WEBVTT - Federated's Orlando: Germany, Japan Keeping Lid on Yield(Audio)

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

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<v Speaker 1>dot com, the Radio plus mobile app and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash. Bom Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie pellet Hess and P five hundred indecks holding

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<v Speaker 1>at the highest since July, bolstered by speculation Borrowing costs

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<v Speaker 1>will remain lower for longer amid moderate growth. Right now,

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<v Speaker 1>the SMP up seven to twenty one nineteen. That's a

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<v Speaker 1>gain of four tenths of one percent. Then aztat Compositive

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<v Speaker 1>Index higher now by fourteen points of three tents of

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<v Speaker 1>one percent. Town Industrial is up sixty six points, a

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<v Speaker 1>gain of four tenths of one percent. Ten year of

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<v Speaker 1>five thirty seconds yield there one point seven oh percent.

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<v Speaker 1>Gold up seventeen ten, the ounce to twelve sixty four,

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<v Speaker 1>a gain of one point four percent. Crude oil holding

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<v Speaker 1>above fifty one dollars of barrel up ninety two cents

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<v Speaker 1>now again narrow one point nine percent. I'm Charlie Pealoton.

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<v Speaker 1>That's a Bloomberg Business Flash, Thanks so much. Now it's

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<v Speaker 1>signed for the e t F Report, brought to you

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<v Speaker 1>by Vanic Vectors. A t FS expect more from yourmmunities,

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<v Speaker 1>slash Muni, Fanek access the opportunities. Now for e t

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<v Speaker 1>F report, here's Katherine Cowdery. There's a new kind of

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<v Speaker 1>financial specialists and their focus is e t F s.

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<v Speaker 1>You've heard of stock pickers right, well, meet e t

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<v Speaker 1>F pickers. There's a rising group of asset managers that

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<v Speaker 1>do nothing but pick ETFs. And what they do is

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<v Speaker 1>they sell these strategies to advisors. So if you're with

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<v Speaker 1>an advisor, chances are your advisor might be using an

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<v Speaker 1>et F strategist. It's called an e t F managed portfolios.

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<v Speaker 1>Bloomberg Intelligence analyst Eric Beltoona says it's become a cottage

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<v Speaker 1>industry as these firms put together e t F portfolios

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<v Speaker 1>for their clients. So this whole movement towards picking sectors

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<v Speaker 1>and countries and asset classes, that is sort of what

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<v Speaker 1>e t F strategists are tapping into. And it's a

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<v Speaker 1>growing area. And that's why when you say et F

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<v Speaker 1>s are passive, you know they track an index. They're

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<v Speaker 1>used very actively. So we've seen active management not go away,

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<v Speaker 1>but it's starting to take a new form. Instead of

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<v Speaker 1>stock pickers, you're seeing more et F pickers. Beltuna says.

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<v Speaker 1>These portfolio strategies use et s because their expense ratios

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<v Speaker 1>are low and they're easy to buy and sell. And

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<v Speaker 1>that's your Bloomberg ETF report. I'm Katherine Cowdery. You're listening

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<v Speaker 1>to Taking Stock with Kathleen and Pin Fox on Bloomberg Radio.

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<v Speaker 1>Stocks in the United States move higher today, the S

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<v Speaker 1>and P five posting a game right now, about a

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<v Speaker 1>quarter of a percent as it moves perhaps to the

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<v Speaker 1>all time high. Oil prices pushing higher fifty dollars of barrel,

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<v Speaker 1>and the US dollar fell. So what's not to like? Well?

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<v Speaker 1>Philip Orlando is the chief equity market strategist for Federated Investors.

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<v Speaker 1>He joins us here at Pershing Inside twenty sixteen conference

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<v Speaker 1>at the Higher Regency in Orlando, Florida. Philip Orlando, thanks

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<v Speaker 1>for being Linus, Thanks for having me back. All right.

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<v Speaker 1>So I was looking at the SMP five hundred, keep

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<v Speaker 1>reading this, you know, approaching this all time high. Interest

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<v Speaker 1>rates are low, oil fifty dollars a barrel. What's not

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<v Speaker 1>to like about this? Environment. Well, we're very nervous for

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<v Speaker 1>a number of reasons. Evaluations are stretched. You're trading up

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<v Speaker 1>at around eighteen times this year's earnings right now. The

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<v Speaker 1>fundamentals right now aren't particularly good. G d P growth

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<v Speaker 1>has been decelerating for the last year. We're at eight

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<v Speaker 1>tenths of one percent in the first quarter. We've been

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<v Speaker 1>in an earnings recession now for the last year. Revenues

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<v Speaker 1>and earnings down year of a year, the last four

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<v Speaker 1>or five quarters. The labor market is stalled. Inflation, core

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<v Speaker 1>PC has ticked down the last couple of months. You've

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<v Speaker 1>got this Briggsit vote coming up, a lot of uncertainty

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<v Speaker 1>surrounding what the fit is thinking, what they're gonna do. Uh.

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<v Speaker 1>Yet stocks are up, uh, you know, eighteen percent here

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<v Speaker 1>over the course of the last couple of months. So uh,

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<v Speaker 1>the seasonals aren't particularly great. We don't think the market

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<v Speaker 1>has really focused on any of the potential instability with

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<v Speaker 1>this election coming up this year, and there's there's a

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<v Speaker 1>boatload of stuff to concern ourselves with. So for all

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<v Speaker 1>those reasons, we're saying, all right, let's let's take some

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<v Speaker 1>profits here and uh uh and move to the sidelines.

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<v Speaker 1>That that maybe we could see a five or teen

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<v Speaker 1>percent correction over the course of this art. Well, so

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<v Speaker 1>you are being cautious defensive, What is there anything in

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<v Speaker 1>particular you would sell? Would you just say lighting up

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<v Speaker 1>across the board? Would it be like you know? And

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<v Speaker 1>and do you do you get out of some of

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<v Speaker 1>your more momentum, more ented stocks, some technology and get

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<v Speaker 1>into something more defensive. And if so, what so? What

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<v Speaker 1>we've done in the Federated Global Allocation Fund, I think

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<v Speaker 1>is exactly UH captures that strategy. UH sixty forty stocks, bonds,

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<v Speaker 1>it's sort of a neutral allocation. We're sitting at fifty

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<v Speaker 1>eight percent right now, where a couple of ticks below neutral.

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<v Speaker 1>That's the lowest the allocation has been since the Great Recession. Now,

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<v Speaker 1>to put that in some context, in in March of

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<v Speaker 1>oh nine, as we were coming out of the Great Recession,

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<v Speaker 1>stocks training at eleven times earnings, we're probably eight percent stocks.

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<v Speaker 1>We're sitting at fifty eight percent now with with multiples

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<v Speaker 1>at eighteen times earnings. So we've got a little bit

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<v Speaker 1>more cash than normal, a little bit more bonds than normal,

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<v Speaker 1>and within the equity allocation, we have shifted towards those

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<v Speaker 1>more defensive categories reets, telecoms, utilities, stafles, healthcare. So we're

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<v Speaker 1>we're looking for the lower beta, higher dividend yielding categories

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<v Speaker 1>as a means of trying to hide out here, tread

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<v Speaker 1>some water until we can get some better visibility on

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<v Speaker 1>what's happening in terms of underlying fundamentals and and this

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<v Speaker 1>election season. So you mentioned bonds just the wanting. Do

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<v Speaker 1>you think we're in a bond bubble? Treasury yields at

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<v Speaker 1>we're worry about right now and two and a half

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<v Speaker 1>percent for the thirty year, we focus more on the tens.

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<v Speaker 1>UH tens are low, no question, But I don't know

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<v Speaker 1>that domestic economic fundamentals are driving that bus. I think

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<v Speaker 1>the bigger story here is what are competing yields look

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<v Speaker 1>like in Japan and Germany. So so our bond guys

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<v Speaker 1>would say, throw out everything you know about domestic fundamentals.

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<v Speaker 1>The only thing that matters is that j G b

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<v Speaker 1>s are negative and UH and and buns are yielding

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<v Speaker 1>twenty basis points. And so if you're a global UH

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<v Speaker 1>fixed income investor and you've got to park money in

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<v Speaker 1>a developed instrument, your three choices or Japan Germany, in

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<v Speaker 1>the US and and on the basis of the yield,

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<v Speaker 1>that's an easy decision. And so those instruments Germany and Japan,

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<v Speaker 1>I think are keeping a lid on on where our

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<v Speaker 1>yields are and where they're going. Well, I just I

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<v Speaker 1>just have to put that the numbers with that, because

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<v Speaker 1>the German Bund is now UH and for the rallying

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<v Speaker 1>today Phil down to zero point zero five three and

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<v Speaker 1>the Commerce Bunk one of their guys is saying that

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<v Speaker 1>zero percent is possible. Well, it's so close now, that's

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<v Speaker 1>an easy bit. And as for Japan, negative zero point

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<v Speaker 1>one three on their j GP. But of course if

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<v Speaker 1>you wanted to pick up some bonds in Brazil you

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<v Speaker 1>can get more than five. Yeah, but there's risk in Brazil.

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<v Speaker 1>You know, we're leading people away in handcuffs, you know,

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<v Speaker 1>it's it's all sorts of stuff there. So again, from

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<v Speaker 1>from the perspective of quality, UH, Japan, Germany and the

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<v Speaker 1>US are the only games in town, and with the

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<v Speaker 1>US at one seventy and the others essentially at zero,

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<v Speaker 1>that that's an easy decision. And I think that's why

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<v Speaker 1>our yields are where they are. You can sort of

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<v Speaker 1>ignore what the underlying fundamentals are in terms of studying

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<v Speaker 1>and analyzing the US market. Tell us about the fundamentals,

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<v Speaker 1>particularly when it comes to manufacturing in the United States,

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<v Speaker 1>maybe even automobiles, because that has seen a very good

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<v Speaker 1>sales run. Well, you've seen a great sales run. We

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<v Speaker 1>redounded about nine million annualized units at the bottom of

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<v Speaker 1>the cycle. In February of oh nine, we've doubled eighteen

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<v Speaker 1>million units. Now we have come off that pace over

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<v Speaker 1>the last six months or so. We're you know, closer

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<v Speaker 1>to seventeen and a half million units right now. We're

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<v Speaker 1>we're fine with the auto market staying in the seventeen

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<v Speaker 1>eighteen million unit run, right, but we're not gonna double

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<v Speaker 1>again from here or or go up, you know, buy

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<v Speaker 1>another nine million units. I think we're gonna go sideways

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<v Speaker 1>for the next couple of years. And I think the

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<v Speaker 1>principal reason for that is because there is still a

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<v Speaker 1>tremendous amount of untapped demand and that the average age

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<v Speaker 1>of the auto fleet in the United States right now

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<v Speaker 1>is probably something in the ten eleven years. Normally that

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<v Speaker 1>number would be seven or eight years. So so as

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<v Speaker 1>people feel more comfortable they're going out at the margin

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<v Speaker 1>and replacing their clunkers with new cars, and that's created

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<v Speaker 1>a surge. But we're at a point in the cycle

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<v Speaker 1>right now and some folks have started to mention this

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<v Speaker 1>where there's some questions about are we are we sort

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<v Speaker 1>of giving these hars way, much like we're giving houses

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<v Speaker 1>way leading up to the bursting of the housing bubble

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<v Speaker 1>in terms of all tight and subprime auto loans, And

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<v Speaker 1>so there's some question about the quality of the paper

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<v Speaker 1>that's now out there at this part in the cycle.

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<v Speaker 1>Are we chasing the cats and the dogs? You know

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<v Speaker 1>with this recovery, You know, as long in the tooth

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<v Speaker 1>as it is, you don't feel but you are somebody

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<v Speaker 1>who is not um naturally or inherently bearished cautious. So

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<v Speaker 1>when I hear you telling me all these reasons you're cautious.

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<v Speaker 1>You're looking at valuations, are certain of the bed, you're

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<v Speaker 1>looking at bregit, you're lightning up your portfolio. I take

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<v Speaker 1>this as a as a pretty serious sign that you are.

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<v Speaker 1>This is a this is never not even have been

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<v Speaker 1>here before, but you're you're taking all these wealth signs.

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<v Speaker 1>This is this is freaky because we're the idiots that

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<v Speaker 1>that nine years ago were coming out of the Great

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<v Speaker 1>Recessions trough. We're the ones that said, you know, the

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<v Speaker 1>stock market has the potential to double within two years

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<v Speaker 1>and quadruple or hidden all time rec high within four

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<v Speaker 1>which was a ridiculous forecast. Um, except that we got

0:10:05.360 --> 0:10:09.600
<v Speaker 1>it right. Um. So, so our inherent bias is to

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<v Speaker 1>look for the silver lining to be positive. And and

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<v Speaker 1>as we look at the landscape right now, we're seeing

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<v Speaker 1>a preponderance of negatives out there, and it's hard for

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<v Speaker 1>us to continue to expect to see the market move

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<v Speaker 1>up here without some sort of a consolidation until we

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<v Speaker 1>get some clarity on what some of these issues are. Okay,

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<v Speaker 1>ten seconds, whence if I'm going to raise the key

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<v Speaker 1>rate fil Orlando, I feel really good about December. Uh,

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<v Speaker 1>there may be something ahead of the election, but that's

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<v Speaker 1>gonna be a much tougher call. Wow. Okay, Orlando, great

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<v Speaker 1>to have you here. Thanks for having Meldo in Orlando.

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<v Speaker 1>Persians inside conference the highatt Region Regency in er Lando.

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<v Speaker 1>Philor Lando is a chief equity strategist at Federated Investor.

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<v Speaker 1>Is always great having you up upon the show. I'm

0:10:55.920 --> 0:10:59.040
<v Speaker 1>Kathleen Hayes along with pim Fox that next movers and

0:10:59.040 --> 0:11:02.880
<v Speaker 1>Shakers Dave also our stock senator will be back, and

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<v Speaker 1>then a look at the latest drum the political political

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<v Speaker 1>trail Kathleen Hayes pomp Fox, taking Stock, Boomberg Radio. H