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Speaker 1: and four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg He was trying to get
Speaker 1: the Tiffany's next to the Trump Tower and it was
Speaker 1: a little hard to get there through the security for
Speaker 1: the President elect, so Dennis Gartment decided to darken the door.
Speaker 1: You guys will apparently let anybody on this show nowadays help, yes,
Speaker 1: help the liberals of America with the surprise of the election.
Speaker 1: I would suggest a Virginia, North Carolina guy like you
Speaker 1: really wasn't all that surprised, assist the progressives Listening people
Speaker 1: need to get in an airplane and fly over the
Speaker 1: great fly over part of the United States and just
Speaker 1: go there and go there. It actually is quite civilized.
Speaker 1: You'd be surprised. They are very nice well, it's well
Speaker 1: spoken area tite people living in Peoria who are reasonably
Speaker 1: well read, who are cognizant of what goes on in
Speaker 1: the rest of the country and are different than the coasts.
Speaker 1: But that's that's indeed what happened. So it was not
Speaker 1: all that surprising. Maybe you wrote about this this morning.
Speaker 1: Some of them want a thirty five percent tariff on
Speaker 1: bad elites like you sending jobs abroad and others, including
Speaker 1: leadership of the GOP and the How's go Maybe not?
Speaker 1: Maybe not? Where are the checks and balances to Mr
Speaker 1: Trump's rhetoric excesses. I think Mr Ryan is a check
Speaker 1: in a balance to Mr Trump's rhetorical excesses. If there
Speaker 1: is a problem with Mr Trump, it is that this
Speaker 1: propensity on the part of of of he and others
Speaker 1: around him too to put into effect or talk at
Speaker 1: least about a thirty five percent tariff. What a what
Speaker 1: a silly notion that would be? How detrimental that would
Speaker 1: be to the economy in general. Yes, two small groups
Speaker 1: of people to to the labor unions, it makes sense.
Speaker 1: But you have to remember you put a thirty five
Speaker 1: percent tariff on a television and suddenly you are spending
Speaker 1: thirty percent more to buy that television, and that's the problem.
Speaker 1: Hopefully that shall not happen. Hopefully we do not take
Speaker 1: a chapter out of the middle of the nineteen thirties
Speaker 1: when tariffs, the smooth Holliday tariff, took a medium term
Speaker 1: and rather substantive recession and turn it into a depression.
Speaker 1: Hopefully there are wiser voices around. But on balance, I
Speaker 1: got to tell you there's a greater sense of of
Speaker 1: of optimism out in the great flyover part of the
Speaker 1: United States, and there had been a mere three weeks ago.
Speaker 1: It's demonstrable. How do you judge Donald Trump's willingness to
Speaker 1: be checked and balanced? In this week since the presidential election,
Speaker 1: We've watched his Twitter feed with with great interest, But
Speaker 1: you know, you you wonder if he's that quick to
Speaker 1: respond to what the media is saying, for instance, how
Speaker 1: well he's going to be able to have a conversation
Speaker 1: about smart trade policy that does the great fear, isn't it?
Speaker 1: And and actually I put that in my newslet this morning.
Speaker 1: Won't somebody around him please stop this man from tweeting?
Speaker 1: The problem is, it doesn't appear that anybody's gonna have
Speaker 1: the power to stop him. Please Milannia, stop this man
Speaker 1: from tweeting. I'll jokes aside, though, I mean here here,
Speaker 1: you know he has the potential to do some real damage.
Speaker 1: I mean you must have been watching what he was
Speaker 1: was saying about China, about Taiwan with us. I was
Speaker 1: not as dismayed about what he said about China as
Speaker 1: as other people were and are. I'm far more dismayed
Speaker 1: about the the intention last week, or the decision last
Speaker 1: week to push Carrier to do what they did, to
Speaker 1: to push UTX to do what it had to do,
Speaker 1: and then to talk two or three days later about
Speaker 1: once again putting tariffs into effect. That that is bothersome.
Speaker 1: As long as we can avoid that, and I think
Speaker 1: we shall avoid that. As long as we can avoid that,
Speaker 1: things will be fine. I I talk up Dennis how
Speaker 1: you're one of the few people that actually put your
Speaker 1: tick by tick TA track record out to the public.
Speaker 1: It's been a brutal year for people gaming uh the market.
Speaker 1: Now you enjoy Fortres's diamond three point one standard deviation
Speaker 1: moonshot on a monthly chart. The last time it did
Speaker 1: that was from the Quiet of two thousand five, which
Speaker 1: isn't even comparable. What does Dennis Gartman do if you
Speaker 1: buy and hold the banks and you've gotten this gift,
Speaker 1: do you stay with him? I think you have to.
Speaker 1: I think there's something that is that is tectonic that
Speaker 1: really has occurred to things the banks are going to
Speaker 1: do so much better over the course of the next five, six,
Speaker 1: seven years, and to something I've been arguing about. To
Speaker 1: put it into simplistic terms, I I think that we're
Speaker 1: going to see the trumping for lack of a better term,
Speaker 1: of the Mahoning Valley, the place where Steele was born
Speaker 1: in the United States, compared to Silicon Valley. I think
Speaker 1: it means that if the Trump administration means anything, it
Speaker 1: does in fact mean infrastructure rebuilding and simple things are
Speaker 1: going in down. Okay, but you come on, you invented this.
Speaker 1: Donald Trump took the lesson from you. If it drops
Speaker 1: on my foot, you own that fraend line. Yeah, what
Speaker 1: is taking so long for that to happen? He ain't
Speaker 1: president yet. Okay, it's that simple. He's not president yet
Speaker 1: and it will probably be with the whole concept of
Speaker 1: shovel ready is an utter misnomer. The shovels are ready,
Speaker 1: but it takes a long time. Given the fact that
Speaker 1: all those products or projects have to be done at
Speaker 1: state and local levels. Federal government can try to do something.
Speaker 1: Federal government can set the standard. Federal government can fund
Speaker 1: a bit of it, but that the mass funding has
Speaker 1: to come from the state and from the local, from localities,
Speaker 1: and it takes a long time to get that that
Speaker 1: kind of thing passed through those various legislatures. It will
Speaker 1: take time, but it is time to buy the things
Speaker 1: that if you drop them on the on your foot
Speaker 1: shell hurt. And I have to admit I think that's
Speaker 1: an interesting and simple but a correct mnemonic device. Dennis
Speaker 1: Goverment with us. We thank all the hate mail for
Speaker 1: coming in on guard. He is the pinata of the street.
Speaker 1: Here's here's the hate mail, David Girl from one de
Speaker 1: Cass down in Florida. Don Cass says, I'm short in
Speaker 1: the banks. I don't agree with Dennis. Why how do
Speaker 1: you respond to a guy like Cass who, on a
Speaker 1: trading basis has been short this great bull market and
Speaker 1: now he loads the boat and shorts the banks. Yeah,
Speaker 1: but he's getting his golf games getting so much better.
Speaker 1: He sent me a scorecard. They had three birdies in
Speaker 1: a row. Well done, Douggie, well done, and we said
Speaker 1: good morning to Mr Cass. Seriously, folks, dot Cass very
Speaker 1: cautious to short on the banks after the huge service. David,
Speaker 1: I'm eager to talk to you about oil. Since we
Speaker 1: last spoke, we had this OPEC production cut agreement. How
Speaker 1: optimistic are you that that's going to be uphilm It
Speaker 1: won't be upheld. I mean, if history shows anything, it
Speaker 1: shows you that all OPEC decisions, all OPEC cuts in
Speaker 1: the past have always been overridden. They cheat, it's just
Speaker 1: a fact. Are they cheating right now? Well, the interesting
Speaker 1: thing is they began the cut from an already ramped
Speaker 1: up September October in early November production, So the cut
Speaker 1: is actually going only going to take you back to
Speaker 1: October levels of production. Two, they will cheat, that's just
Speaker 1: a matter of that. That's only a matter of time.
Speaker 1: The the new agreement doesn't go into effect till January one.
Speaker 1: I suspect it by March we will see a a
Speaker 1: rather substantive amount of cheating. And it doesn't even take cheating,
Speaker 1: It takes us. We are going to continue to be
Speaker 1: larger and ever greater producers of crude oil fifty two
Speaker 1: dollars w T I with a four dollar contango to
Speaker 1: the one year gives you fifty six dollars for one
Speaker 1: year crude and they're going to sell We need more,
Speaker 1: jan can we get We need an additive jargon. What
Speaker 1: did you just say to the contango? The contango is
Speaker 1: the carrying charge, it's the cost. It's the tangible of
Speaker 1: a tangible asset. And crude is indeed a tangible asset.
Speaker 1: And and for the one year, it's the one year forward.
Speaker 1: The crude oils trades right now at about two dollars
Speaker 1: and fifty cents premium to spot. That gives you a
Speaker 1: fairly comfortable hedge double arrangement. And I guarantee the banks
Speaker 1: are telling every E n P producer produce hedge, earned
Speaker 1: the carrying charge, and produce crude oil. What did the
Speaker 1: way that that meeting went down tell you about the
Speaker 1: future of this organization? The future of OPEC. I think
Speaker 1: the future of OPEC is doomed for for no other reason.
Speaker 1: The smartest guy in the room at OPEC is the
Speaker 1: Deputy Crown Prince, and he's made it clear he understands
Speaker 1: thirty years from now, crude oil prices will be zero.
Speaker 1: There it will be worthless. Something else will have supplanted
Speaker 1: crude oil. He understands that, and he intends to sell
Speaker 1: his crude before that. Joseph Knight, in another world from
Speaker 1: you of international relations, is adamant about American exceptionalism. Sure,
Speaker 1: I want you to state for US, and it permeates
Speaker 1: your newsletter the DEFEATUS of America. What do they get wrong?
Speaker 1: And particularly where do they get wrong? In capitalism? They
Speaker 1: get everything wrong. They get, for example, the one thing.
Speaker 1: There are certain things in this world that you can
Speaker 1: count on, but you can count on the fact that
Speaker 1: every year drought in rain out, America's farmers are going
Speaker 1: to produce more and better crops every single year than
Speaker 1: they did the year before. Our technology drives that fact.
Speaker 1: We are now producing don't hold me to the number,
Speaker 1: but perhaps four to five times more soybeans on the
Speaker 1: same ancorage than we did a mere thirty years ago.
Speaker 1: We will produce more ten years from now than we
Speaker 1: produce now. We have learned through technology how to drill
Speaker 1: for crude oil so much more efficiently, so much at
Speaker 1: a at a much greater pace, with a greater success ratio.
Speaker 1: They the defeatist miss what we do. We are the
Speaker 1: greatest minds in the country when in the world, when
Speaker 1: it comes to production. We enjoy the morning with Dennis
Speaker 1: Gartman of the Gartman Letter. No, we will not send
Speaker 1: out his letter. We protect the copyright of all of
Speaker 1: our guests and particularly the joy of Dennis Gartman's beliefs.
Speaker 1: In the back of his newsletter, one of his foundation
Speaker 1: beliefs is gold, not in dollar terms, but in yen
Speaker 1: in euro terms. Uh, it's a really ugly chart. It's
Speaker 1: the classic pop bullmarket and then a trumpion rollover to
Speaker 1: eleven seventy two announce. Some gurus would tell me support
Speaker 1: is nine as possible. Are you long or short the
Speaker 1: Golden Beast? I am still long of gold in euro
Speaker 1: terms and in end terms. I have no urge to
Speaker 1: buy any in dollar terms because I'm a bull on
Speaker 1: the US dollar. I'd rather own something in terms of
Speaker 1: a currency that I think is going to devalue in
Speaker 1: relationship relationship to the buck. But do I wish I
Speaker 1: owned any gold at all right now? I wish I
Speaker 1: sold a goodly portion of what I had, which is
Speaker 1: in my retirement fund. Two or three weeks ago. Wait,
Speaker 1: we get inflation from Mr Trump, from the Republicans in Washington,
Speaker 1: we get inflation, gold goes up, right, not necessarily there.
Speaker 1: There have been plenty of times when we've had inflationary
Speaker 1: impulses and gold hasn't gone up. On the other hand,
Speaker 1: there have been periods of deflation in the past when
Speaker 1: gold has gone up. Gold, I think is misunderstood. I
Speaker 1: don't think it's an inflationary harbor any longer. I think
Speaker 1: it's simply a currency relative to other currencies. And having
Speaker 1: started in the business in the early nineteen seventies at
Speaker 1: dear Old n C and being now Bank of America,
Speaker 1: when when when we traded one currency against another, I
Speaker 1: think of gold as simply being another currency, not not
Speaker 1: a harbor of of safety, not a a a place
Speaker 1: of value in an inflation to mentioned the Lira a
Speaker 1: few minutes ago, and you've written about that in your newsletter.
Speaker 1: The moves that we've seen there, what's driving it and
Speaker 1: what do you see is the outlook for that? You
Speaker 1: mean the Turkish leer, Yes, exactly. Well, it's first of all,
Speaker 1: I don't I don't trust the Turkish government under air
Speaker 1: to one for as far as I can throw him.
Speaker 1: Uh and and he's fighting a rear guard action. The
Speaker 1: fact that you had the president of a of a
Speaker 1: country come out and say they need to lower rates
Speaker 1: and the Bank of the Central Bank has, in fact,
Speaker 1: right within minutes raised rates tell you he's got a problem.
Speaker 1: Where's the where's the Turkish leer going probably demonstrably lower,
Speaker 1: if for no other reason that the dollar itself is
Speaker 1: demonstrably strong. Looking at euro dollar right now one of
Speaker 1: seven thirty seven, are you surprised is in light of
Speaker 1: what we saw in Italy that it is where it is? Oh? Yeah,
Speaker 1: I am, I'm surprised. I thought when they it looked
Speaker 1: to me in the middle of the night after the
Speaker 1: votes had been counted, and when I get up every
Speaker 1: morning at one o'clock in the morning to write the letter,
Speaker 1: and we were trading one oh five one oh five,
Speaker 1: oh five had been given, it looked like one oh five,
Speaker 1: the big figure was going to be given. And then
Speaker 1: suddenly there was a defense at one oh five. Next
Speaker 1: thing you knew, everybody who's short, including myself, ran for cover,
Speaker 1: and the next thing, it's trading one oh seven. But
Speaker 1: if you take a big look at the big picture
Speaker 1: over the course of the last year, is that rally
Speaker 1: from one oh five to one oh seven. I think
Speaker 1: we've got a one oh seven eighty bit if I'm
Speaker 1: not mistaken at one time yesterday. Is that is that
Speaker 1: technically important? Now? The the lows are lower, the highs
Speaker 1: are lower, and it still looks to me like a
Speaker 1: bear market when you look ahead here to the the
Speaker 1: e c B meeting this week, what's what are your
Speaker 1: expectations terms of what we'll hear from from Mario dragging?
Speaker 1: I think we'll hear very little. I think that I
Speaker 1: think they'll kick the football into the next year. It's
Speaker 1: Christmas time. Their propensity to take any action whatsoever is
Speaker 1: extremely limited. That will be rhetoric, there will be verbal action,
Speaker 1: but will there be any real action? I think to
Speaker 1: But but again it goes to the back half of
Speaker 1: your newsletter, which is essentially on the exogenous shocks. To
Speaker 1: worry about what's your outside shock? You're worried about what
Speaker 1: am I shot starting with European banking? But what's the
Speaker 1: one that keeps that garment up at night at one am?
Speaker 1: When he writes in granite and chisels out his newsletter,
Speaker 1: the the one thing that keeps me up at night
Speaker 1: of the Chinese and whatever they're up to in the
Speaker 1: in in the South China Sea, that keeps me up
Speaker 1: at night. I'm always worried about what the North Koreans
Speaker 1: are capable of doing at any one time. They are
Speaker 1: more Trumpian than Mr Trump is, and he at least
Speaker 1: only tweets they actually take action at times. I I
Speaker 1: stay awake worrying about that. Um I stay awake about
Speaker 1: I stay awake nowadays worrying about what Mr Trump is
Speaker 1: going to tweet out. That that bothers me a great
Speaker 1: in far more than it probably should. One final question,
Speaker 1: Bill Gross talks about a decade of financial repression. Can
Speaker 1: you say the financial impression for conservative people, retirees, savers,
Speaker 1: can you say it's over? I think it's over. I
Speaker 1: think we're gonna see I think the honestly, I think
Speaker 1: the thirty five year bear market in the bond market,
Speaker 1: uh in in rates, the thirty five year bull market
Speaker 1: in bond prices has ended. I think it ended six
Speaker 1: months ago, and I think rates are going to be
Speaker 1: not dramatically higher, but certainly demonstrably higher. Can we get
Speaker 1: can we get the Fed funds, but right over the
Speaker 1: course of the the next three or four years back to
Speaker 1: three percent. Can we get the ten year bond tenure
Speaker 1: note back to a five percent? Eel sure, I think
Speaker 1: we can do that without doing any damage to the economy.
Speaker 1: Independence bull, what's your forecast for the that will kick
Speaker 1: off at noon? And I think that both teams will
Speaker 1: the in the in the words, in the words of
Speaker 1: my high school phizzed teacher Bobby Knight, the team with
Speaker 1: the most points show win. There you go, a sound
Speaker 1: of forecasts anytime, the surveillance that all we're trying trying
Speaker 1: a hard. Kate Moore joins as chief equity strategist at
Speaker 1: Black Rock. As I said to morning, Kate, let's start
Speaker 1: with with this referendum and and the fallout from it,
Speaker 1: so much as there is one here in US equity markets.
Speaker 1: How how we're market participants, our investors watching what was
Speaker 1: going on in Italy. You know, I think we've been
Speaker 1: talking a lot about how markets have been shrugging off
Speaker 1: recent political changes and wondering, really if that's going to
Speaker 1: extend itself into two thousand seventeen years we get further
Speaker 1: into European elections, you know, there's a sense at one
Speaker 1: level that there's a bit of a narrative change, that
Speaker 1: we're going to have more stimulus, that the people are talking,
Speaker 1: that the government has to answer, And then there's a
Speaker 1: sense on the other side that, you know, this doesn't
Speaker 1: actually change meaningfully the path of the economy, particularly I
Speaker 1: think when it comes to the market reaction to Italy.
Speaker 1: So I don't know, is it fair to say the
Speaker 1: markets have been schizophrenic? What one could? You know? You get,
Speaker 1: you get this no vote at Renzy is staying on here,
Speaker 1: but you said there's there's a lot of work to
Speaker 1: be done here. How optimistic are you that in the
Speaker 1: next twelve eighteen months something is going to is going
Speaker 1: to happen or the politics going to overshadow everything that
Speaker 1: you think. I'm pretty focused on the politics, to be fair,
Speaker 1: I would love to tell you that I'm absolutely optimistic
Speaker 1: that we're going to see a significant acceleration in growth,
Speaker 1: that all of these changes end up being, you know,
Speaker 1: just sort of blips on a longer term positive trajectory.
Speaker 1: But you know, the thing I keep coming back to
Speaker 1: is what this does to business confidence, what this does
Speaker 1: to investment sentiment, you know, and whether or not given
Speaker 1: all of this uncertainty, we actually get an increase in
Speaker 1: spend or let's say, if you're a consumer or household
Speaker 1: and you think about borrowing money. You know, when there's
Speaker 1: so much political uncertainty in the future of Europe is
Speaker 1: in question, do you really look to you know, lever
Speaker 1: yourself up and um, you know, take advantage of this environment.
Speaker 1: I don't know. I was going to ask you to
Speaker 1: answerr rhetorical question. There I go. I would say, waiting
Speaker 1: on the sidelines and be a little bit more cautious
Speaker 1: is prudent at this point. Continue with business as usual,
Speaker 1: but perhaps not accelerate any of your spend or investment.
Speaker 1: From here, I'm gonna ask you if this is all
Speaker 1: part of a continuum. We had the news out of
Speaker 1: friends yesterday another candidate for for president there from the
Speaker 1: socialist center left side of things. Uh. And it strikes
Speaker 1: me that the longer this continuum gets, the more events
Speaker 1: like this probably take upon to take less import than
Speaker 1: they would have in the past. That's right. I wonder
Speaker 1: if we all have a little bit of a political
Speaker 1: news fatigue too, because um, it's been a NonStop array
Speaker 1: of big events and you know, analysis of every politicians speech,
Speaker 1: and we were already in that mode when it came
Speaker 1: to policymakers, particularly on the monetary side. Um and and
Speaker 1: now here we are trying to really discern what every
Speaker 1: politician is trying to try and do, and you know,
Speaker 1: their policy priorities. The one thing I would also note, though, is,
Speaker 1: you know, all of these political changes have huge impacts
Speaker 1: on currencies and sustained impacts on currencies, and that ends
Speaker 1: up helping someone's relative purchasing power or uh, the earnings
Speaker 1: of exporters. I think that may actually help the economy
Speaker 1: in the near term, but it's really too soon to
Speaker 1: say how sustainable that is. So you can hear me,
Speaker 1: I'm a little bit of a skeptic. I'm a little
Speaker 1: bit of skepter, you go. I mentioned those two big
Speaker 1: a monetary policy events, one this week one next is
Speaker 1: that taking on less importance is monetary policy taking on
Speaker 1: less importance, and light of all of the politics that
Speaker 1: we've seen, I was totally unaware that we had some
Speaker 1: monetary policy coming up. Of course that's not of course
Speaker 1: that's not true, But no, I think that actually, you know,
Speaker 1: if you were to ask me between now and kind
Speaker 1: of your end. You know what am I most focused on,
Speaker 1: if any sort of events, it's is actually gonna be
Speaker 1: ECB on Thursday, UM less interested in the FED next
Speaker 1: week unless there was a meaningful shift and all of
Speaker 1: a sudden the decided to step away and not continue
Speaker 1: the path normalization. But I think you know what the
Speaker 1: ECB does in terms of talking about UM bond purchases
Speaker 1: in two thousand seventeen and onwards, whether or not they
Speaker 1: would consider tapering or extending the program. I think that's
Speaker 1: going to have a huge impact and will really move markets.
Speaker 1: And there's a small meeting later this week. Small it'll
Speaker 1: be amazing why. I can't imagine what do you will say?
Speaker 1: It is always eagerly anticipated press conference. Good morning everyone,
Speaker 1: David Gerr and Tom King, Kate more with us Kate
Speaker 1: within within the rotation, You've said the word rotation four
Speaker 1: or five times in the morning here as well. I
Speaker 1: think we needed to define that what is rotation and
Speaker 1: what does it mean for our listeners investment? So what
Speaker 1: I've been talking about rotation. You're right, Tom, totally fair
Speaker 1: to call me out on using that word a dozen
Speaker 1: times this morning, but only one cup of tea in
Speaker 1: what I would what I would say is this this
Speaker 1: this rotation within the equity market happened and started to
Speaker 1: happen before the US election. It was away from some
Speaker 1: of the bond proxy stocks you know, broadly will say
Speaker 1: that's utilities, tell a calm and consumer staples, and towards
Speaker 1: some of the more value and cyclical plays, particularly towards financials,
Speaker 1: I would say, and energy. Uh, that accelerated after the election,
Speaker 1: and you can actually really see a meaningful departure from
Speaker 1: first half performance, second half performance, and then you know,
Speaker 1: super charged in the last month. That's what I'm talking
Speaker 1: about in terms of the rotation and really away from
Speaker 1: you know, investor darlings into sectors people had much lower
Speaker 1: exposure to. So so help me. And maybe this goes
Speaker 1: with a Roper merger that was just announced. I believe
Speaker 1: Karen Moscow got that into a discussion. They're buying is
Speaker 1: it Dell Tech? Roper Technologies? Um getting it up here
Speaker 1: of Sarasota, Florida ten They manufactured, they distribute industrial equipment.
Speaker 1: Those are the people Donald Trump wants to help. We
Speaker 1: mentioned tariffs before. How do you fold the president elects
Speaker 1: rhetoric maybe policy and actually you're estimate of his real
Speaker 1: policy into buying acquiring shares of industrials and then here's
Speaker 1: the hard part, and then holding them. How do you
Speaker 1: do that, Tom, That's a great question, I would say,
Speaker 1: because industrials are the one sector where I think there's
Speaker 1: a huge amount of uncertainty. The market did price in
Speaker 1: an absolutely optimistic scenario, both in terms of infrastructure spend
Speaker 1: and on shoring. But it's really not so straightforward. And
Speaker 1: in fact, I would just take us back a few
Speaker 1: weeks to how companies in that that sector guided not
Speaker 1: just for fourth quarter, the forward quarter, but also for
Speaker 1: the next twelve months. It was very very mixed, Tom,
Speaker 1: and I think that's what we need to recognize. We
Speaker 1: have to also look at the policy changes. But but
Speaker 1: but focus on the fundamentals, and um, you know, I'd
Speaker 1: say I'm a cautious, a little bit cautious. You know,
Speaker 1: given the recent run in the sector, market priced and
Speaker 1: pricedent very fast, too fast. Do you think I mean
Speaker 1: it's overshooting their bent? You know that you look at
Speaker 1: those for couple of days post the election, and and
Speaker 1: some of these potential policies got priced in very very
Speaker 1: quickly and then backed off. I would say the big
Speaker 1: example there would be large capt pharma, and you know,
Speaker 1: kind of broad the healthcare where there was a great
Speaker 1: amount of optimism, of a bit of a relief rally,
Speaker 1: and then sort of a well, we don't know what
Speaker 1: this means for affordable care, and we're still concerned about
Speaker 1: pricing when it comes to private insurers, so you know,
Speaker 1: a bit bit of a back off. But then some
Speaker 1: of the stuff can has continue to run. And those
Speaker 1: are the sectors as I mentioned before, they were already
Speaker 1: in favor and moving ahead of the election, help us
Speaker 1: understand the weight of the variable of trade policy. Here
Speaker 1: a lot of people saying, we heard what he had
Speaker 1: to say on the campaign trail, heard with Donald Trump
Speaker 1: had to say on the campaign trail. He's going to
Speaker 1: limit what he's said when he gets into opposit itself.
Speaker 1: And then we see these tweets over the weekend as
Speaker 1: you're looking ahead to the to the health of the economy,
Speaker 1: how much is that weighing on on your outlook? I mean,
Speaker 1: trade policy is enormous people, people, we can't separate out
Speaker 1: what could happen to the US dollar um or what
Speaker 1: could happen to the global supply chain or what could
Speaker 1: happen to the average cost of goods purchased by the
Speaker 1: average consumer who has not actually experienced significant wage gains
Speaker 1: or any wage gains UM. And I think stuff sounds
Speaker 1: good when it comes out, perhaps on a tweet, it
Speaker 1: looks like it's protecting the American people. But there's a
Speaker 1: far distance between some of that rhetoric and a positive
Speaker 1: impact UM in terms of over someone's overall spending. Kip
Speaker 1: more with us with black Rock. We've been talking up
Speaker 1: a storm here. On a break, Let's talk about technology
Speaker 1: and hydrocarbons. There's always a point where something gets stupid
Speaker 1: within the SMP valuation, like it makes up twenty one
Speaker 1: or eight cent or whatever the sp index. I would
Speaker 1: suggest hydrocarbons right now aren't stupid, and I'm guessing sort
Speaker 1: of big ugly technologies not stupid. But is technology a
Speaker 1: value trap? What portion of the SMP is it? And
Speaker 1: is it a value trap? Look, without question, the importance
Speaker 1: of technology has increased, but I would say, you know,
Speaker 1: it's hard for me to say it's a value trap.
Speaker 1: The multiples didn't get crazy. There was actually so much
Speaker 1: earnings growth and sales growth in that sector for a
Speaker 1: long time it's obviously slowed a little bit and estimates
Speaker 1: for two thousand seventeen or not as aggressive, But you know,
Speaker 1: it is a sector I think that incorporates some real
Speaker 1: high flying companies and some kind of older tech and
Speaker 1: where it may pay to be a little bit more
Speaker 1: specific and discerning. I would also say it's a sector
Speaker 1: that was a huge consensus overweight for some time. At
Speaker 1: a consensus overweight going into this rotation, I want to
Speaker 1: use it for thirteen times now tom um in that
Speaker 1: that started in the beginning apart me the second half
Speaker 1: of of two thousand and sixteen. So it's a place
Speaker 1: where I think people can continue to reduce their positions
Speaker 1: in order to fund um some of their buying into
Speaker 1: energy or into cyclicals or something kind of a more
Speaker 1: value place. I was mentioning in terms of US bank stocks.
Speaker 1: There was so much commentary after the election looking at
Speaker 1: technology and specific which was down on the heels of
Speaker 1: the election results that it was directly attributable to what
Speaker 1: happened on November eighth. Looking looking back at the election, now,
Speaker 1: is there anything that we've seen since that you can
Speaker 1: tie that to or is it just the uncertainty generally
Speaker 1: in terms of rotation. It's not that you could argue
Speaker 1: if it was just about the election, then people should
Speaker 1: really like a lot of these technology companies with huge
Speaker 1: amounts of cash off shore and if that's coming back,
Speaker 1: and it would be great to own the shares, especially
Speaker 1: if some portion of that cash is used for buybacks
Speaker 1: or special dividends. But I think this is really about
Speaker 1: people getting more constructive on the banks, which were the
Speaker 1: consensus underweight and which we had become more constructive on
Speaker 1: and sort of had been talking about throughout the fall,
Speaker 1: and that needing to fund um, you know, find some
Speaker 1: place to actually, you know, to get cash to decrease
Speaker 1: that underweight. And I don't even think we're at neutral yet. Frankly, yes,
Speaker 1: I think so um, not meaningfully underweight, but modesty underweight. Look,
Speaker 1: I've had a number of conversations within Black Round, outside
Speaker 1: of Black Rock, where portfolio managers and investors have said,
Speaker 1: you know, if they were overweight, the bank's going in
Speaker 1: there at least neutral. They felt pretty good about it.
Speaker 1: But the speed at which these these stocks moved has
Speaker 1: made them cautious about doubling or trippling down. So I
Speaker 1: think that people are still phasing into the sector. Mike,
Speaker 1: I'll give you a phase into the sector. JP Morgan
Speaker 1: is basically a moonshot. I mean, if you look at
Speaker 1: it on a monthly basis, and you look at too stands.
Speaker 1: I mean, David, it's it's where's that chart again? There
Speaker 1: it is. It means way out past three standard deviations
Speaker 1: on a monthly chart. It's a moon shot. I'm quite
Speaker 1: familiar with the shape of the J. Yeah. I thought
Speaker 1: the bank was about ready to fall apart if you left.
Speaker 1: I hardly think that's the case. It is, Uh, it is.
Speaker 1: It is a very very solid institution. Uh probably didn't
Speaker 1: even notice I was gone. Um, But the point of
Speaker 1: the matter, Jamie, Diamond were black for three weeks after
Speaker 1: you left. I were black every day. Seriously, you're telling
Speaker 1: me the banks are availing to make it fails. I know.
Speaker 1: I think the banks have so many things going for
Speaker 1: them at this point. Outstanding balance sheets which we knew,
Speaker 1: better cash return to shareholders which we knew, which was
Speaker 1: sort of like skeptically, um, you know, taken in by
Speaker 1: the market. We actually also we're seeing good green shoots.
Speaker 1: I hate using green shoots, but it's green shoots in
Speaker 1: terms of economic excuse me, we're rotting. We're pretty constructive
Speaker 1: on the U. S economy and actually see see good
Speaker 1: reason to believe we're going to get an acceleration in growth,
Speaker 1: not just because of this election, but just in terms
Speaker 1: of overall demand um in two thousand seventeen. In addition,
Speaker 1: if we have less regulatory pressure, I think that's a
Speaker 1: that's a real help. And of course we've got this
Speaker 1: reflationary theme which is steepening the yield curve, and it's
Speaker 1: you know, going to help overall earnings. We think, especially
Speaker 1: over the next couple of quarters. There are a lot
Speaker 1: of things that have aligned at the same time to
Speaker 1: make the banks an interesting by. JP Morgan is out
Speaker 1: three standard deviations for the first time since May of
Speaker 1: two thousand six, and then it was from extremely quiet
Speaker 1: two thousand four, two thousand five. That's how rare the
Speaker 1: Trump surge is for Mr Diamond. Fortress Fortress Trump, maybe
Speaker 1: that's what we'll call JP Morgan. Kate Moore, thank you
Speaker 1: so much. She is with Black Rock giving us wisdom
Speaker 1: on the equity. Fortress Trump till there was yesterday. I
Speaker 1: didn't lie this time to go across one block the
Speaker 1: New York Place to be. He said, you're a bad influence. Yes,
Speaker 1: I'm going to Gucci will continue. This is Bloomberg, who
Speaker 1: you put your trust in matters. Investors have put their
Speaker 1: trust in independent registered investment advisors to the two and
Speaker 1: of four trillion dollars. Why they see their roles to serve,
Speaker 1: not sell. That's why Charles Schwab is committed to the
Speaker 1: success over seven thousand independent financial advisors who passionately dedicate
Speaker 1: themselves to helping people achieve their financial goals. Learn more
Speaker 1: and find your independent advisor dot com. Well, let's a
Speaker 1: real pleasure to have a legend on the line from
Speaker 1: Rye in New York. That's Mario Gabelly, founder of Gabelly Funds,
Speaker 1: schooled by Dodd and Graham, joining us now by phone
Speaker 1: from Rye. As I say, Mary, good morning, Great to
Speaker 1: have you with us, Delighted to be here talking about stocks.
Speaker 1: There you go. Well, let me let me ask you,
Speaker 1: first of all, what these last few weeks have been like.
Speaker 1: We've been talking with guests about how they processed what
Speaker 1: happened on November going into the morning afterward. Give us
Speaker 1: your sense of of what's happened here and how it's
Speaker 1: changed your outlook hasn't changed anything other than the re
Speaker 1: establishment of a basic fundamentals of allocation of capital towards
Speaker 1: capitalism as opposed to socialism. Any event, the eboth, Hillary
Speaker 1: and Donald were basically going to push for a couple
Speaker 1: of areas that were fairly obvious, one of which was
Speaker 1: infrastructure spending. The other one was military spending. So you know,
Speaker 1: we were there and the you know, the change in
Speaker 1: administration basically allows new changes that who is going to
Speaker 1: run the regulatory agency like the Federal Communications Commission? What
Speaker 1: does that mean? And things like, uh, you know banks
Speaker 1: and consolidation in the banking industry. You bring up infrastructure,
Speaker 1: let's start there. There was so much enthusiasm among investors
Speaker 1: after Donald Trump was elected. A lot of people betting
Speaker 1: on the fact that there is going to be an
Speaker 1: infrastructure spending package. When you look at a sector by
Speaker 1: sector basis, when you look at utilities, say, is it
Speaker 1: oversold at this point? Well, whoa, whoa, You're you're off
Speaker 1: the deep end. Let's talk about infrastructure. Cement, roads, bridges
Speaker 1: inland waterway inland waterway, the the locks on the Mississippi
Speaker 1: where our grain goes to export, like soybeans are big
Speaker 1: export product that's got to be focused on. We've gotta
Speaker 1: eliminate the bottlenecks and just drive around Manhattan independent of
Speaker 1: all of that. What does infrastructure mean? It means airports
Speaker 1: and the equipment rental companies. You or I Ashtead in London,
Speaker 1: Herrick Rentals and has three or four others they benefit.
Speaker 1: It's a forty five billion industry that was hidden. But
Speaker 1: you go back a year ago, one year ago, December fifteen,
Speaker 1: two thousand and fifteen, the US government past the five
Speaker 1: year bill for highway fixer up called fast Fix America
Speaker 1: Surface Transportations. Fact, like company in Chattanooga doubled before this happened.
Speaker 1: It's called Aztec. Companies like Gento, which makes us to
Speaker 1: get tons. Mario, how do you respond to somebody who says, Okay,
Speaker 1: that's great, Mario, Red and barons from your listen to
Speaker 1: on surveillance and you are are United rentals talk about
Speaker 1: you can't make money in stocks, folks, fourteen point nine
Speaker 1: percent per year over the last decade. How do you respond,
Speaker 1: Mario to a person who says I didn't get in
Speaker 1: I'm too late. Well, that's the question mark. That's always good.
Speaker 1: I think Buffett makes the case and I'll just echo
Speaker 1: his comments about the next ten years, America is great,
Speaker 1: American investing will be terrific. And to the cree that
Speaker 1: you own a company and your buy hole. Look, if
Speaker 1: you bought Warren Buffett's company somewhere around seventy when I
Speaker 1: started the firm, you probably compounded at any time over
Speaker 1: the last thirty years. People would say it's of a price.
Speaker 1: So I'm I'm think that a index fund will grow.
Speaker 1: Tom and the active management you better, I need you
Speaker 1: get you wound up. This morning, Mario Gabelly on the
Speaker 1: people that say companies shouldn't do share buy backs, they
Speaker 1: should stop financial engineering, they should go out and find
Speaker 1: investment even if it doesn't work. That upsets you a
Speaker 1: little bit, doesn't it? Not? Not really, I think it's
Speaker 1: not inappropriate to allocate capital to the way a CEO
Speaker 1: thinks to the degree that you were basically putting money
Speaker 1: in twenty years ago and open heart furnaces because you
Speaker 1: were in that business and you want to continue in
Speaker 1: that business, and now that was not smart. Just think
Speaker 1: of Cuba, Just think of China. They did the same thing.
Speaker 1: So when you look at the American capitalistic system. You know,
Speaker 1: you want to allow all of the errors and all
Speaker 1: of the mistakes, allow that capital be formulated. And I
Speaker 1: put in, I have no problem if the company is
Speaker 1: selling value to buy, it is a thirty seconds that
Speaker 1: we're going to come back, Mario. Is Donald Trump good
Speaker 1: for Mario Gabelly? I think the notion of a lower
Speaker 1: corporate taxes, global competitors for American industry, somewhat less regulation,
Speaker 1: and the re establishment of the entrepreneurial innovation, creative innovation
Speaker 1: that made America great is not bad for any entrepreneur
Speaker 1: like myself and anyone else that wants to succeed. To
Speaker 1: give you an idea of the pixie dust of Mario Gabelly,
Speaker 1: and trust me, folks, there's years that he would rather forget. Rarely,
Speaker 1: if ever, have I seen back to back years in
Speaker 1: the ninety four percentile that would be the Gabelly Equity
Speaker 1: trust A closed and fund g A B is Well, Mario,
Speaker 1: did banks have anything to do with your two thousand
Speaker 1: twelve two thousand thirteen excellence. No. I think it was
Speaker 1: a combination of transactions and coming off the lackluster performance
Speaker 1: in the prior years. Talking about banks that we're looking
Speaker 1: at all of the banks in Virginia, South Carolina, North Carolina, Georgia,
Speaker 1: and Florida that will be part of the consolidation effort.
Speaker 1: So you know, anything on the two or three billion dollars,
Speaker 1: all of a sudden they've got a new tail in
Speaker 1: tom Well, how does it change, How does the bank
Speaker 1: analysis dialogue change with the politics of Washington. Oh, I
Speaker 1: think it's fairly simple. The eliminate the the they raised
Speaker 1: the ceiling of fifty billion dollars before you have to
Speaker 1: file a large number of extra forms and the list
Speaker 1: is pretty simple. Anybody can just go out and get
Speaker 1: a Russell two thousand index of banks and identify those
Speaker 1: areas rather than be identifying them for you. But that's easy,
Speaker 1: you know, it just requires a little oval grease. On
Speaker 1: the other side. In the infrastructure area, one of my
Speaker 1: favorites is case New Holland Farm Equipment Company, say construction
Speaker 1: equipment company that trucks in Europe, which is improving, and
Speaker 1: the stocks around eight dollars and seventy five cents and
Speaker 1: US and C n h I and it's controlled by
Speaker 1: the Annelli family, and I think it's quite quite attractive.
Speaker 1: So there's a whole bunch, Tom, when you say about
Speaker 1: entry points, what do I want to own, how do
Speaker 1: I make money over the next three or four years,
Speaker 1: and how do I pay lower capital gains taxes during
Speaker 1: that period? While I'm holy it, that's what the individual
Speaker 1: investors think about, not the professional investors, the managing tax
Speaker 1: free money. Though Tom mentioned your prowess for for media
Speaker 1: in particular, and our colleague David Weston sat down with
Speaker 1: Less Moonvest the president, chairman and CEO of CBS yesterday.
Speaker 1: I know that you have been actively watching and engaged
Speaker 1: with the conversations about the future Vicom, the future of
Speaker 1: CBS are you are you looking forward to Do you
Speaker 1: want to see here a merger, a deal with both
Speaker 1: these companies and do you want to see Moonvesz running
Speaker 1: in Basically, Less is terrific, one of the great executives
Speaker 1: in America. We have blessed this this country with so
Speaker 1: many good CEOs. Basically, the decision is going to be made,
Speaker 1: obviously by National Amusements. National Amusements obviously is trying to
Speaker 1: go through the fairness. Our clients own most of the
Speaker 1: majority of the minority in terms of voting stock in
Speaker 1: Boat CBS and Viacom. So hopefully if there's an issue
Speaker 1: in terms of fairness and extreme of fairness opinions or
Speaker 1: you know, uh, we will have an important say in it.
Speaker 1: And we're not opposed to emerging. We've gone through this
Speaker 1: before Viacom was off from CBS. It was they bought
Speaker 1: CBS and a lot of going things going on within them.
Speaker 1: Within the dynamics. M is the basic idea of animal spirit.
Speaker 1: I guess we believe. I just did a chart of
Speaker 1: the monthly JP Morgan chart. It's a moonshot folks at
Speaker 1: three point one standard deviations. I mean, it is a
Speaker 1: Trump moonshot on the equity markets. Would you suggest M
Speaker 1: and A. I mean, I was with you, Mario one
Speaker 1: day and the next day Cadbury was taken out. Is
Speaker 1: that game going to continue? Well, you know, it's funny
Speaker 1: that you mentioned Cadbury because one of the ones on
Speaker 1: Pretende A transaction list is one that you know, Irene
Speaker 1: Rosenfeldt went after cat Barrier and Mandale is certainly around forty.
Speaker 1: You know, kind of an interesting consolidation play on its own.
Speaker 1: Either they're gonna buy someone or someone will merge with
Speaker 1: them to create scale on the global basis, Tom, how
Speaker 1: was the the environment for the the atmosphere four mergers
Speaker 1: and acquisitions right now? Well, it's not change. We go
Speaker 1: through the last sixty years and we go through a
Speaker 1: variety of cycles, and this one here, you know, may
Speaker 1: have some tail when, particularly if you allow capital to
Speaker 1: be flowed back to the United States and have a
Speaker 1: corporate tax that is not based on world taxation but
Speaker 1: territorial taxation, so that companies in the United States, particularly
Speaker 1: big farmer utilities, will merge. You know, you get a
Speaker 1: whole bunch of companies that will consolidate. And the entertainment
Speaker 1: business is just another example, and content and connectivity, so
Speaker 1: you'll see a lot of potential deals. Even this morning
Speaker 1: where we're talking to I just tweeted that X Y
Speaker 1: companies being taken over the cash tender offer. Mario, let's
Speaker 1: do some job constructive job advice for our global Wall
Speaker 1: Street audience to the young turk who's level one, level two,
Speaker 1: level three cf A. They're doing securities analysis, either full
Speaker 1: time or they're certainly aware of it. What is the
Speaker 1: new new for you in terms of analyzing the company's
Speaker 1: performance and potential. Well, we just look at how management
Speaker 1: allocates capital. Tom, that's but nothing has changed. I mean
Speaker 1: basically as Graham Dodd Murray Greenwald that methodology. You know,
Speaker 1: if you want to be the CEO of a public company,
Speaker 1: if you want to do deals in big private equity,
Speaker 1: if you want to understand how to do merging acquisition work,
Speaker 1: you know, the notion of doing fundamental research and sticking
Speaker 1: to the problem is getting paid for it. Ever since
Speaker 1: Spitzer put his rules out, it has become extraordinarily hard
Speaker 1: for the cell side, which is a great training ground
Speaker 1: to basically pay for analysts. And so where are the
Speaker 1: analyst going where they do in their work? And it's
Speaker 1: and that's the quandry. Tell me about General Electric if
Speaker 1: it's about the CEO and allocation of capital. Has mr
Speaker 1: mL done a good job? Well, clearly this deal with
Speaker 1: Maker use and merging their uh you know, energy business
Speaker 1: into that. And look at what they're doing in the
Speaker 1: additive area with Joyce who runs their engine business making
Speaker 1: acquisitions in Europe because he wants to get into the
Speaker 1: three dimensional metal additive business. You know, they've got to
Speaker 1: move capital around. They've been shrinking the cap. The stock
Speaker 1: is a pretty good target for industrial activity on a
Speaker 1: global basis. Clearly they're trying to figure out what they're
Speaker 1: gonna do with their water business and obviously some other industries.
Speaker 1: So the notion of capitalism is to allow you to
Speaker 1: make managements, to make mistakes, and you know, make acquisitions
Speaker 1: and also sell the investments without the same time reposition
Speaker 1: the company for the dynamics of growth and that stay
Speaker 1: frozen like Cuba did but fifty years I hear you're
Speaker 1: talking about the need for tax reform, for regulatory reform,
Speaker 1: and I wanted the degree to which you're working hard
Speaker 1: to make sure that that Donald Trump is hearing you out.
Speaker 1: Are are you somebody who wants your opinions known, which
Speaker 1: we're talking about him here, But are you satisfied this
Speaker 1: as a president elect who's listening to guys like you?
Speaker 1: I hope, I hope he's not listening to me. There's
Speaker 1: a lot of part of people. There are a lot
Speaker 1: smarter people out there that can give him advice. I'm
Speaker 1: just basically an old fashioned stock picker that has done
Speaker 1: a fast you know, work hard for my clients, and
Speaker 1: that's all We're gonna focus on. No politics, no sex,
Speaker 1: no religion. But we will listen to Tom Keene and Bloomberg.
Speaker 1: We're gonna leave it there after, you know, no, Mario,
Speaker 1: thank you so much, Baragabilly greatly. I appreciate it. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm out on Twitter at Tom Keene. David Gura is
Speaker 1: David Gura before the podcast. You can always catch us worldwide.
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