WEBVTT - Surveillance: Value Investing With Herro 0:00:05.120 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jai Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.400 Bloomberg dot Com and of course on the Bloomberg right 0:00:27.400 --> 0:00:29.840 Now and rend to send joints this energy aspect, she's 0:00:29.920 --> 0:00:32.879 wonderful on these dynamics and rita. If you were to 0:00:32.920 --> 0:00:36.240 publish this morning, what would you publish on the dynamics 0:00:36.320 --> 0:00:40.040 the micro theory of demand in oil? I think you 0:00:40.120 --> 0:00:43.200 know demand is equally listening to be the worst month 0:00:43.280 --> 0:00:46.760 for the month seen probably ever for the old market. 0:00:46.840 --> 0:00:48.479 But the good news is that we are going to 0:00:48.520 --> 0:00:51.080 come out of this. And you know you also aute 0:00:51.240 --> 0:00:55.600 social distancing measures Europe and the US, so it should 0:00:55.640 --> 0:00:58.160 get better from here. And say, can we just get 0:00:58.200 --> 0:01:00.320 your thoughts on what is happening with some of the 0:01:00.320 --> 0:01:04.320 indexing around the crude market and whether you think we've 0:01:04.360 --> 0:01:07.320 seen a total failure of some of these products to 0:01:07.400 --> 0:01:10.120 actually track your market, because what I'm saying on the 0:01:10.120 --> 0:01:13.920 screens today, it's just a big distortion. It's because of 0:01:13.959 --> 0:01:18.959 what's happening with single a t F. Yes, and you 0:01:19.000 --> 0:01:20.959 know we've seen this in two thousand eight as well, 0:01:20.959 --> 0:01:23.200 which is not the first time. And back then the 0:01:23.360 --> 0:01:25.520 w t I can tangle wide and out to eight dollars, 0:01:25.560 --> 0:01:28.560 which is actually why we had said for this year. UM. 0:01:28.600 --> 0:01:31.399 As soon as you know, the demand had collapsed and 0:01:31.400 --> 0:01:33.600 we could see these fund flows coming in because a 0:01:33.600 --> 0:01:36.039 lot of retail investors think this is a good time 0:01:36.080 --> 0:01:38.800 to go long oil because it's quote unquote cheap, but 0:01:38.840 --> 0:01:41.520 then they don't realize they can tangle and the amount 0:01:41.560 --> 0:01:44.319 of money they're losing holding every month. And of course 0:01:44.319 --> 0:01:48.560 now everybody is aware of these ets and everything prepositions, UM, 0:01:48.680 --> 0:01:50.960 and you know this is this is going to be 0:01:51.040 --> 0:01:53.440 with us for a few more months. The good thing 0:01:53.520 --> 0:01:56.200 is the US so for instance, came out yesterday said 0:01:56.200 --> 0:01:59.920 that distributing the positions all the way through June one. 0:02:00.320 --> 0:02:03.720 So they are taking some action. But there's just way 0:02:03.760 --> 0:02:07.160 too much retail length at the funk Rida. I'm struggling 0:02:07.160 --> 0:02:11.200 to understand why the July w t I contract is 0:02:11.320 --> 0:02:14.200 more than eighteen dollars a barrel, even the fact that 0:02:14.280 --> 0:02:17.520 we're going to face the same issue come next month. 0:02:18.000 --> 0:02:22.520 What's going to change? First and foremost they are trying 0:02:22.560 --> 0:02:24.800 to distribute it to you know, even for the main contract, 0:02:24.800 --> 0:02:28.720 for instance, hundred percent of their positions were there in Maine, 0:02:28.760 --> 0:02:32.359 whereas now they're distributing it. It's more like and then 0:02:32.360 --> 0:02:35.440 they're distributing a further twenty percent down the curve and 0:02:35.520 --> 0:02:39.240 all the way through to June. The pressure will be less, 0:02:39.280 --> 0:02:41.840 even though there will be some pressure. Also, some of 0:02:41.840 --> 0:02:43.760 the e t s has been forced to close out 0:02:43.840 --> 0:02:46.800 a lot of the Bank of China products for instance, 0:02:47.080 --> 0:02:49.400 that lost a billions of dollars because of the w 0:02:49.480 --> 0:02:51.960 T I moved to negative curtory. They no longer allows 0:02:51.960 --> 0:02:54.720 the trade, so I think that helps. But also buy July. 0:02:55.000 --> 0:02:59.079 Physical fundamentals will be a lot better. Supply supplies have 0:02:59.200 --> 0:03:01.880 started to turn lower, demand is starting to turn higher. 0:03:02.200 --> 0:03:04.959 We should start to see drafts from Tune onwards. Of course, 0:03:05.000 --> 0:03:07.600 it doesn't mean we are anywhere close to rebalancing. That's 0:03:07.600 --> 0:03:10.000 going to take years, but at least we're moving in 0:03:10.040 --> 0:03:14.320 the right direction. I guess I'm struggling to understand the 0:03:14.400 --> 0:03:18.079 idea of hope that continues in the oil markets, sort 0:03:18.080 --> 0:03:20.799 of idea, the hope that the supplied demand dynamic will 0:03:20.800 --> 0:03:24.240 get better and the oil prices will stabilize higher. Fitch 0:03:24.320 --> 0:03:27.440 Ratings put out a prediction yesterday saying that high yield 0:03:27.600 --> 0:03:31.600 energy bond and loan defaults, that the rate will increase 0:03:31.639 --> 0:03:35.600 to seventeen percent and eighteen percent respectively with respect to 0:03:35.680 --> 0:03:39.440 bonds and loans, and this presumed nearly thirty dollars of 0:03:39.480 --> 0:03:43.200 barrel type of pricing. Is this low balling the potential 0:03:43.240 --> 0:03:47.520 defaults given where we are, I would agree, And I 0:03:47.560 --> 0:03:49.520 think that's exactly why I don't think it's the hope 0:03:49.640 --> 0:03:52.040 in terms of the rebalancing. I think you know, we've 0:03:52.040 --> 0:03:55.360 been arter all the way through, even with the open puffcot. 0:03:55.480 --> 0:03:57.720 We didn't think that would have been enough, But now 0:03:57.920 --> 0:04:01.880 we do see supplies are finely turning and turning faster 0:04:02.080 --> 0:04:04.440 just as demand is going to start to recover again. 0:04:04.720 --> 0:04:06.400 No one is saying we're going to be in balanced 0:04:06.480 --> 0:04:09.360 for a code eighteen months to two years, but we 0:04:09.440 --> 0:04:12.080 are starting to see millions of barrels for their production 0:04:12.120 --> 0:04:15.200 being shut in the US bankruptcy, as to your point, 0:04:15.480 --> 0:04:17.560 will be a lot higher than some of these estimates, 0:04:17.600 --> 0:04:21.359 because right now there's very few with any producers that 0:04:21.400 --> 0:04:23.920 are making any money at each part and Rachel, let's 0:04:23.920 --> 0:04:28.120 get out to talk to me about what that environment 0:04:28.160 --> 0:04:30.360 looks like. Off the back of the price shark that 0:04:30.440 --> 0:04:34.800 happened eighteen months ago. I think back end of twenty 0:04:34.800 --> 0:04:38.159 one into twenty two gets very interesting because it's not 0:04:38.279 --> 0:04:40.599 just a supply losses that we are finally starting to 0:04:40.640 --> 0:04:44.760 see now, it's also the potentially semi permanent losses to 0:04:44.839 --> 0:04:47.560 reservoirs that we see because of the shutdowns of the 0:04:47.600 --> 0:04:49.760 scale that we are going to see in the coming week. 0:04:49.839 --> 0:04:52.600 We've never seen this before. No country other than South 0:04:52.600 --> 0:04:55.320 Arabia will probably come out of this unstage in the 0:04:55.320 --> 0:04:59.880 sense that they will lose production on a permanent basis. Okay, 0:05:00.000 --> 0:05:01.640 I want to know what the nations do, and really, 0:05:01.640 --> 0:05:03.240 I mean, this is our great and you are so 0:05:03.360 --> 0:05:08.000 expert at supply demand, etcetera, etcetera. They can't sustain Brent Coranny, 0:05:08.080 --> 0:05:12.680 Brent Prenty for brententy eight whatever versus their structure of 0:05:12.760 --> 0:05:17.040 fiscal and social demands. Which countries are you most following, 0:05:17.600 --> 0:05:20.039 not for the drama of collapse, but they're just they're 0:05:20.040 --> 0:05:25.440 gonna be hugely challenged. Nigeria Iraq would be the two 0:05:25.480 --> 0:05:28.120 top onns for us UM and yes, you know there's 0:05:28.120 --> 0:05:30.520 a lot of written interpreach about Albi Arabia and Russia. 0:05:30.600 --> 0:05:34.159 But again they two have reserved, they can get out 0:05:34.200 --> 0:05:37.920 and even raise capital if if they need. But they 0:05:37.920 --> 0:05:40.800 are acts better for bed but for US Nigeria Russia 0:05:40.839 --> 0:05:43.280 for sure, and then the story Nigeria and Iraq for sure. 0:05:43.920 --> 0:05:45.520 And then of course there are a lot of the 0:05:45.600 --> 0:05:50.120 Latin American countries which believe of very pot and read. 0:05:50.240 --> 0:05:52.039 This has been wonderful. Thank you so much. I'm ready 0:05:52.040 --> 0:05:54.440 to send with us and of course with the energy aspects, 0:05:54.520 --> 0:06:00.719 just extraordinary. This morning news at a few are this 0:06:00.760 --> 0:06:04.200 morning thanks getting a break on leverage limits. The so 0:06:04.279 --> 0:06:08.320 called leverage ratio will be relaxed under an EU proposal 0:06:08.400 --> 0:06:10.920 announced today. We are lucky on this program to have 0:06:10.960 --> 0:06:14.239 an exclusive interview with the European Commission Vice President Varis 0:06:14.560 --> 0:06:17.240 Dombrowski's that is always great to catch up with you, sir. 0:06:17.320 --> 0:06:19.479 Let's talk about it. Why did you make this decision 0:06:19.480 --> 0:06:28.320 this morning? Well, uh, indeed, European economy, as economies across 0:06:28.320 --> 0:06:33.240 the world, are hit by the coronavirus crisis, and we 0:06:33.320 --> 0:06:37.560 need to come with a also economic response to this crisis. 0:06:37.640 --> 0:06:42.200 Because uh, last majority of not all EU member states 0:06:42.440 --> 0:06:47.760 will experience severe recessions this year, so we need to 0:06:47.839 --> 0:06:53.000 provide necessary stimulus to the economy. We are doing UH 0:06:53.240 --> 0:07:00.560 this through major stimulus UH fiscal stimulus, relaxing our state rules, 0:07:01.320 --> 0:07:05.840 monetary stimulus. But we are also looking at our banking 0:07:05.960 --> 0:07:14.200 sector rules, so utilizing existing flexibility in our prudential rules 0:07:14.240 --> 0:07:18.360 and also coming with a targeted amendments on the capital 0:07:18.400 --> 0:07:27.000 requirements regulation to UH facilitate bank lending capacity to the 0:07:27.160 --> 0:07:30.160 real economy. So basically, what we are doing to the 0:07:30.240 --> 0:07:34.560 large extent, we are following the decision of the Buzzle 0:07:34.680 --> 0:07:40.680 comedy to postpone implementation of so called Buzzles three rules. 0:07:40.800 --> 0:07:45.320 But year, for example, you mentioned specifically a leverage ratio. 0:07:45.640 --> 0:07:49.760 This is exactly one one of the decisions that are 0:07:49.760 --> 0:07:52.960 following up Puzzles. We all want banks to be able 0:07:52.960 --> 0:07:55.679 to finance the economy. We people listening to this program 0:07:55.760 --> 0:07:59.520 right now they're wondering why we want risky European lenders 0:07:59.680 --> 0:08:05.240 to be holding less capital. What's the answer to that. Well, 0:08:05.440 --> 0:08:09.440 first of all, we are not proposing that banks are 0:08:09.520 --> 0:08:16.000 holding less capital because when we discuss finalization of Basil three, 0:08:16.600 --> 0:08:21.400 there were additional requirements which were agreed internationally which were 0:08:21.480 --> 0:08:25.600 to gradually set in and what Basil Committee has decided 0:08:25.720 --> 0:08:34.040 internationally is now to postpone the introduction of those additional requirements. 0:08:34.120 --> 0:08:38.440 And by the way, United States are also taking advantage 0:08:38.440 --> 0:08:42.160 of this Basil decision. From that point of view, it's 0:08:42.360 --> 0:08:47.000 part of coordinated international response. Mr Dobrawski, were honored that 0:08:47.080 --> 0:08:48.880 you with us today, John, and I love seeing you 0:08:48.960 --> 0:08:51.640 and Davos and that I am meetings and such and 0:08:51.920 --> 0:08:57.120 absolutely fascinated when you, with your heritage of leadership in Europe, 0:08:57.640 --> 0:09:02.640 believe we will finally see bank consolidation. Your job is 0:09:02.679 --> 0:09:07.520 extremely difficult, Madame Leguard's job is extremely difficult, and the 0:09:07.600 --> 0:09:13.719 only solution is a consolidation within countries and a consolidation 0:09:13.840 --> 0:09:22.000 across borders. When will we begin to see that? Well, actually, uh, 0:09:22.200 --> 0:09:26.320 this is a process which we are already seeing that. 0:09:26.360 --> 0:09:30.920 If you look across you Member States, we see this 0:09:31.120 --> 0:09:36.920 process of banking sector consolidation gradually happening. Not that it's 0:09:37.000 --> 0:09:41.199 some kind of you know, regulatory aim of the European 0:09:41.600 --> 0:09:46.920 Commission to force bank mergers, but I would say also 0:09:47.040 --> 0:09:52.480 the additional prudential rules which have been introduced internationally and 0:09:52.520 --> 0:09:56.520 which you are implementing in Europe are facilitating this and 0:09:56.720 --> 0:09:59.880 we are gradually seeing also this process of banks that 0:10:00.040 --> 0:10:07.000 the consolidation. Unfortunately in Europe we saw also another process 0:10:07.120 --> 0:10:14.640 of banking uh sector, banking, lending, banking activities becoming more national, 0:10:14.840 --> 0:10:18.600 so less than European and there we want to under 0:10:18.720 --> 0:10:23.040 the expendency. So we want to have a banking sector 0:10:23.160 --> 0:10:27.560 which is across active across the EU, and the same 0:10:27.640 --> 0:10:31.960 goals with a capital market sectors. That's, for example, why 0:10:32.000 --> 0:10:34.760 we are now working on our next stage of our 0:10:34.800 --> 0:10:38.960 capital markets junion projects. The answer is often more Europe. 0:10:39.440 --> 0:10:41.280 Intriguing to me that when it comes to the debt, 0:10:41.559 --> 0:10:44.120 the answer is never more Europe. The north of Europe, 0:10:44.120 --> 0:10:46.559 the Netherlands and the like do not want their mutualization. 0:10:46.559 --> 0:10:50.040 There are many people outside of Europe looking right now 0:10:50.160 --> 0:10:53.120 at European officials getting together and trying to come up 0:10:53.160 --> 0:10:55.320 with the plan to offset the pain in the European economy. 0:10:55.800 --> 0:10:58.000 Has helped me understand that help our audience understand that 0:10:58.040 --> 0:11:02.240 why we are still no closer to share debt in 0:11:02.280 --> 0:11:09.040 the euro sign Well, first of all, it's worth nothing 0:11:09.360 --> 0:11:13.480 that already was a measures which had been taken in Europe. 0:11:14.000 --> 0:11:18.680 We already have provided a response fiscal response liquidity support 0:11:19.320 --> 0:11:23.960 of the scale of three points for brillion euros. This 0:11:24.080 --> 0:11:28.800 is uh the e USE largest ever response to the crisis. 0:11:28.960 --> 0:11:32.160 So this is something which is already Yea, this is 0:11:32.200 --> 0:11:35.200 so this is so important, lattis this is so so 0:11:35.640 --> 0:11:38.160 important what John brings up and I know you've done 0:11:38.160 --> 0:11:41.920 three trillions as well. Our American audience wants to know 0:11:42.960 --> 0:11:46.640 what you in class regularly believe will be the mutualization 0:11:47.040 --> 0:11:49.920 of debt in Europe. Do you have any optimism that 0:11:49.960 --> 0:11:56.080 could occur? Well, actually, uh, what I was referring now 0:11:56.440 --> 0:12:01.800 is immediate crisis response. Currently, we are working on the 0:12:01.800 --> 0:12:06.560 EUSE recovery plan which will base will be based on 0:12:07.440 --> 0:12:12.560 h ambitious EU budget for the next seven years, so 0:12:12.640 --> 0:12:16.600 called multi annual financial framework, and we will come with 0:12:16.679 --> 0:12:21.200 a sort to say classical U multi annual budget, and 0:12:21.360 --> 0:12:26.760 there will be additional recovery fund which we propose, which 0:12:26.800 --> 0:12:31.600 among other things, will be financed as a joint borrowing 0:12:32.400 --> 0:12:35.679 through the European Commission in Financial Markets. So we'll be 0:12:36.520 --> 0:12:41.560 UH raising financing jointly at the European level to finance 0:12:41.760 --> 0:12:47.520 our European response to the crisis and to finance economic recovery. 0:12:47.720 --> 0:12:49.319 But as we gotta leave it there, we wish you 0:12:49.360 --> 0:12:51.400 the best. We wish you're the best, of course, Varriston 0:12:51.440 --> 0:12:59.199 broad skates. European Commission Vice President David Harrold Harris Associates 0:12:59.520 --> 0:13:05.000 what the World's great international and value investors. David, the 0:13:05.080 --> 0:13:09.120 charts are measured by standard deviations. What that means, folks, 0:13:09.640 --> 0:13:13.240 is one or two standard deviations is within the realm 0:13:13.280 --> 0:13:17.120 of normal, and then you get outside that. And right now, 0:13:17.200 --> 0:13:22.680 the differential between growthiness and value e nous has never 0:13:22.760 --> 0:13:26.000 been more of a deviation. Have you ever seen it 0:13:26.080 --> 0:13:29.200 like this, David? Have you ever seen the love of 0:13:29.280 --> 0:13:32.160 growth in the lack of value? Have you ever seen 0:13:32.200 --> 0:13:36.400 it like this? Now the closest beef come with late 0:13:36.480 --> 0:13:39.960 oh eight, early oh nine, But other than this, I 0:13:40.000 --> 0:13:42.439 haven't seen it. And to me, it actually is a 0:13:42.480 --> 0:13:46.680 great cause for excitement because when you get such a 0:13:46.760 --> 0:13:51.040 price anomaly, and the price anomaly is the ignorance of 0:13:51.200 --> 0:13:53.960 value of businesses, the ignorance of what a business is 0:13:54.040 --> 0:13:57.480 priced at. And we know fundamentally what makes a company 0:13:57.600 --> 0:14:01.040 valuable is its cash flow stream, and so eventually this 0:14:01.120 --> 0:14:04.319 will come back to us. So to me, the greater 0:14:04.520 --> 0:14:08.040 the spread is, the better the future looks. There are 0:14:08.080 --> 0:14:10.640 a set of there, David, this is important as a 0:14:10.880 --> 0:14:14.160 beautifully answered by the way, there's a set of catalysts 0:14:14.160 --> 0:14:18.319 that get you to that word eventually. Are they instigated 0:14:18.360 --> 0:14:23.000 by investors or are they instigated by corporate action when 0:14:23.120 --> 0:14:26.120 officers and board members say, wait a minute, why are 0:14:26.160 --> 0:14:30.120 we so cheap? It's probably all of the above. And 0:14:30.160 --> 0:14:34.800 what I think eventually happened is investors begin to see, say, 0:14:34.880 --> 0:14:37.240 the light at some end of the tunnel, whatever is 0:14:37.280 --> 0:14:42.880 the trauma that has caused the huge dichotomy between valuations 0:14:43.720 --> 0:14:45.920 um In in O eight oh nine, it was the 0:14:45.960 --> 0:14:49.640 Great Financial Crisis, and when people began to see a 0:14:49.760 --> 0:14:54.480 stabilization of the global economy, you saw that spread between 0:14:54.520 --> 0:14:58.240 growth and value narrow because people thought, well, okay, these 0:14:58.240 --> 0:15:00.360 businesses are gonna be okay, they're going to get through 0:15:00.360 --> 0:15:04.320 the cycle. Today we have the same type of price movement, 0:15:04.600 --> 0:15:07.880 but amplified and with a different cause. And the different 0:15:07.920 --> 0:15:11.760 cause was it was a medical affliction. Um And when 0:15:11.760 --> 0:15:14.320 people begin to see the light of at the end 0:15:14.360 --> 0:15:17.240 of the tunnel. For this, I also believe that you 0:15:17.240 --> 0:15:20.040 will see that. And at the same time, companies also 0:15:20.160 --> 0:15:23.720 become frustrated um and they begin to do things to 0:15:23.800 --> 0:15:27.520 try to realize value, whether that means selling an asset 0:15:27.600 --> 0:15:31.400 that isn't reflected in their valuation. We see this in 0:15:31.400 --> 0:15:35.240 our own portfolio. Take a company like CNH is going 0:15:35.280 --> 0:15:38.120 to separate into two businesses, off road and on road. 0:15:38.280 --> 0:15:41.160 You know, off road being tractors and construction equipment, on 0:15:41.280 --> 0:15:44.840 road being trucks and components. So we see companies when 0:15:44.880 --> 0:15:48.960 they do become frustrated, they'll hate steps, and whether it's 0:15:49.120 --> 0:15:52.520 to crystallize the value of a business, change in management, 0:15:53.160 --> 0:15:58.320 stock repurchases, or dividend distributions, they will take steps. So 0:15:58.360 --> 0:16:01.520 I think it's both those things. But the big move 0:16:01.560 --> 0:16:06.400 will probably come when people realize they're under exposed and 0:16:06.480 --> 0:16:10.840 the most undervalued assets. And as they're so undervalued, it 0:16:10.880 --> 0:16:13.200 doesn't take much to get them up and going again, 0:16:13.440 --> 0:16:16.080 it's a very small door to enter, and when a 0:16:16.080 --> 0:16:19.640 lot of money begins to flow into that door, the 0:16:19.680 --> 0:16:23.200 door the door size gets much bigger. So, David, given 0:16:23.240 --> 0:16:26.760 the volatility that we've seen just in the last three months, 0:16:27.320 --> 0:16:30.960 where are the sectors that you're seeing the most value 0:16:31.080 --> 0:16:35.360 or the most mispriced assets. You know, the funny thing 0:16:35.560 --> 0:16:38.720 is is that it's just a continuation to what we've seen, 0:16:39.480 --> 0:16:43.280 uh in twenty eighteen in particular, twenty nineteen was kind 0:16:43.320 --> 0:16:47.800 of a break here. Uh and then that same value 0:16:47.920 --> 0:16:54.320 verse growth. Take consumer discretionary industrials, European financials, they're what 0:16:54.560 --> 0:16:59.880 really got hot bard during this crisis, and safety eCOM 0:17:00.040 --> 0:17:04.160 mers technology, this is what really really did well. So 0:17:04.560 --> 0:17:08.640 only there wasn't really a change. There was just an 0:17:08.640 --> 0:17:12.280 opening of the magnitude of the spread. And the volatility 0:17:12.280 --> 0:17:16.400 on any given day was actually like something I've never seen. Um, 0:17:17.200 --> 0:17:20.800 we had a stock in our portfolio, Ashtead. One day, 0:17:20.800 --> 0:17:24.160 it opened up down, the day before it was down fifteen, 0:17:24.240 --> 0:17:26.920 and it closed up over ten percent. I mean these 0:17:26.960 --> 0:17:30.000 are just huge intra day forget about intra week in 0:17:30.080 --> 0:17:34.679 tra mont intra day price movements. Now I will say 0:17:34.840 --> 0:17:36.880 it's settled down. I mean you could see the vix 0:17:37.320 --> 0:17:39.840 went from a high of eighty and now it's just 0:17:39.920 --> 0:17:43.679 over thirty. So we are starting to see a little 0:17:43.720 --> 0:17:46.879 bit of calm return to right. So what does that 0:17:46.920 --> 0:17:48.840 mean for the banking and the financials. I mean, we've 0:17:48.840 --> 0:17:50.520 got a number of people in a life somewhere. News 0:17:50.640 --> 0:17:54.760 of Bloomberg opinion was on today basically saying, David, if 0:17:54.840 --> 0:17:57.760 if Europe can't figure out how to consolidate banking now, 0:17:57.760 --> 0:17:59.919 when are they going to do it? Are you just 0:18:00.080 --> 0:18:02.040 check chopping at the bid over the next two years 0:18:02.040 --> 0:18:05.280 of what financial will do well? I think the financials 0:18:05.280 --> 0:18:09.040 in Europe will do well only because they've been beaten 0:18:09.119 --> 0:18:11.000 up so bad. I mean, you were able to buy 0:18:11.080 --> 0:18:13.600 the quality of the sector. Let's take a BNP perry 0:18:14.440 --> 0:18:18.119 a week ago for just overt of book value. In 0:18:18.200 --> 0:18:21.520 the last great financial crisis, it didn't trade that low, 0:18:21.920 --> 0:18:25.480 and one would argue they're much safer investments today given 0:18:25.480 --> 0:18:29.200 their capital positions. Uh in the financial crisis for four 0:18:29.280 --> 0:18:33.639 or five to day or so, you have safer banks 0:18:33.640 --> 0:18:37.520 trading at lower prices because I believe the big pockets 0:18:37.520 --> 0:18:40.160 of money played you know, the same the same game plan, 0:18:40.280 --> 0:18:45.320 the same pitch were instability were in fear short of 0:18:45.520 --> 0:18:48.800 you know, European financials, and they moved as a bucket 0:18:49.760 --> 0:18:52.960 and so to us as kind of marksmen were able 0:18:53.000 --> 0:18:56.439 to pick and choose the quality and by those that 0:18:56.520 --> 0:19:00.000 have really sold down, which we believe are and sustainable 0:19:00.160 --> 0:19:03.879 levels The reason why I believe it's so unsustainable a 0:19:04.080 --> 0:19:06.360 of the low price. You have the strong balance sheet, 0:19:06.520 --> 0:19:09.399 and see believe it or not, even with the lower 0:19:09.560 --> 0:19:15.440 negative race, you've seen resilient earnings. You've seen earnings behave 0:19:15.800 --> 0:19:18.479 because there are other lovers that the managements have been 0:19:18.520 --> 0:19:21.920 able to pull to protect their earnings. And so this 0:19:22.000 --> 0:19:25.640 is why we've remained exposed in these areas and we're 0:19:25.720 --> 0:19:29.040 very excited about the future prospects of our portfolios. It's 0:19:29.160 --> 0:19:32.240 really really hurt us. We had a terrible first quarter. 0:19:37.600 --> 0:19:45.240 The damn thing about the Packer draft radio would go 0:19:45.280 --> 0:19:49.320 to the Packers, Why did you take your quarterback? That's 0:19:49.359 --> 0:19:51.480 a really really why. I don't know. I kind of 0:19:51.560 --> 0:19:53.760 understand why we took our quarterback. I'm not sure why 0:19:53.800 --> 0:20:00.159 we took that quarterback. Okay, energy is you know, talk 0:20:00.200 --> 0:20:02.920 about value, but boy, that's just you get it's so 0:20:03.000 --> 0:20:05.080 much risk in that space. How are you viewing energy 0:20:05.160 --> 0:20:07.240 right now? I mean, I think there is a lot 0:20:07.240 --> 0:20:09.439 of risk and energy, but if you look at the 0:20:09.520 --> 0:20:13.560 short term, it's hard to believe that the normalized price 0:20:13.600 --> 0:20:16.360 of oil is twelve dollars and thirty one since that's 0:20:16.359 --> 0:20:19.760 what it says on my screen right now. However, I 0:20:19.760 --> 0:20:21.920 will say this, so I think in the near term 0:20:22.200 --> 0:20:27.080 there is opportunities UM because oil is oversold. I think 0:20:27.119 --> 0:20:29.760 oil is significantly oversold in the short term, but in 0:20:29.760 --> 0:20:33.159 the medium and long term well, in particular to me, 0:20:33.240 --> 0:20:40.000 it's hard to make a case given supplying demand. Uh. Now, gas, 0:20:40.040 --> 0:20:42.159 of course, it is a little bit of a different story, 0:20:42.320 --> 0:20:45.080 because gas I think has continued use. As long as 0:20:45.119 --> 0:20:47.680 you could get guests to the market. You know, it's 0:20:47.720 --> 0:20:52.560 it's relatively clean and transports clean and burns clean um, 0:20:52.600 --> 0:20:55.280 and it's very low price. And as as long as 0:20:55.280 --> 0:20:59.040 you could have access to pipelines and and l n 0:20:59.119 --> 0:21:01.840 G and this type of thing, I think guess could 0:21:01.880 --> 0:21:05.119 be a very good business. I worry about oil because 0:21:05.760 --> 0:21:09.119 I think demand for refined products or the medium and 0:21:09.160 --> 0:21:12.200 long term will continue to go down, and I think 0:21:12.240 --> 0:21:14.840 that the supply, at least at this stage, there's just 0:21:14.920 --> 0:21:17.640 so much of it UM. But I think at this 0:21:17.720 --> 0:21:20.240 price you have an opportunity if you're a trader, but 0:21:20.320 --> 0:21:24.560 that's not necessarily we are. We do have some exposure 0:21:25.440 --> 0:21:29.720 in our international portfolios of the s novis UM, but 0:21:29.840 --> 0:21:32.879 we we don't have a lot of energy at at Harrison, 0:21:33.040 --> 0:21:36.200 there's some where where we believe there's a good management 0:21:36.240 --> 0:21:39.280 teams and good production profile. It's good production costs and 0:21:39.320 --> 0:21:43.280 good balance sheets. But you've got to be there. So 0:21:43.359 --> 0:21:46.320 David's look at this market here. How concerned are you 0:21:46.400 --> 0:21:48.359 that this time? And I've been talking about, you know, 0:21:48.440 --> 0:21:51.800 for you know, the longest time. It's really centered on 0:21:51.880 --> 0:21:54.639 a small number of names. I mean, I'll call it 0:21:54.720 --> 0:21:57.480 fang plus or whatever other moniker you want to It 0:21:57.600 --> 0:22:00.359 just doesn't seem healthy for the market for all. How 0:22:00.400 --> 0:22:03.040 much of the concern is that for you? Well, it's 0:22:03.040 --> 0:22:06.200 a very good point because and it hasn't been healthy 0:22:06.280 --> 0:22:09.600 for us as long term value investors. It's been terrible 0:22:09.640 --> 0:22:14.040 for us. And I think this actually gives pause us, 0:22:14.640 --> 0:22:18.760 gives us a pause to be optimistic because eventually we 0:22:18.800 --> 0:22:22.760 believe the market will spread out and those names which 0:22:23.160 --> 0:22:28.520 do have a good fundamental value characteristics value by US 0:22:28.560 --> 0:22:32.719 defined as low price, high quality, but are being ignored 0:22:32.880 --> 0:22:36.879 just because they're not in that narrow sector which you describe. 0:22:37.480 --> 0:22:41.560 So if you're an index holder, or a passive holder, 0:22:41.800 --> 0:22:46.560 or a holder of these assets which have been loved 0:22:47.040 --> 0:22:49.760 now for the better part of a decade, I would 0:22:49.760 --> 0:22:53.760 be slightly worried if you're someone like ourselves, who are 0:22:53.800 --> 0:22:57.320 positioned for when this love turns to like and at 0:22:57.359 --> 0:23:00.680 some point maybe dislike. We believe we are very well 0:23:00.720 --> 0:23:04.240 positioned and we'll be happy for when that day comes, 0:23:04.680 --> 0:23:10.200 when we have a more dispersed, uh disbursement of valuation 0:23:10.280 --> 0:23:12.720 within the market. David Harrold, thank you so much. With 0:23:12.760 --> 0:23:20.280 Harris Associates greatly greatly appreciated. This morning. On the edge 0:23:20.840 --> 0:23:25.560 of Exuberance, we welcome the Laureate of Yale University, Robert Schiller, 0:23:25.600 --> 0:23:29.240 who we always talked to when we can. I want 0:23:29.240 --> 0:23:33.359 to go more philosophical here, Professor Schiller, and that is 0:23:33.400 --> 0:23:36.199 to speak of your quiet book that didn't make the 0:23:36.280 --> 0:23:38.800 press of exuberance, and this, that and the other thing, 0:23:39.560 --> 0:23:44.200 and that is finance and a good society. The clear 0:23:44.280 --> 0:23:48.160 observation of Republicans and Democrats is Europe and the United 0:23:48.280 --> 0:23:51.520 Kingdom are figuring out how to come to the aid 0:23:51.600 --> 0:23:56.080 of their citizens in a less clumsy manner than America. 0:23:56.920 --> 0:24:00.200 How do we get to that point in America or 0:24:00.240 --> 0:24:03.240 do we even want to get to a European model 0:24:03.520 --> 0:24:07.000 of a good society. I don't know if we want 0:24:07.000 --> 0:24:10.199 to go ho hog into a European model. But I 0:24:10.240 --> 0:24:15.320 think that it is true that our free market orientation 0:24:15.480 --> 0:24:22.000 sometimes has us missed essential roles of the government. At 0:24:22.000 --> 0:24:26.440 a time like this, people have contracts to pay money 0:24:27.200 --> 0:24:34.119 like rent or or interests on corporate debt. Uh, that 0:24:34.359 --> 0:24:37.240 there should have been something in those contracts that allowed 0:24:37.320 --> 0:24:41.640 for a circumstance like this, but there isn't. The government 0:24:41.720 --> 0:24:44.720 is a risk manager of last resort. It comes in 0:24:44.800 --> 0:24:50.240 and does common sense things that uh, if the ideology 0:24:50.560 --> 0:24:55.240 supports it. And I think that we could learn something 0:24:55.320 --> 0:25:00.879 from Europeans, uh that there's you know, no no free 0:25:00.880 --> 0:25:05.719 market contract and anticipate everything, and uh, we do have 0:25:05.800 --> 0:25:11.159 to have some interposition of government authority. And this is 0:25:11.200 --> 0:25:15.120 a time like that. So, professor, just in the last 0:25:15.119 --> 0:25:17.800 ten eleven, twelve years, investors have had to deal with 0:25:17.960 --> 0:25:22.240 two extraordinary shocks, first the financial crisis and now this pandemic. 0:25:22.240 --> 0:25:25.600 Are you concerned that investors just when you think about 0:25:25.760 --> 0:25:31.040 individual investors, that their psyches maybe permanently altered here as 0:25:31.080 --> 0:25:33.480 they think about risk, as they think about, you know, 0:25:33.560 --> 0:25:38.439 how to invest their capital longer term. I wouldn't use 0:25:38.480 --> 0:25:43.200 the word permanently, but maybe for years. Yeah, the psychologists 0:25:43.200 --> 0:25:46.879