data 0:09:48.320 --> 0:09:50.280 and China will will will go down quite a bit 0:09:50.559 --> 0:09:53.280 and that will really transcend down globally. I think this 0:09:53.440 --> 0:09:56.160 is not a reason why bond deals are lower in 0:09:56.200 --> 0:09:58.040 the United States? Do you what do you how do 0:09:58.040 --> 0:10:00.080 you think the FED is going to respond to It 0:10:00.120 --> 0:10:03.840 appears to be a growing problem. It doesn't appear like 0:10:03.920 --> 0:10:07.520 we've seen the peak of the coronavirus risk. So all 0:10:07.559 --> 0:10:10.680 these central banks we feed are monitoring, as they say, 0:10:10.760 --> 0:10:12.360 and you know, we know that they don't have the 0:10:12.440 --> 0:10:16.000 precise tools to combine any of this, but they do 0:10:16.040 --> 0:10:18.400 know as we know now is that companies are responding 0:10:18.480 --> 0:10:21.440 quite dramatically to this outbreak, you know, shutting off production, 0:10:21.480 --> 0:10:24.600 shutting down air traffic. So there will be something of 0:10:24.640 --> 0:10:28.199 a message there to tell to two companies about you know, well, 0:10:28.280 --> 0:10:30.720 this is really something that that's going to drag down 0:10:30.720 --> 0:10:33.200 global growth just because it's a virus outbreak that we've 0:10:33.280 --> 0:10:36.560 had in several cases before and by far not as 0:10:36.679 --> 0:10:39.560 as severe as a normal influenza. At the same time, 0:10:39.640 --> 0:10:42.400 central banks will likely stand by with liquidity, as we 0:10:42.440 --> 0:10:45.360 saw from the BBC and the fedsil ongoing that other 0:10:45.360 --> 0:10:48.319 central banks would there too, And I think that liquidity 0:10:48.320 --> 0:10:51.520 operation is pretty effective. If you think about the shock 0:10:51.600 --> 0:10:53.720 that which just went through, it could have been much 0:10:53.760 --> 0:10:57.520 more severe if if we did not have liquidity injections 0:10:57.520 --> 0:11:00.560 by the BBC and you know, ongoing by the So 0:11:00.640 --> 0:11:02.640 will the should be in the BUJ follow with something 0:11:02.720 --> 0:11:05.920 like that not not unlikely if we're getting more downdraft 0:11:05.920 --> 0:11:07.680 in data. I want to go back to something you 0:11:07.720 --> 0:11:10.680 were talking about, this sort of technical factor with hedge 0:11:10.720 --> 0:11:15.160 funds going short, treasuries and insurance companies pensions going long, 0:11:15.360 --> 0:11:18.040 particularly on the long end, and I'm wondering if this 0:11:18.120 --> 0:11:20.800 is a short squeeze that we're observing which is really 0:11:20.880 --> 0:11:24.520 responsible for the rally that we're seeing in treasuries. Then 0:11:24.840 --> 0:11:28.520 is it potentially not that negative or even positive for 0:11:28.559 --> 0:11:31.920 equities because it keeps borrowing costs so low that it 0:11:31.960 --> 0:11:36.400 continues to support the relative valuation case for equities. Yeah, 0:11:36.760 --> 0:11:39.280 I think you're right about that, because if you if 0:11:39.400 --> 0:11:43.000 bonds work well as as in total return, I say 0:11:43.200 --> 0:11:46.200 hedgechickens the downstafe fish within loan loan as your manager 0:11:46.240 --> 0:11:48.640 would do a sort of that view. In addition that 0:11:48.720 --> 0:11:52.560 you say low borrowing costs which affect positively for corporations 0:11:52.559 --> 0:11:55.920 and housing and consumer spending, then yes, this is this 0:11:56.200 --> 0:11:57.800 and that's typically, by the way, the case when you 0:11:57.800 --> 0:12:00.360 have flight to safety, believe or not, there's actually emilist 0:12:00.360 --> 0:12:02.520 to the economy. Very often happened that way. We saw 0:12:02.520 --> 0:12:05.520 it in August that way too, and subpoquent data recovers 0:12:05.880 --> 0:12:08.160 low interests of falling long term interest rates tend to 0:12:08.200 --> 0:12:10.040 do that. So I think this is another phase of 0:12:10.200 --> 0:12:13.600 like short screes, fight the safety leads to ultimately simmers 0:12:13.640 --> 0:12:16.640 in the economy, and that could be positive for stocks. 0:12:16.679 --> 0:12:20.400 Some of the consensus trades that we heard coming into 0:12:20.440 --> 0:12:23.000 was maybe this is the time where international markets will 0:12:23.000 --> 0:12:27.840 outperform the US does this growing concern about the global 0:12:27.880 --> 0:12:32.960 economy featuring China called that trade into into play, maybe 0:12:32.960 --> 0:12:35.679 into question. I'm actually on the side pole of that. 0:12:35.800 --> 0:12:39.120 That actually makes it even more compelling them before. And 0:12:39.160 --> 0:12:41.880 here's why. So if if you think about the data 0:12:41.920 --> 0:12:43.800 it's coming out now, say that be my data in 0:12:43.880 --> 0:12:46.520 Japan overnight or the expert orders of Taiwan and and 0:12:46.640 --> 0:12:49.640 sup forth. Pretty big drops in that data, right, and 0:12:49.640 --> 0:12:51.240 and that's what you would expect if you have a 0:12:51.240 --> 0:12:55.000 production shutdown in China. It's pretty extraordinary to to go 0:12:55.120 --> 0:12:58.120 through that at the moment. But the more that data drops, 0:12:58.440 --> 0:13:01.679 the more encouraging the v shas recall of recovery would become. 0:13:01.720 --> 0:13:04.000 So I'm more on that camp, which makes actually the 0:13:04.040 --> 0:13:08.560 relative value difference between US and four markets even more compelling. 0:13:08.960 --> 0:13:11.760 And yes, the the the valuation of Asian markets is 0:13:11.800 --> 0:13:16.360 at a discount relative to US markets, and if the 0:13:16.440 --> 0:13:18.640 US markets are benefits so much from a flight to 0:13:18.720 --> 0:13:21.320 safety with stock values or bumping my value up and 0:13:21.320 --> 0:13:23.920 the dollar up, it becomes a case at some point 0:13:23.960 --> 0:13:27.559 that anticipating the V shape, that four assets look more attractive. 0:13:27.600 --> 0:13:30.520 So I remain on that trade. It's just a little 0:13:30.559 --> 0:13:32.880 bit knocked out of bounds for the first quarter. It 0:13:32.960 --> 0:13:35.000 will come back in the second half. I think when 0:13:35.040 --> 0:13:38.199 it's bad news bad news again. Well that's another good 0:13:38.200 --> 0:13:40.080 point at least of course, because the scare that we 0:13:40.120 --> 0:13:41.880 have a little bit of markets today is about this 0:13:42.000 --> 0:13:45.200 word pandemic, right, is becoming a pandemic in Asia and 0:13:45.240 --> 0:13:47.480 then it spills to the rest of the globe. But 0:13:47.559 --> 0:13:49.720 they also have to put it in perspective. Our previous 0:13:49.800 --> 0:13:52.800 viruses have have worked, they tend to do spread around, 0:13:53.080 --> 0:13:55.720 and it really comes down to that. I think about 0:13:56.080 --> 0:13:58.760 the infrastructure countries how to deal with an outbreak of 0:13:58.800 --> 0:14:01.360 the virus. You know, the most worrying would be in 0:14:01.400 --> 0:14:04.480 the in the in the say South Africa or African nations, right, 0:14:04.520 --> 0:14:07.400 who do not have any infrastructures to the w h 0:14:07.400 --> 0:14:10.160 O warrent for But for the developed markets that's a 0:14:10.200 --> 0:14:14.360 different story. And because marcus react now, because a virus 0:14:14.400 --> 0:14:18.160 outbreak links to you know, production shut down, delay of 0:14:18.320 --> 0:14:20.520 any kind of activity because people have to stay home, 0:14:21.200 --> 0:14:23.080 there's still a lot of workaround. I think to that too, 0:14:23.240 --> 0:14:26.000 all companies are preparing to say, you know this flight 0:14:26.040 --> 0:14:28.040 chain shift, will shift, will happen anyway, I'm going to 0:14:28.120 --> 0:14:30.360 prepare differently to continue my production because you know you 0:14:30.440 --> 0:14:33.400 have to here to stockholder. So by and large, I 0:14:33.440 --> 0:14:37.000 think pandemic is a fear factor in markets, but ultimately 0:14:37.040 --> 0:14:39.000 I think it's it's still going to be a recovery 0:14:39.040 --> 0:14:41.400 from here, not not a recession. Okay, Ben em it's 0:14:41.400 --> 0:14:43.480 thanks so much for joining us. We appreciate chatting with 0:14:43.520 --> 0:14:46.720 you as we do periodically. Ben Emmon's managing director Global 0:14:46.760 --> 0:14:49.720 Macro Strategy for Medlely Global Partners. Joining us here in 0:14:49.720 --> 0:14:53.280 our Bloomberg Interactive Broker Studio. Really interesting to hear how 0:14:53.320 --> 0:14:56.720 the interclining yields could end up being a positive for stocks, 0:14:56.720 --> 0:14:58.880 even though people usually look at the flight to safety 0:14:59.240 --> 0:15:01.920 is being a negative message for equities, sort of the 0:15:01.960 --> 0:15:04.920 modern conundrum of markets. Yep, absolutely so. We had the 0:15:04.960 --> 0:15:07.480 SMP down here twenty five off the lows, uh, the 0:15:07.520 --> 0:15:11.720 down down two three points. That's twenty oh nineteen on 0:15:11.760 --> 0:15:19.440 the down. Jones Industrials. This is Bloomberg time to check 0:15:19.480 --> 0:15:22.440 in with Bloomberg Opinion. We're joined by opinion calumnist Tara 0:15:22.520 --> 0:15:26.520 la Chapelle. She covers all things industrial for Bloomberg Opinion 0:15:26.920 --> 0:15:29.880 and for those Warren Buffet watchers Tomorrow's on a very 0:15:29.880 --> 0:15:32.760 important day. That's when Berkshire Hathaway releases its annual letter. 0:15:32.760 --> 0:15:34.800 We get a sense of kind of how Warren is 0:15:34.960 --> 0:15:37.040 viewing the world. Helps preview that we have our good 0:15:37.040 --> 0:15:40.600 friend Tara. So Tara again, Warren Buffet watchers. Tomorrow is 0:15:40.600 --> 0:15:44.120 a big day. What's the expectation here because they've been 0:15:44.240 --> 0:15:46.920 kind of quiet on the acquisition front. I think what 0:15:47.000 --> 0:15:49.800 people are really hoping for is that Warren Buffett is 0:15:49.800 --> 0:15:51.640 going to talk a little bit more about what he's 0:15:51.640 --> 0:15:54.920 going to do with all that cash. Berkshire Hathaway's cash 0:15:55.040 --> 0:15:57.920 was a hundred and twenty eight billion dollars in the 0:15:58.000 --> 0:16:00.440 latest quarter that they reported, So we'll find out tomorrow 0:16:00.520 --> 0:16:03.200 when his letter comes out. We'll have the fourth quarter 0:16:03.200 --> 0:16:05.680 earnings report with it, and we'll see if that cash 0:16:05.800 --> 0:16:09.239 moved at all. Uh. He didn't make any significant acquisitions 0:16:09.320 --> 0:16:12.480 during the period, as we know, and last week we 0:16:12.560 --> 0:16:14.880 got their thirteen F filing filing and saw that they 0:16:14.880 --> 0:16:18.360 didn't really um make any tremendous purchases in the stock 0:16:18.360 --> 0:16:21.080 market either. He bought a steak in Kroger, a small 0:16:21.120 --> 0:16:23.560 steak in Biogen, but nothing really big. And we don't 0:16:23.560 --> 0:16:26.040 think that they've done a lot of Berkshire buy backs, Yeah, 0:16:26.080 --> 0:16:29.200 even though he's talked about doing that. So hopefully he can, 0:16:29.320 --> 0:16:31.760 you know, get people excited about what's going to happen, 0:16:31.920 --> 0:16:34.720 and maybe he'll be able to find his big elephant 0:16:34.920 --> 0:16:36.960 this year, the big acquisition he's been trying to do. 0:16:37.080 --> 0:16:39.560 He turns ninety in August, so one would think that, 0:16:40.040 --> 0:16:41.680 you know, time is of the essence and he'd want 0:16:41.720 --> 0:16:44.480 to do something. Yeah, although throwing some cold water on that, 0:16:44.520 --> 0:16:47.560 Berkshire vice chair saying in an interview with Bloomberg, we're 0:16:47.560 --> 0:16:50.720 gradually getting more pessimistic about using our money. It's been 0:16:50.760 --> 0:16:53.400 a long time since we bought anything. This is Charlie Munger, 0:16:53.480 --> 0:16:57.000 and I have to say again Warren Buffett problems the 0:16:57.040 --> 0:16:58.520 idea that you just have so much money you don't 0:16:58.520 --> 0:17:00.160 know what to do with it. But it, you know, 0:17:00.520 --> 0:17:02.840 is really good question, Tara, which is why don't they 0:17:02.840 --> 0:17:05.480 buy back more shares or just give massive dividends to 0:17:05.480 --> 0:17:07.919 their investors. Yeah, I mean we're not sure. We know 0:17:08.000 --> 0:17:10.280 Buffett and Monger are really opposed to the idea of 0:17:10.280 --> 0:17:13.199 a dividend, and he's kind of started to mention that 0:17:13.320 --> 0:17:15.639 more often. The last couple of years. It used to 0:17:15.720 --> 0:17:17.439 be kind of unheard of that they would even do 0:17:17.480 --> 0:17:19.280 something like that, So the fact that he's brought it up, 0:17:19.520 --> 0:17:21.240 I just don't think they're at the point of being 0:17:21.240 --> 0:17:24.080 willing to pay a big, one time special dividend. I 0:17:24.160 --> 0:17:27.000 think maybe that's something his successor would want to be 0:17:27.040 --> 0:17:29.280 able to have the opportunity to do, should they need it. 0:17:29.600 --> 0:17:31.800 Um But I think Buffett his goal is still finding 0:17:31.800 --> 0:17:33.520 a deal, and Manger always tends to be sort of 0:17:33.520 --> 0:17:35.960 the more pessimistic one of the two. Buffett in his 0:17:36.040 --> 0:17:38.200 letter every year, you know, he always gives that pep 0:17:38.240 --> 0:17:41.200 talk about America and how great America's prospects are, and 0:17:41.560 --> 0:17:44.320 you know, kids born today are better off than he was, 0:17:44.440 --> 0:17:45.960 and so on and so forth. And I don't think 0:17:45.960 --> 0:17:48.280 that will change in this letter, but I think you 0:17:48.640 --> 0:17:51.119 will see that growing frustration with the markets that he 0:17:51.200 --> 0:17:53.560 just hasn't been able to find anything to put this 0:17:53.640 --> 0:17:57.159 money to work on. It's interesting, Terry, you mentioned succession, 0:17:58.000 --> 0:17:59.879 where what's the status of that? I mean, they just 0:18:00.080 --> 0:18:01.720 kick this can down the road and down the road. 0:18:01.840 --> 0:18:03.640 We have any greater clarity. I know there's some new 0:18:03.720 --> 0:18:07.800 hires pre senior positions, but what's the latest. I think, 0:18:07.800 --> 0:18:10.880 if anything, it's gotten more uncertain because so a couple 0:18:10.920 --> 0:18:14.520 of years ago they did promote Greg Able to run 0:18:14.640 --> 0:18:16.919 to be vice chairman of everything that didn't have to 0:18:16.920 --> 0:18:19.320 do with their insurance business, and a Jet Jane, who 0:18:19.400 --> 0:18:21.240 came from the insurance side, they put him in charge 0:18:21.280 --> 0:18:24.679 of their huge insurance operations, and so that kind of 0:18:24.720 --> 0:18:27.040 set the two up to be the next in line 0:18:27.040 --> 0:18:29.359 to become Successor's a little bit older, and it seems 0:18:29.400 --> 0:18:31.560 like Greg is kind of the favorite for the job. 0:18:31.800 --> 0:18:34.280 Greg also got to speak at last year's annual meeting 0:18:34.320 --> 0:18:37.040 for the first time publicly, which was kind of unusual 0:18:37.080 --> 0:18:40.800 and I think really symbolic. But then, uh, Todd Combs, 0:18:40.840 --> 0:18:44.280 who came from the investing side of the business, was 0:18:44.320 --> 0:18:47.080 promoted to run Geico, and I think that got a 0:18:47.119 --> 0:18:49.720 lot of people thinking that is Todd another person that 0:18:49.760 --> 0:18:51.679 he's looking at, or maybe there will be sort of 0:18:51.720 --> 0:18:55.280 a split role when his successors take over, someone doing 0:18:55.320 --> 0:18:58.639 capital allocation another person running the operational side of the business. 0:18:58.680 --> 0:19:01.680 We just don't know, so hopeful He addresses that though 0:19:01.880 --> 0:19:05.199 knowing Buffett, he probably won't say very much. Although in 0:19:05.920 --> 0:19:07.879 just to put this into perspective of how much pressure 0:19:07.920 --> 0:19:11.080 they're under. Uh, they've missed a bunch of deals, and 0:19:11.280 --> 0:19:13.359 their shares row at a slower pace, rose at a 0:19:13.359 --> 0:19:16.240 slower pace than SP five hundred. It was their worst 0:19:16.359 --> 0:19:20.240 under performance since two thousand and nine. There's a question 0:19:20.600 --> 0:19:24.359 is there strategy one that fit with another time in 0:19:24.520 --> 0:19:27.760 history of the stock markets that is no longer and 0:19:27.960 --> 0:19:30.919 that they are really coming to that realization at a 0:19:31.000 --> 0:19:34.240 time when they aren't sure how to deploy their cash. 0:19:34.560 --> 0:19:36.880 It's true, I mean, the true Buffet stands they don't 0:19:36.880 --> 0:19:38.960 really worry much about the stock price and the fact 0:19:39.000 --> 0:19:41.040 that it's lagging, which is kind of funny. It's a 0:19:41.119 --> 0:19:44.920 very unusual trait that Berkshire has still But I think, 0:19:44.920 --> 0:19:47.359 you know, after going to last year's meeting and seeing 0:19:47.800 --> 0:19:51.120 that the investor based really reflected what we see at 0:19:51.119 --> 0:19:54.439 Berkshire itself, where it's excuse older. These are people that 0:19:54.520 --> 0:19:56.160 have a lot of respect for Buffet, But I don't 0:19:56.160 --> 0:19:58.480 know how they get that younger generation interested in a 0:19:58.560 --> 0:20:01.359 stock that's lagging so much. So I think this is 0:20:01.359 --> 0:20:04.080 going to become a bigger question when his successor is 0:20:04.119 --> 0:20:06.800 in charge. You know, does the strategy worked as being 0:20:06.800 --> 0:20:09.960 a big conglomerate with all this cash that's very difficult 0:20:09.960 --> 0:20:11.640 to put to work. Is is that the best way 0:20:11.680 --> 0:20:14.879 to run this or do they need to change strategy? 0:20:14.920 --> 0:20:16.880 And I don't think that will ever happen under Buffett, 0:20:16.880 --> 0:20:18.760 but I think those questions start to arise when you 0:20:18.800 --> 0:20:21.720 think about when he's not there any longer, So you're 0:20:21.720 --> 0:20:25.760 working tomorrow anti terror, right and early. I just honestly, 0:20:26.000 --> 0:20:28.719 why do they do it on Saturday? I think you know, 0:20:28.800 --> 0:20:30.960 he he has said, who knows if this is the case, 0:20:30.960 --> 0:20:32.960 but he has said that, you know, he doesn't want 0:20:32.960 --> 0:20:36.720 the stock overreacting to things when they released during closer 0:20:36.720 --> 0:20:39.480 to market times, and especially now that the way they 0:20:39.480 --> 0:20:42.320 have to report their stockholdings and how that changes their earnings. 0:20:42.359 --> 0:20:45.360 But I think he just likes journalists working on Saturday 0:20:45.359 --> 0:20:50.520 and the spot life because nobody else is going to compete. Yes, 0:20:50.720 --> 0:20:53.720