WEBVTT - When WHO Sounds The Alarm, History Shows It's Time To Dip In 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast on Paul Swing You. 0:00:05.360 --> 0:00:07.760 Along with my co host Lisa Brahmas, each day we 0:00:07.880 --> 0:00:10.399 bring you the most noteworthy and useful interviews for you 0:00:10.520 --> 0:00:12.600 and your money, whether at the grocery store or the 0:00:12.640 --> 0:00:15.920 trading floor. Find a Bloomberg Penl podcast on Apple podcast 0:00:16.120 --> 0:00:18.000 or wherever you listen to podcasts, as well as that 0:00:18.040 --> 0:00:22.320 Bloomberg dot com. The conundrum baked into today's markets. You're 0:00:22.320 --> 0:00:24.439 seeing that sell off deepen in the face of the 0:00:24.520 --> 0:00:26.960 spreading coronavirus, and yet a lot of people saying the 0:00:27.080 --> 0:00:31.360 US will remain intact, will remain immune or relatively so, 0:00:31.800 --> 0:00:35.440 to the deepening a health crisis across Asia. Joining us 0:00:35.479 --> 0:00:38.400 now to talk about exactly how to play the US 0:00:38.560 --> 0:00:42.880 market amid the increasing macroeconomics uncertainty. David Deats, president and 0:00:42.920 --> 0:00:46.400 chief investment strategist at Point View Wealth Management that has 0:00:46.560 --> 0:00:49.600 more than seven billion dollars under management, joining us on 0:00:49.640 --> 0:00:52.360 the phone from Summit, New Jersey. I'm wondering, David, considering 0:00:52.360 --> 0:00:56.560 the fact that you have studied through the eras classical literature, 0:00:56.640 --> 0:00:58.760 You've studied law, You've studied a whole host of things 0:00:58.920 --> 0:01:00.720 at a variety of degree easy worked with a lot 0:01:00.720 --> 0:01:03.480 of different people who are trying to figure out how 0:01:03.480 --> 0:01:07.880 to navigate this incredibly complicated market. What do you buy 0:01:07.959 --> 0:01:13.400 on a daylight today when fear is the prevailing sentiment? Well, so, 0:01:13.520 --> 0:01:17.640 I think it all goes down to your time horizon. Um. Clearly, 0:01:17.680 --> 0:01:20.360 one of the big drivers today is the spread of 0:01:20.400 --> 0:01:23.759 the corona virus. And the best way to figure out 0:01:24.000 --> 0:01:26.160 where that may be taking us is to look at 0:01:26.200 --> 0:01:30.880 these epidemics that we've had in the past, mayors, stars, hiv, 0:01:31.080 --> 0:01:34.399 et cetera, over the last let's say, uh forty years, 0:01:34.920 --> 0:01:38.959 and we have done that study here. And what's interesting is, 0:01:39.319 --> 0:01:43.240 other than the HIV age situation the early eighties, the 0:01:43.360 --> 0:01:50.440 market has invariably up significantly after the first onset of 0:01:50.480 --> 0:01:56.000 these epidemics. Um. Why is that? Well, typically what happens, 0:01:56.000 --> 0:01:59.440 of course, is the vaccine makers get on the bandwagon, 0:01:59.480 --> 0:02:01.560 and we've seen the stocks and some of these vaccine 0:02:01.840 --> 0:02:06.440 makers double and even triple because there is an opportunity here. Um. 0:02:06.760 --> 0:02:10.680 And and typically the tipping point is when the World 0:02:10.720 --> 0:02:14.280 Health Organization declares an emergency, because at that point is 0:02:14.360 --> 0:02:17.800 fully discounted in the market. Now we could be wrong here, 0:02:18.280 --> 0:02:21.760 but UM, and certainly that's this is not advice to 0:02:21.800 --> 0:02:23.959 day trade it today or even next week or even 0:02:24.400 --> 0:02:27.040 in February. But if you have a longer term horizon, 0:02:27.280 --> 0:02:30.040 there are some discounts for something that I don't think 0:02:30.080 --> 0:02:32.680 it's going to go on forever here. So, David, some 0:02:32.680 --> 0:02:35.080 folks are looking for value in this market. One of 0:02:35.080 --> 0:02:38.040 the places they look for is the energy space. We 0:02:38.080 --> 0:02:40.840 have some disappointing numbers out of Exxon and Chevron today. 0:02:40.960 --> 0:02:45.480 What's your view of the energy space? Well, so, UM, 0:02:46.400 --> 0:02:49.160 you know, I think most of the experts say that 0:02:49.240 --> 0:02:54.200 we are undergoing a shift at transition to cleaner fuels 0:02:54.240 --> 0:02:57.360 and renewable energy and so forth. But most of the 0:02:57.400 --> 0:03:01.880 experts say that's going to take decade to UM come 0:03:01.880 --> 0:03:06.400 into fruition. What we've seen recently energy prices back in 0:03:06.400 --> 0:03:09.160 two thousand and fourteen where hundreds of barrel, now they're 0:03:09.160 --> 0:03:12.840 coming down to about fifty UM. The best cure, quite frankly, 0:03:12.880 --> 0:03:16.320 for low commodity prices is low commodity prices, because who 0:03:16.360 --> 0:03:19.840 in the right mind would explore for further fuel UM 0:03:20.040 --> 0:03:23.120 given where the situation is. So, if you're a believer 0:03:23.280 --> 0:03:27.679 that things are cyclical and that sometimes a tough environment 0:03:27.720 --> 0:03:31.160 for an industry actually favors the biggest players on the 0:03:31.200 --> 0:03:33.799 block because they have can attract the best people, they 0:03:33.840 --> 0:03:37.640 have the lowest borrowing costs, most diversified operations. Then maybe 0:03:37.680 --> 0:03:41.000 this is the time to dip your toe into the 0:03:41.040 --> 0:03:43.280 water of some of the biggest players who which you 0:03:43.360 --> 0:03:47.160 have outstanding track records in our integrated across all phases 0:03:47.160 --> 0:03:50.600 of the industry, plus geographically well diversified. David, I know 0:03:50.640 --> 0:03:52.600 that one of your stock picks is Exxon, which would 0:03:52.600 --> 0:03:54.760 fall into that category. And I'm looking right now at 0:03:54.840 --> 0:03:58.400 Xson shares that are really underperformed. But at this point, 0:03:58.760 --> 0:04:01.440 and this Dave Wilson are Brick Socks editor pointed out 0:04:01.640 --> 0:04:05.040 that the dividend yield being paid out on Exxon shares 0:04:05.160 --> 0:04:09.040 now exceeds what you can get on US junk bonds. 0:04:09.560 --> 0:04:11.760 How much of this is a dividend play and how 0:04:11.840 --> 0:04:15.080 much is this an appreciation play? Well, I think it 0:04:15.160 --> 0:04:19.120 ultimately could be both, because obviously there are players in 0:04:19.160 --> 0:04:22.000 the market they're saying this dividend won't grow. In fact, 0:04:22.040 --> 0:04:25.919 it might be uh cut um. But I think that 0:04:26.240 --> 0:04:30.240 historically buying some of the biggest dividend players in the 0:04:30.320 --> 0:04:32.760 Dow has worked out well, that would be the dogs 0:04:32.760 --> 0:04:35.320 of the Dow theory. Plus, of course, we do know 0:04:35.400 --> 0:04:38.880 that Exxon is an industry giant, I think third largest 0:04:38.920 --> 0:04:42.120 revenues in the sp so you know there's a lot 0:04:42.160 --> 0:04:44.920 of way ways for them to cut costs. They announced 0:04:44.920 --> 0:04:49.080 earnings this morning, this stock is down significantly. Nevertheless, they 0:04:49.160 --> 0:04:52.200 did beat expectations in terms of the top line, and 0:04:52.240 --> 0:04:56.880 the bottom line relates to what animals were projecting. So again, 0:04:57.520 --> 0:04:59.480 the other thing, of course, is is it an exon 0:04:59.560 --> 0:05:03.039 specific problems in an industry problem where we've given that 0:05:03.240 --> 0:05:06.560 energy prices down this month alone, I think you'd give 0:05:06.600 --> 0:05:09.000 a pass to x on management and look at global 0:05:09.040 --> 0:05:12.320 macro economic conditions. David, thanks so much for joining us. 0:05:12.560 --> 0:05:15.599 We appreciate you stepping on the phone with us and 0:05:15.600 --> 0:05:17.720 give us your thoughts on the market. Here David Deet's 0:05:17.720 --> 0:05:21.200 president and chief investment strategists at Point View Wealth Management, 0:05:21.440 --> 0:05:24.840 calling on the phone from Lovely Downtown Summit, New Jersey. 0:05:24.960 --> 0:05:26.880 We appreciate a s thoughts. Looking at the SMP right here, 0:05:26.920 --> 0:05:29.160 hitting the lows of the day down forty nine points. 0:05:29.200 --> 0:05:31.400 I'll be one point five percent on the SMP that 0:05:31.440 --> 0:05:34.359 down down fourner and sixty six points, that's one point 0:05:34.440 --> 0:05:37.680 six percent decline and NASDAC down a hundred twenty two 0:05:37.760 --> 0:05:41.040 points one point three percent decline. So seeing some accelerating 0:05:41.080 --> 0:05:43.400 selling here as we close up the morning, David dates 0:05:43.440 --> 0:05:46.160 with some kind of a non consensus view here that 0:05:46.240 --> 0:05:49.400 with the w h o uh sounds the alarm, that's 0:05:49.480 --> 0:05:51.720 usually the trough for that's usually when you can start 0:05:51.760 --> 0:05:54.080 thinking about getting back in. Not what other people are saying. 0:05:54.080 --> 0:05:57.479 They're looking for some sort of halt in this exponential 0:05:57.520 --> 0:06:00.040 expansion of the coronavirus, which we really haven't seen it. 0:06:03.120 --> 0:06:06.560 Boil has been falling out of bed steadily as the 0:06:06.560 --> 0:06:10.960 coronavirus spreads throughout Asia and frankly throughout the world. Right now, 0:06:11.000 --> 0:06:13.680 looking at Crew traded on the night mix, trading at 0:06:13.680 --> 0:06:18.720 fifty since a barrel, the lowest in August two nineteen, 0:06:19.000 --> 0:06:21.839 what will it take for the prices to rise and 0:06:21.960 --> 0:06:24.599 for the fate of some of the weaker oil companies 0:06:24.880 --> 0:06:27.320 to improve? Joining us now, Regina may Our Global Energy 0:06:27.320 --> 0:06:29.800 had at KPMG Regina, can you just give us a 0:06:29.960 --> 0:06:33.400 first your your broad sense of the main driver behind 0:06:33.440 --> 0:06:37.280 the latest weakness in oil. So I think we're experiencing 0:06:37.279 --> 0:06:42.280 a really significant demand destruction event that's had a major impact, 0:06:42.279 --> 0:06:45.159 not just what you said. That's the lowest point since August. 0:06:45.680 --> 0:06:50.359 It's down almost twelve dollars from January six. The coronavirus 0:06:50.520 --> 0:06:54.000 was announced on January and we've seen almost half of 0:06:54.080 --> 0:06:58.120 that destruction since the virus was announced. So I think 0:06:58.160 --> 0:07:01.440 this is going to be very significant, and it's only escalating. 0:07:01.520 --> 0:07:03.400 So I think it's going to get worse before it 0:07:03.480 --> 0:07:07.560 even stabilizes, because we're going to see even more consumer 0:07:07.680 --> 0:07:11.160 and business activity both inside of China and inbound into 0:07:11.240 --> 0:07:15.920 China that all continue to have destructive effects on oil demand. So, Regina, 0:07:15.960 --> 0:07:19.280 when you talk to your clients, your energy clients, how 0:07:19.320 --> 0:07:21.640 are they kind of thinking about this as you again 0:07:21.680 --> 0:07:24.800 as you talked about demand from a demand equation? Are 0:07:24.840 --> 0:07:30.840 they taking this seriously, very seriously? But you know they're 0:07:30.880 --> 0:07:33.400 in it for the long term, so they can't overreact 0:07:33.520 --> 0:07:37.880 to these these uh, these weaker signals right now. We 0:07:38.000 --> 0:07:41.200 have seen in corporate results though that downstreaming chemicals earnings 0:07:41.200 --> 0:07:44.840 are significantly down and for Q one will have an 0:07:44.840 --> 0:07:48.320 even bigger impact. Those that have extensive ties to Asia 0:07:48.400 --> 0:07:52.520 will see even more demand destruction. Or or revenue decreases 0:07:52.560 --> 0:07:56.160 from what's happening in Asia. So definitely taking it seriously, 0:07:56.480 --> 0:08:00.240 but can't change their strategy given the long term nture 0:08:00.280 --> 0:08:04.120 of the overall process. So, given your incredible experience talking 0:08:04.320 --> 0:08:07.080 with companies of all sizes within the energy sector for 0:08:07.160 --> 0:08:10.840 decades and trying to figure out the next part of 0:08:11.160 --> 0:08:13.160 disruption and sort of how to get ahead of that, 0:08:13.760 --> 0:08:18.200 what's your main conversation today with some of these corporate executives. Well, 0:08:18.200 --> 0:08:19.840 this one, I would say, Lesa is a bit of 0:08:19.840 --> 0:08:22.520 a black swan. I mean, I don't think that. I 0:08:22.560 --> 0:08:27.120 think we were experiencing almost a mini renaissance in Houston 0:08:27.320 --> 0:08:31.600 for Q four when we saw independent producer stock prices 0:08:31.680 --> 0:08:34.160 go up um, and I think because the industry and 0:08:34.200 --> 0:08:36.680 the investor community felt like Number one, they were quite 0:08:36.679 --> 0:08:39.199 a good bargain. Number two, we felt like we'd reached 0:08:39.240 --> 0:08:41.880 a bit of a floor and commodity price right was 0:08:42.320 --> 0:08:45.360 w T I and the mid to high fifties and 0:08:45.400 --> 0:08:47.880 Brent in the mid sixties. And now look at where 0:08:47.920 --> 0:08:51.840 we are, literally three weeks after the January six high 0:08:51.840 --> 0:08:55.880 that we experienced. So I think it's um, this one 0:08:56.360 --> 0:08:59.560 wasn't foreseen, And I think We're going to have to 0:08:59.559 --> 0:09:02.440 figure out out what that is going to mean. Capital 0:09:02.480 --> 0:09:05.640 spending levels we're going up. You'll have seen permian production 0:09:05.720 --> 0:09:08.559 surged from some of the announcements that are coming out 0:09:08.600 --> 0:09:11.920 this weekend next and that excitement I think will die 0:09:11.960 --> 0:09:14.600 down given given what's happening, and it's a crisis for 0:09:14.960 --> 0:09:17.320 you know, overall the markets as well as the oil 0:09:17.360 --> 0:09:20.840 industry Regina. You raise a really interesting question implicit in 0:09:20.840 --> 0:09:22.920 your in your statement that this is a black swan, 0:09:23.240 --> 0:09:27.440 how resilient are the weakest players in the energy space 0:09:27.840 --> 0:09:30.040 to something like this black swan? In other words, are 0:09:30.040 --> 0:09:32.400 we going to see a rash of bankruptcies that are 0:09:32.440 --> 0:09:35.079 accelerated as a result of this. I think you're right. 0:09:35.120 --> 0:09:39.040 I don't think they're incredibly resilient, particularly the players that 0:09:39.080 --> 0:09:43.600 were hanging on by their fingernails. We've seen the smaller 0:09:43.640 --> 0:09:47.839 players are already being very challenged, and I do think 0:09:48.160 --> 0:09:53.400 we'll see more bankruptcies, restructuring calls on debt for the 0:09:53.640 --> 0:09:56.559 for the much much smaller marginal players. You've seen the 0:09:56.679 --> 0:09:59.880 larger players make pretty big announcements on significant write downs 0:10:00.040 --> 0:10:03.120 with gas positions. So if you're an investor and you're 0:10:03.160 --> 0:10:06.000 looking at the sector and you see a small player 0:10:06.240 --> 0:10:09.679 that's predominantly gas portfolio that would not be where I 0:10:09.720 --> 0:10:12.880 would place the pet in this market. So, Regina, that 0:10:12.920 --> 0:10:15.040 kind of calls into question, do you think we'll see 0:10:15.040 --> 0:10:18.719 some more consolidation in the oil patch? Um? You know 0:10:18.760 --> 0:10:21.240 a lot of your you have big clients, medium sized, 0:10:21.280 --> 0:10:24.280 smaller clients. Is the expectation that if it gets even 0:10:24.440 --> 0:10:26.840 tougher in the oil patch, that maybe some of the 0:10:26.880 --> 0:10:29.360 bigger companies will look to scoop up some of the 0:10:29.480 --> 0:10:33.120 weaker ones, the ones that maybe have a challenging capital structure. 0:10:33.720 --> 0:10:36.360 I believe. So, I do think there are going to 0:10:36.400 --> 0:10:40.640 be some bargains available. There are larger players the same 0:10:40.640 --> 0:10:44.800 midsize players that have really nice acreage portfolios UH and 0:10:44.920 --> 0:10:48.600 decent assets that are not operating as effectively as they 0:10:48.640 --> 0:10:52.480 can be. The market, the overall sector would be so 0:10:52.559 --> 0:10:55.680 much more improved if we could consolidate like a big 0:10:55.679 --> 0:10:57.680 one that we saw last year, and I think the 0:10:57.720 --> 0:11:00.880 market would benefit, The sector would benefit. Whether or not 0:11:01.080 --> 0:11:04.079 the bid ask spreads UM come together. That's been the 0:11:04.120 --> 0:11:06.480 big that's been the big hurdle. But if we were 0:11:06.480 --> 0:11:10.160 faced with bankruptcy and restructuring, then you don't have the 0:11:10.200 --> 0:11:12.640 sellers being in such a strong position to try to 0:11:12.679 --> 0:11:15.480 demand a higher price. Regina, what would it take when 0:11:15.480 --> 0:11:18.600 it comes to the spread of the coronavirus for oil 0:11:18.640 --> 0:11:20.840 prices to get a bottom or get a sense of 0:11:20.880 --> 0:11:25.000 the potential economic fallout. We have to be at a 0:11:25.120 --> 0:11:28.760 stage where we believe we've reached the tipping point. Right now, 0:11:28.840 --> 0:11:32.840 it feels like an exponential upward curve with cases and 0:11:32.960 --> 0:11:37.440 spread and fear until we feel like the world and 0:11:37.640 --> 0:11:40.720 China has got its arms around the virus is stemming 0:11:40.760 --> 0:11:43.600 the tide. People are going back to work, people are 0:11:43.640 --> 0:11:46.520 flying in and out again. That's when we'll see the 0:11:46.600 --> 0:11:49.720 floor and have it stabilized. That doesn't feel like it's 0:11:49.800 --> 0:11:53.400 close right now to me, but obviously I'm speculating, so 0:11:53.559 --> 0:11:55.280 I think that's what's causing a lot more of the 0:11:55.320 --> 0:11:58.400 fear is we don't know when that tipping point it 0:11:58.400 --> 0:12:01.120 would be achieved. You thank you so much for joining us. 0:12:01.160 --> 0:12:04.280 We really appreciate your commentary. Regina Mayor, Global Energy head 0:12:04.320 --> 0:12:11.199 for KPMG. And everyone's talking about the coronavirus and the 0:12:11.320 --> 0:12:13.480 risk off field that we're having in markets today in 0:12:13.520 --> 0:12:15.760 the US. But I want to go to another place, 0:12:15.800 --> 0:12:18.920 which is Amazon and the incredible surge that we've seen there. 0:12:19.000 --> 0:12:21.880 Apple's earnings came out, incredible earnings, even though the shares 0:12:21.920 --> 0:12:24.439 are down today a little bit on the coronavirus, leaving 0:12:24.440 --> 0:12:26.880 a question that Tom Keene raised this morning. I thought 0:12:26.920 --> 0:12:29.480 it was really salient, which is an investor who has 0:12:29.520 --> 0:12:32.000 been underweight some of these big tech names, what do 0:12:32.080 --> 0:12:34.480 they do now given the fact that you're getting earnings 0:12:34.840 --> 0:12:38.400 that beat so dramatically. And Chris Christopher Wolf joins US 0:12:38.400 --> 0:12:41.480 now chief investment Officer at First Republic Private Wealth Management 0:12:41.679 --> 0:12:44.200 with seventy four billion dollars of assets under management, normally 0:12:44.200 --> 0:12:45.920 based in San Francisco, but here with us in our 0:12:45.960 --> 0:12:49.800 interactive broker studios. And we'll get to the coronavirus issues, 0:12:49.840 --> 0:12:52.320 and we'll get to macro concerns. But when it comes 0:12:52.320 --> 0:12:54.840 to big tech, which has been really the driving force 0:12:54.880 --> 0:12:56.640 of a lot of the gains in the SMP and 0:12:56.760 --> 0:13:00.400 NASDAC over the past decade, where do people go now 0:13:00.520 --> 0:13:03.360 when they see that these earnings just keep coming. So 0:13:03.400 --> 0:13:05.240 I think there's three things. I do think you have 0:13:05.280 --> 0:13:07.720 to go there, meaning towards the technology space for a 0:13:07.720 --> 0:13:10.880 couple of reasons, one, we're in an age of hyper aggregation. 0:13:11.000 --> 0:13:14.360 Technology enables that kind of the reach that the Internet has, etcetera. 0:13:14.520 --> 0:13:16.840 You can buy I think anything you want almost on 0:13:16.920 --> 0:13:19.880 Amazon at this point. I mean you're basically stealing share. 0:13:19.880 --> 0:13:24.119 And that hyper aggregation function, driven by instantaneous everywhere communication, 0:13:24.240 --> 0:13:26.960 is one key piece of what technology provides and kind 0:13:26.960 --> 0:13:30.360 of why it's very hard to stop. Number two, you're 0:13:30.360 --> 0:13:32.200 in an era where kind of the public markets have 0:13:32.320 --> 0:13:35.600 been increasingly dominated by machines machine trading. They kind of 0:13:35.640 --> 0:13:38.520 simply follow rules. I'm greatly simplifying it, but if it 0:13:38.600 --> 0:13:41.280 was up yesterday or earnings beat or whatever, just by 0:13:41.360 --> 0:13:43.760 and I think you get that kind of rule following mentality, 0:13:43.800 --> 0:13:46.640 particularly is the market is starting to separate by signals 0:13:46.679 --> 0:13:49.959 with this sectors, with this big external influence called coronavirus, 0:13:49.960 --> 0:13:51.760 which I hope we get to. I think the last 0:13:51.760 --> 0:13:54.760 piece of the puzzle. I just want to throw a 0:13:54.800 --> 0:13:56.800 curveball because it's a question. It's on my mind, so 0:13:56.800 --> 0:13:58.120 I think you gotta go there. Anyway. Last piece of 0:13:58.120 --> 0:13:59.680 puzzle on the tech side is that it is the 0:13:59.720 --> 0:14:01.840 one place where there is growth. The thing that's scarce 0:14:01.880 --> 0:14:04.200 in this world is growth. So there's an old maximum 0:14:04.200 --> 0:14:06.520 in the equities and kind of more broadly markets as 0:14:06.520 --> 0:14:08.840 you buy what scarce growth is the scarce thing. There's 0:14:08.880 --> 0:14:10.480 a lot of cheap stuff as we can see, and 0:14:10.600 --> 0:14:13.160 energy and other parts of the market, but it's really 0:14:13.160 --> 0:14:15.120 hard to find true growth these days. And it's still 0:14:15.120 --> 0:14:18.480 in tech all right. So we're seeing a so often 0:14:18.600 --> 0:14:21.600 the SMP of a little more than one percent today, 0:14:21.680 --> 0:14:25.480 the Dow off one point three today, presumably on growing 0:14:25.520 --> 0:14:30.680 concerns about the coronavirus. Even given the today's so off, 0:14:30.800 --> 0:14:32.640 are you concerned at all that the markets maybe been 0:14:32.640 --> 0:14:36.480 a little too sanguine about the potential risk to economic 0:14:36.520 --> 0:14:39.840 growth coming from this virus coming out of China. I 0:14:40.120 --> 0:14:42.760 think the level of uncertainty around the policy response. So 0:14:42.800 --> 0:14:45.520 we've seen some of it, so water closings, for example, 0:14:45.720 --> 0:14:48.840 shutdown of flights. You've just seen some recent announcements about 0:14:48.840 --> 0:14:51.360 the airlines in the US cutting the flights. You know, 0:14:51.400 --> 0:14:53.040 the challenge error is two fold. It's not just the 0:14:53.040 --> 0:14:55.320 people traveling, it's the goods that move in the bellies 0:14:55.320 --> 0:14:58.080 of the plans, for example, and including when they're talking 0:14:58.120 --> 0:15:00.560 about shutting ports, moving lots of goods back and forth. 0:15:00.600 --> 0:15:03.080 So we haven't seen a lot of that just yet. Um, 0:15:03.120 --> 0:15:05.640 there's some good data, or at least some data historically 0:15:05.680 --> 0:15:08.840 that suggests that markets kind of tumble until we see 0:15:08.840 --> 0:15:10.720 a peak in the number of cases and the policy 0:15:10.800 --> 0:15:14.280 response gets really strong. At that point, there's some confidence 0:15:14.320 --> 0:15:17.360 that this is under control or in contained in some way. 0:15:17.520 --> 0:15:19.160 And I don't mean to be glib, but that's how 0:15:19.240 --> 0:15:22.280 financial markets tend to respond to things. So am I worried, 0:15:22.520 --> 0:15:25.000 not just yet. Number one, Yes, economy is a giant place. 0:15:25.040 --> 0:15:27.520 It's really hard to damage the battleship. Number two, we're 0:15:27.520 --> 0:15:30.240 pretty closed, you know, more or less we trade with ourselves. 0:15:30.240 --> 0:15:33.760 Only about six percent seven percent GDP is net basis 0:15:33.840 --> 0:15:37.200 at export import, and I'm greatly simplifying the numbers. I think. 0:15:37.280 --> 0:15:39.600 Number three, you know, we're in a place where, um, 0:15:39.680 --> 0:15:42.400 this has started in China, and some immediate actions have 0:15:42.440 --> 0:15:46.000 taken place. The World Health Organization actually praised China's efforts 0:15:46.000 --> 0:15:48.880 immediately and in some ways, uh, that may help limit 0:15:48.960 --> 0:15:51.800 the spread. So I think the overreaction here. Now back 0:15:51.800 --> 0:15:54.040 to my point and I'll stop on this has something 0:15:54.080 --> 0:15:56.160 to do with the machines. Things have been down a 0:15:56.160 --> 0:15:58.560 couple of days. You have an outside event a coronavirus, 0:15:58.600 --> 0:16:01.000 and hey, if it's down yester day, why not sell today? 0:16:01.080 --> 0:16:04.240 All right? Blame the machines that said I got to start. 0:16:04.280 --> 0:16:06.840 There's other things, but but you could say, you know, 0:16:06.880 --> 0:16:09.720 that's that's sort of what's driving the action here. If 0:16:09.720 --> 0:16:12.280 your thesis is right, though, and the US is an 0:16:12.280 --> 0:16:15.240 economy that can keep chugging along and is relatively immune 0:16:15.240 --> 0:16:17.880 to the scare that's weakening growth and expected to continue 0:16:17.880 --> 0:16:20.480 to weaken grow throughout Asia and beyond. Why is the 0:16:20.520 --> 0:16:23.520 Russell two thousand underperforming large caps? Why are we seeing 0:16:23.560 --> 0:16:26.080 a loss of two point four percent on the companies 0:16:26.120 --> 0:16:28.600 that are most leveraged to the U S economy while 0:16:28.800 --> 0:16:32.600 large multinational companies are outperforming. So I think there's two 0:16:32.680 --> 0:16:35.320 reasons for that. Um And and look, there's remains to 0:16:35.320 --> 0:16:37.800 be seen a lot about the coronavirus, and it's spread 0:16:37.880 --> 0:16:40.600 is not understood yet, and if it follows other patterns, 0:16:40.640 --> 0:16:42.080 it is coming here in the U S. And we 0:16:42.120 --> 0:16:44.000 do have to be thoughtful about it. But at least 0:16:44.000 --> 0:16:46.680 with respect to markets, two things matter a lot. One liquidity. 0:16:46.760 --> 0:16:48.400 There's a lot more in the big stocks than there 0:16:48.480 --> 0:16:51.680 isn't a little stocks. Um And to the financial position 0:16:51.720 --> 0:16:53.320 of many of these companies. So if you watch a 0:16:53.360 --> 0:16:55.120 lot of the data on the Russell two thousand, you 0:16:55.160 --> 0:16:57.240 know that the debt to eb DOT numbers are out 0:16:57.240 --> 0:17:00.640 of control. The debt burden and small company these days 0:17:00.760 --> 0:17:04.000 is four times what it is in the large companies. Financially, 0:17:04.000 --> 0:17:06.840 they are way more susceptible to just tiny changes in 0:17:06.880 --> 0:17:09.760 the revenue line. So even if we get you know, 0:17:10.040 --> 0:17:12.479 small effects in the US, they could be exaggerated by 0:17:12.480 --> 0:17:15.640 how much leverage is into the small cap space these days. 0:17:15.680 --> 0:17:18.320 So if I were thinking about the fundamentals and wanted quality, 0:17:18.359 --> 0:17:20.760 I'd want a better balance sheet, I'd want some way 0:17:20.800 --> 0:17:23.760 to manage um kind of subsidize the cost associated with 0:17:23.800 --> 0:17:25.800 all this. And I wouldn't want to have all that 0:17:25.880 --> 0:17:28.240 leverage if there were some risk to my top line. 0:17:28.280 --> 0:17:30.400 So I think that can tie back to why there's 0:17:30.400 --> 0:17:33.119 another performance. So what are your clients saying to you 0:17:33.200 --> 0:17:35.439 right now? Are they bringing up the coronavirus and what 0:17:35.480 --> 0:17:38.200 it means for global economic growth? Are they just saying, 0:17:39.080 --> 0:17:40.560 you know, I need to I need to be in 0:17:40.560 --> 0:17:42.959 this market. You know, we published a piece earlier this 0:17:43.000 --> 0:17:45.399 week and it's kind of tied to something we wrote 0:17:45.840 --> 0:17:48.239 the end of two thousand eighteen and carried through two 0:17:48.280 --> 0:17:50.199 thousand nineteen. It didn't look all that great because two 0:17:50.200 --> 0:17:52.600 thousand nineteen was up so much, but it said we're 0:17:52.720 --> 0:17:55.199 entering an era where it's time, given kind of all 0:17:55.200 --> 0:17:57.640 the dynamics that we've just talked about, to be more 0:17:57.640 --> 0:18:00.800 thoughtful about managing risk, diversify the portfolio is more, we're 0:18:00.800 --> 0:18:03.399 comfortable hold a little bit more cash um And what 0:18:03.480 --> 0:18:05.159 we tried to key off on our recent piece for 0:18:05.160 --> 0:18:07.800 this coronavirus is there's a lot of unknowns at this point. 0:18:08.000 --> 0:18:09.760 There may be a treating dip that we get out 0:18:09.760 --> 0:18:12.080 of this, but I think our view is that there's 0:18:12.119 --> 0:18:14.560 a lot of things related to the growth story that 0:18:14.840 --> 0:18:17.040 not only could coronavirus hit, but other things could hit 0:18:17.119 --> 0:18:18.760 that we want to be a little bit more cautious 0:18:18.760 --> 0:18:22.120 in this low, slow, central bank free money dominated world. 0:18:22.280 --> 0:18:25.040 What's your time frame of for investments? Typically we look 0:18:25.040 --> 0:18:26.879 at a minimum of two years. We're not really a 0:18:26.880 --> 0:18:29.480 trading house, you know. Most private clients, that's the folks 0:18:29.480 --> 0:18:32.560 that we manage money for, look over a longer time frame, 0:18:32.560 --> 0:18:34.400 although they are sensitive to the news of the day. 0:18:34.440 --> 0:18:36.440 All right, So if it's a two year time horizon, 0:18:36.520 --> 0:18:40.200 When does the coronavirus disruption end up becoming a trading 0:18:40.200 --> 0:18:43.760 opportunity on some level with that longer term horizon in mind. 0:18:44.240 --> 0:18:47.080 So I really hate to refer to old maximums, but 0:18:47.200 --> 0:18:50.360 sometimes they're very valuable to anchor the context. And um 0:18:50.680 --> 0:18:53.919 market stop panicking when policymakers start panicking is one that 0:18:54.240 --> 0:18:56.080 kind of goes around. And I don't know that we've 0:18:56.119 --> 0:19:00.439 seen full blown policy panic, like shut everything down, getting mad. 0:19:01.840 --> 0:19:03.719 I think you're gonna go right back to the places 0:19:03.760 --> 0:19:05.240 that are scarce, So you're gonna go right back to 0:19:05.280 --> 0:19:07.880 the technology, right back to the growth stories that I've 0:19:07.880 --> 0:19:09.600 come under pressure with this, And I think you know, 0:19:09.720 --> 0:19:11.520 tech is actually held up pretty well here today. If 0:19:11.560 --> 0:19:14.080 you look at the numbers, the growth stories that were 0:19:14.119 --> 0:19:18.080 requiring China, Japan and basically Asia to grow strongly are 0:19:18.119 --> 0:19:20.200 all under the most arrest. They probably have the most 0:19:20.240 --> 0:19:23.119 rebound potential all the longer term. I don't think we're 0:19:23.160 --> 0:19:26.439 as as positive on the hyper aggregation stories, I mean 0:19:26.440 --> 0:19:28.600 on those as we are in hyper aggregation. Christopher Wolf, 0:19:28.640 --> 0:19:30.359 thank you so much for joining us to really appreciate 0:19:30.440 --> 0:19:34.480 your commentary. Christ Wolf is chief Investment officer for First 0:19:34.480 --> 0:19:37.760 Republic Private Wealth Management based in San Francisco, but joining 0:19:37.840 --> 0:19:40.880 us here in our Bloomberg Interactive Broker Studio, would mention 0:19:40.920 --> 0:19:42.439 to seek, I mean we're off, you know, more than 0:19:42.480 --> 0:19:44.600 one percent here on the SMP. Is this a buy 0:19:44.720 --> 0:19:47.600 on the dip? Again, Lisa, this isn't a dip, Okay, 0:19:47.680 --> 0:19:49.840 I mean this is not this is not this is 0:19:49.840 --> 0:19:51.720 not a dip. This is this is this is normal 0:19:51.760 --> 0:19:54.560 market action, right. I mean this is not, uh, something 0:19:54.600 --> 0:19:56.520 where you can look at it and say, wow, this 0:19:56.640 --> 0:19:58.600 is just absolute fear. I mean the doubt you're seeing 0:19:59.320 --> 0:20:01.640 more of declare line and the SMP. Sure it's down 0:20:01.640 --> 0:20:04.080 more than so we'll bring that up with Da Wilson coming. 0:20:04.359 --> 0:20:06.720 You better believe we're gonna bring up with no But 0:20:06.720 --> 0:20:09.280 but to me it raises it raises a really interesting 0:20:09.359 --> 0:20:11.199 question I think Tom Keene raises this morning, and I 0:20:11.200 --> 0:20:14.399 thought it was really important, which is how money, how 0:20:14.480 --> 0:20:16.600 much of the gains are gone right, and how much 0:20:16.600 --> 0:20:18.719 can you sort of believe in the growth stories if 0:20:18.760 --> 0:20:20.600 the global growth isn't going to happen. And I think 0:20:20.600 --> 0:20:22.560 that that's sort of a bigger question that remains to 0:20:22.600 --> 0:20:25.359