Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Jason Kelly. We're here every day bringing you the latest
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Speaker 1: Business Week Live at n j I T here in Newark,
Speaker 1: New Jersey. Much more to come from here, but also
Speaker 1: a big, big deal that we've got to talk about. Man.
Speaker 1: I saw this, and I wasn't surprised because there's been
Speaker 1: so much consolidation, certainly in the money management area that
Speaker 1: you know, move to be bigger, right, and we keep
Speaker 1: seeing it. So Morgan Stanley diving deeper, specifically into retail
Speaker 1: buying each rade. It was a thirteen billion dollar deal,
Speaker 1: So uh yeah, this certainly got our our attention, right.
Speaker 1: Channali Bossa caught up with James Gorman, cy of Morgan
Speaker 1: Stanley to get his We're gonna hear from her and
Speaker 1: from him later on, and we're also gonna hear about
Speaker 1: um the aftermath of last night's Democratic debate heated. You
Speaker 1: could use a lot of words, sparks flying. Uh, So
Speaker 1: we're gonna get into that. It's a blood bath. I
Speaker 1: think it's one way I've heard it described. We're gonna
Speaker 1: do that, and then back here, we're gonna have the president,
Speaker 1: our host join us talk about what's going on in
Speaker 1: the world of higher education, also the future of work.
Speaker 1: That's sort of the theme that we're going to be
Speaker 1: going forward today. President of n j I t CEO
Speaker 1: of top Coder, and also the key executives are some
Speaker 1: key executives I should say at Nokia, Siemens and Mark
Speaker 1: and yes, you're right, Jason. It's all about focusing on science, innovation,
Speaker 1: entrepreneurship when it comes to startups, industry, and then what
Speaker 1: does it mean for workers out there? So looking forward
Speaker 1: to that. All right, let's set the Business week agenda.
Speaker 1: In the meantime, a lot to talk about in the
Speaker 1: markets today. We talked about the deals and you also
Speaker 1: heard the numbers from Charlie Pellett on the Trade Gina
Speaker 1: Martin Adams there in our Bloomberg Interactor broker studio. She
Speaker 1: of course is the chief equity strategist for Bloomberg Intelligence,
Speaker 1: and she's there with Dave Wilson, our Stocks editor of
Speaker 1: the throw the chart in Stock of the Day, Gina,
Speaker 1: I want to start with you, what's the one thing
Speaker 1: investors are thinking most about today as they try and
Speaker 1: assess what's going on in the market. You know, I
Speaker 1: think a couple of issues have really come up over
Speaker 1: the last couple of weeks that are still weighing on
Speaker 1: investors minds. The first is is tech overbought the market?
Speaker 1: So much on the markets concentrated and gains have been
Speaker 1: concentrated in the tech sector. In particular, the biggest stocks
Speaker 1: in the tech sector, you know, Microsoft and Apple now
Speaker 1: together worth more than the entire Russell two thousand combined.
Speaker 1: Has some investors kind of running for the hills and
Speaker 1: a little scared of tech. The second thing I'm hearing
Speaker 1: about is kind of this underlying market condition where low
Speaker 1: volatility stocks are actually still outperforming. You know why is
Speaker 1: utility is the only sector that's outperforming with tech in
Speaker 1: such a strong manner over the course of this year.
Speaker 1: And then lastly is when are we going to buy
Speaker 1: the dip and energy? And this is what we focused
Speaker 1: a lot of our research on this week is kind
Speaker 1: of you know, is the energy sector actually cheap? Is
Speaker 1: it all about E? S G? Where what do the
Speaker 1: multiples say about energy? And can you dip into this
Speaker 1: extremely underloved space. Well, and I love what you said
Speaker 1: about energy. I saw that research, Gina, and you're kind
Speaker 1: enough to share it with us. But you know, maybe
Speaker 1: that the energy sector isn't as cheap as valuation suggest right,
Speaker 1: just because something is cheap, maybe there's some really strong
Speaker 1: fundamental reasons behind it, which maybe means it isn't still
Speaker 1: a buy. Yeah, it's I mean, it's kind of fascinating, right,
Speaker 1: because investors have pointed to valuation ratios being now nearly
Speaker 1: a standard deviation below five year average as one of
Speaker 1: the reasons why you want to look at the space
Speaker 1: as potentially deep value. But when you look at the
Speaker 1: the energy sector's history, the counter cyclicality of the pe
Speaker 1: ratio for energy actually suggests that it's not cheap. And
Speaker 1: where you want to buy energy is when it's supposedly
Speaker 1: expensive based upon valuation multiples, So that argument just doesn't
Speaker 1: work as a catalyst. I think the other thing you
Speaker 1: want to watch is, you know, frankly, even though energy
Speaker 1: looks relatively cheap in comparison to the rest of the end,
Speaker 1: it should be cheap with such a low r o E.
Speaker 1: So even if you exclude the counter cyclicality in the
Speaker 1: earning stream and you think about things like what's the
Speaker 1: price to book for the energy space, Well, it's at
Speaker 1: about one and a half times earnings. Okay, that seems
Speaker 1: cheap relative to the SMP, which trades at a price
Speaker 1: to book closer to three and a half. But considering
Speaker 1: the low return on equity you get out of energy stocks,
Speaker 1: price the book should be one. So you know, I
Speaker 1: just think you really want to dig into the data
Speaker 1: a little bit more carefully. Yeah, it's only three and
Speaker 1: a half percent of the SMP five DRED. It's been
Speaker 1: on the slope of hope, just constant negative price performance,
Speaker 1: eventually at may bottom. But just saying the stocks are
Speaker 1: cheap probably isn't the catalyst you need. Alright, slope of hope.
Speaker 1: I feel like that's a band that Dave Wilson probably
Speaker 1: has some vinyl from that he's gonna play this weekend.
Speaker 1: Dave Wilson, come on in here. What are you seeing
Speaker 1: in the trade that you feel like should be top
Speaker 1: of mind? Well, really, it's kind of a takeover Thursday,
Speaker 1: you can put it that way. I mean each trade
Speaker 1: very much front and center as far as that goes.
Speaker 1: You got the requisite decline and the shares in Morgan
Speaker 1: Stanley in response to their deal, and then you look
Speaker 1: beyond that, I mean you see Marathon Petroleum up four percent.
Speaker 1: We have people familiar with the matter telling us that
Speaker 1: there are now exclusive talks with the owner of the
Speaker 1: convenience store chain seven eleven about the potential sale of
Speaker 1: the gas stations under the Speedway name for about twenty
Speaker 1: two billion dollars. So that's definitely proven to be a
Speaker 1: plus for that stock. And then there's l Brands, I mean,
Speaker 1: which is a fascinating content himself. Yeah, I mean, selling
Speaker 1: Victoria's secret at stake to the private equity firm Sycamore
Speaker 1: Partners in value at just one point one billion dollars,
Speaker 1: and it's a company that even today has about six
Speaker 1: and a half billion dollars in value, which just tells
Speaker 1: you how much things are kind of eroded a Victoria's secret,
Speaker 1: at least in the minds of l brands. So they
Speaker 1: make the deal in the stock falls, you know, which
Speaker 1: is really telling as well. So you know, we've got
Speaker 1: the good and the bed and then you can throw in,
Speaker 1: you know, the first Starney's report out of Viacoms CBS
Speaker 1: since their deal got done in December, and the shares
Speaker 1: are down those numbers from the fourth quarter worst performing. Yeah, hey, Gina,
Speaker 1: what does it mean when you're seeing still, you know,
Speaker 1: deal flow happening right M and A activity. I always
Speaker 1: trying to, you know, balance that out with what we're
Speaker 1: seeing in kind of market activity. Does it say where
Speaker 1: we are in this market cycle? Does it tell us
Speaker 1: about the health of the market it side to you,
Speaker 1: you know, I think that uh M and A continuing
Speaker 1: is a combination of very very low rates which allow
Speaker 1: access to capital, plenty of cash still sitting on corporate
Speaker 1: balance sheets, and an intensely competitive environment where companies are
Speaker 1: finding it more difficult to grow organically and looking for
Speaker 1: an opportunity to buy growth, to tack on growth, to
Speaker 1: find some higher growth areas of business. Simply because the
Speaker 1: economic environment is very slow. It's not indicative necessarily of
Speaker 1: what where equity prices are going to head. It usually
Speaker 1: tends em and it usually tends to improve as the
Speaker 1: cycle progresses and peak at the peak of the cycle.
Speaker 1: But you know, as we all know, predicting when the
Speaker 1: peak of that equity mark its cycle is is notoriously difficult.
Speaker 1: So I'd just say it's a reflection of the competitive landscape,
Speaker 1: slow growth and very very easy access to capital more
Speaker 1: than anything else. Alright, Our thanks to both of you.
Speaker 1: Dave Wilson, stocks editor for Bloomberg, you'll be back with
Speaker 1: us at the bottom of the three o'clock hour to
Speaker 1: talk about your chart of the day. Our thanks to
Speaker 1: to Gina Martin Adams, chief equity strategist for Bloomberg Intelligence,
Speaker 1: writ down among presentians, coffee beans grow by, So that
Speaker 1: we are going to talk about coffee probably taking for granted,
Speaker 1: just assume it's going to be there, But there's a
Speaker 1: lot that goes into it. And this story that's in
Speaker 1: Bloomberg Business Week is about crop software that's actually behind
Speaker 1: that daily cup of coffee. Let's get into the story.
Speaker 1: Jillian Goodman is an editor at Bloomberg Green. She joins
Speaker 1: us along with Jim Allie, whose deputy editor of Bloomberg
Speaker 1: Business Week. Both of them back in our Bloomberg Interactive
Speaker 1: Broker studio in New York. Love this story. Fascinating story. Um, Jim,
Speaker 1: let's start with you. I don't know how did the
Speaker 1: story come to you? I think it was came directly
Speaker 1: from Amanda. Amanda Little, the writer of the piece. She
Speaker 1: published a book last year called The Fate of Food,
Speaker 1: I think, the Future of Food, and so she's done
Speaker 1: a lot of yes, So she's done a lot of
Speaker 1: reporting and writing about these things that are trying to
Speaker 1: envision in Okay, you know all of the variables that
Speaker 1: are affecting our global food supply, be it you know,
Speaker 1: climate change or trade pressures and whatnot. You know, how
Speaker 1: is that going to change the way we eat or drink?
Speaker 1: And so, why why is coffee so interesting to you guys, Jillian? So,
Speaker 1: coffee is actually a really finicky crop, or at least
Speaker 1: the kind of coffee that that goes for a higher
Speaker 1: price that producers need to sell to make a living. Um,
Speaker 1: it grows only in a very particular region and requires
Speaker 1: very particular conditions, and it's not the kind of thing
Speaker 1: where you know, if that regions suddenly becomes inhospitable, they
Speaker 1: can just move. Really, the only place they can move
Speaker 1: is higher up these mountains with that that have the
Speaker 1: soil that these things grow in, and so eventually they
Speaker 1: will just run out of dirt. These are the kind
Speaker 1: of stories I love that Business Week does, right because
Speaker 1: who knew this was going on? Jim, come on in
Speaker 1: on this because it's actually a software company, right that
Speaker 1: is helping out some of these growers. Yeah, I mean
Speaker 1: one of the you asked what was so appealing about
Speaker 1: the story, one of the things that really attracted me
Speaker 1: about it was the it's a it's an incredibly complicated system.
Speaker 1: I mean, it's a simple outcome having a cup of coffee,
Speaker 1: but it's it's just uh, what was it coffee being
Speaker 1: changed his hands like six times? Preposterous. Yeah, it's really
Speaker 1: really complicated. And I love stories that that show that
Speaker 1: that basically provides some clarity and a little bit of
Speaker 1: simplicity and on something that's complicated. Well, and Jim, it's
Speaker 1: funny you know reading this, like even just reading sort
Speaker 1: of the top of it, it takes me back to
Speaker 1: like the days when you and I first worked together
Speaker 1: at eat company now right, it's like, oh, there's this
Speaker 1: cool company called Cropster, and like back in those days,
Speaker 1: is it would have been this like overly simple thing
Speaker 1: where you're like, okay, yeah, like cool name. But this is,
Speaker 1: as you say, like really complicated. This feels like a
Speaker 1: really good use of software because it does, to your point,
Speaker 1: sort of break down this very complex thing. How does
Speaker 1: this fit into the sort of broader tech landscape that
Speaker 1: I feel like, you know, really well, it's coffee as
Speaker 1: a platform, you know, it's uh, I think I think
Speaker 1: it's taking They're basically doing the full stack, you know,
Speaker 1: from the from the from the beans themselves, the plants themselves,
Speaker 1: all the way up to the roasters. Well that's one
Speaker 1: of the other really interesting things about this company is
Speaker 1: that it started on the coffee producer side to try
Speaker 1: and help them, you know, make money from their beans,
Speaker 1: but where they've really found their revenue is on the
Speaker 1: roaster side. They've also developed the software that helps roasters
Speaker 1: really on a granular level, control the roast of their beans,
Speaker 1: which is why suddenly your neighborhood coffee shop is roasting
Speaker 1: their own means where you know, it used to be
Speaker 1: that they couldn't have the capability. Also in this case,
Speaker 1: I think it's but it's not a oh I was
Speaker 1: going to say. The the technology also in some ways
Speaker 1: is could end up as a kind of an equalizer,
Speaker 1: basically shift some of the power back to the growers themselves,
Speaker 1: which which I think is interesting and important. Well, and
Speaker 1: you know, really important too is global food supplies. Right,
Speaker 1: And it's not just maybe perhaps with cropster. You know, um,
Speaker 1: it's not just about coffee guys, right, Jim or or Jillian,
Speaker 1: either of you can take this. I mean it should
Speaker 1: chocolate eventually. Staples, right, he really has a global vision
Speaker 1: for this because you know what's happening in the coffee
Speaker 1: belt where the climate is a little more finicky, It's
Speaker 1: not just there, It's happening all over the world. And
Speaker 1: so eventually, you know, producers will need to adapt and
Speaker 1: will need to find new markets for their product, and
Speaker 1: and on the other side, people will need to find
Speaker 1: new growers. You know. One other thing that another thing
Speaker 1: that really fascinated me about this is it's kind of
Speaker 1: the software has sort of become a secret ingredient for
Speaker 1: pretty much everybody at a certain level of the industry.
Speaker 1: I mean, every roaster uses this. I had no idea,
Speaker 1: and I love pieces that reveal something about how the
Speaker 1: world really works. So what does the software actually do, like,
Speaker 1: how does it operate? What does it do for for
Speaker 1: a grower? So for a grower it allows them to well,
Speaker 1: it also encourages them to track certain data points about
Speaker 1: their crop that roasters are going to be looking for.
Speaker 1: So historically this has all been very low tech. I
Speaker 1: think we have a quote in the piece someone talking
Speaker 1: about how people didn't even measure the moisture content of
Speaker 1: the beans when they were deciding okay, are these ready
Speaker 1: to be shipped out? They just took a bite, you know,
Speaker 1: there were no sensors involved. And that's the kind of
Speaker 1: thing that will that allows you to charge more for
Speaker 1: your product. And so it's everything from you know, the
Speaker 1: moisture content to the beans, to the content of the soil,
Speaker 1: will to how long have they dried before they go
Speaker 1: out to roasters and all of that just allows them
Speaker 1: to make a better sales pitch. Well, the other thing
Speaker 1: we point out, which I feel like anyone who's listening
Speaker 1: and watching will will really recognize, is this notion of
Speaker 1: sort of the waves of coffee and and Amanda do
Speaker 1: Iss a great job of describing first wave of big
Speaker 1: brand that's the Maxwell House and Folders, the second wave
Speaker 1: Starbucks and Pete, and then you know this third wave
Speaker 1: that we're really in the midst of, and it it
Speaker 1: plays much broader. And Jim, I know, you uh and
Speaker 1: Jillian both see this. You know, this idea of a
Speaker 1: boutique uh sort of culture where we really care about
Speaker 1: where it's coming from. We want to know a lot
Speaker 1: more transparently about what we're eating and wearing and all
Speaker 1: of those different things. Right. It's also coming out of
Speaker 1: time right where climate change is threatening. You know, so
Speaker 1: many different crops around the world, right, and so you know, potentially, Jillian,
Speaker 1: this could be something that could help with that. Absolutely.
Speaker 1: Well into Jim's point, a lot of the really expensive coffee,
Speaker 1: those proceeds don't go back to the growers, they go
Speaker 1: back to all of those six people and supply. Yeah. Yeah,
Speaker 1: it's a really good point. Well, it's a great story.
Speaker 1: Thank you both for joining us. Jillian Goodman is an
Speaker 1: editor over at Bloomberg Green. She was in her Bloomberg
Speaker 1: Interactor Broker studio alongside the great Jim Ailey, Deputy editor
Speaker 1: of Bloomberg Business Week. Who I know. Love the fact
Speaker 1: that I referenced back to E Company. Now that's where
Speaker 1: he and I first met as a startup magazine back
Speaker 1: in the day. Best will back me up on this
Speaker 1: best startup party ever pack Bell Park, the Bear Naked
Speaker 1: Ladies play. Come on, it was the best. Yeah, you
Speaker 1: still have the hat? You still have that. I still
Speaker 1: have the I don't have the free palm pilots that
Speaker 1: we handed out, but I do have the pilots. Yeah.
Speaker 1: It was quite I still have a picture of me
Speaker 1: at home plate anyway. All Right, all right, appreciate it,
Speaker 1: Jamally and Jillian goodmanute. This is Bloomberg Business Week with
Speaker 1: Carol Masser and Jason Kelly on Bloomberg Radio. Some deal
Speaker 1: news though. Today Morgan Stanley agreed to buy a discount brokerage,
Speaker 1: E Trade Financial, a thirteen billion dollar deal really pushing
Speaker 1: further into the retail market. It's biggest acquisition for Morgan
Speaker 1: Stanley since the financial crisis. Earlier are Schnelli Bossa caught
Speaker 1: up with Jim Gorman, of Chairman and CEO of Morgan Stanley.
Speaker 1: Here's what he had to say. I've always felt that
Speaker 1: the trade was an incredible brand and incredible company, had
Speaker 1: great technology. We're clearly doing stuff on the digital side
Speaker 1: at a pace that was ahead of where we were.
Speaker 1: So we had that constant debate of sort of build
Speaker 1: verses by, and you know, we felt we're in the
Speaker 1: condition to make a bold move and we went for it.
Speaker 1: James Gorman, of course, the chairman and CEO of sometimes
Speaker 1: you call him Jim Jim. I didn't know where that
Speaker 1: came from. Jay Dog. Yeah, we've talked with him, spent
Speaker 1: some time with him. Also spent some time with him.
Speaker 1: Of course she did the interview this morning. I'm calling
Speaker 1: him Jim. I don't know where it came from. Shinnally,
Speaker 1: she's Wall Street reporter at Bloomberg News. She's back in
Speaker 1: her interactive broker studio. I'm blaming the cold medicine today. Um,
Speaker 1: so this was a big deal. We're seeing, we continue
Speaker 1: to see consolidation within this industry. Huge, huge, huge. You know,
Speaker 1: I asked him was the biggest deal? It was just
Speaker 1: the biggest day of his life. He said, you know,
Speaker 1: it was this and Smith Barney back in two thousand
Speaker 1: and nine, and we have not seen a US bank
Speaker 1: make a deal like this as you know, since the
Speaker 1: financial crisis, everyone on Wall Street of scratching their heads.
Speaker 1: Some of them see the rationale immediately, and some of
Speaker 1: them are still wondering whether this is the right thing. Yeah,
Speaker 1: so laid that out for us. Shinali like, why does
Speaker 1: it make sense? And why are people For those who
Speaker 1: say yeah, a good deal, what are they saying? And
Speaker 1: for those who are like what what do they saying?
Speaker 1: So on one hand, he wants to build a full
Speaker 1: scale digital bank. For many years now Morgan's they only
Speaker 1: had a wealth manager with many trilli of dollars under management. However,
Speaker 1: what they weren't doing was making that into a full
Speaker 1: scale bank. They weren't doing checkings and savings and a
Speaker 1: whole lot of lending. They wanted to do more lending.
Speaker 1: But now they have that opportunity. Now they're also going
Speaker 1: more downstream in terms of what their clientele looks like.
Speaker 1: They used to only manage wealthy and very very very
Speaker 1: wealthy individuals money, and now they are really trying to
Speaker 1: become Bank of America. But for the people who are
Speaker 1: more and that and that, Oh sorry, well I was
Speaker 1: just gonna say, let's let's let's go down that road.
Speaker 1: For a second. I mean that that really struck me too,
Speaker 1: is that, like this is trying to be more like
Speaker 1: B of A than say Goldman, Right, So this is
Speaker 1: that that is the one thing. Is this an offensive
Speaker 1: or is it a defensive deal? Because you do have
Speaker 1: Golden Facts that also wants to be a big wealth manager,
Speaker 1: a big consumer bank. So you can do that yourself
Speaker 1: by doing a partnership with Apple, for example, or you
Speaker 1: can market fifteen billion dollar deal. So Mike Mayo Wells
Speaker 1: Fargo called the deal value destroying, saying that with an
Speaker 1: estimated three point one billion dollar stock premium, you're only
Speaker 1: going to get one point six billion dollars of savings.
Speaker 1: So financially doesn't make sense. It's just wrote a lot
Speaker 1: of value when you look at Morgan Stanley stock today
Speaker 1: because investors, I mean, I know it's been a lower
Speaker 1: market overall, but investors certainly weighing in and they're not happy.
Speaker 1: So what is it going to be? Key? I always
Speaker 1: thinking a deal like this when there's so much skepticism
Speaker 1: out there, shinale, what will be kind of I don't know.
Speaker 1: If Mike laid out some metrics that he wants to
Speaker 1: see as a result of this combination in six months
Speaker 1: or a year. What do we have to see to
Speaker 1: know that it's working well? This is the thing. Morgan
Speaker 1: Stanley even told you it's going to take some time.
Speaker 1: Morgan Stanley said it will take three years before this
Speaker 1: deal is a creative which is why on the face
Speaker 1: of it, immediately it's really hard to say, hey, I
Speaker 1: love this deal. And also they said they were wanting
Speaker 1: to stick to their buy backs. But this is a
Speaker 1: very expensive deal. So over the longer term, over the
Speaker 1: next couple of years, how much money can they return
Speaker 1: to shareholders even if this deal makes a lot of sense.
Speaker 1: I love Shrine Natarajans our colleague. That's trending so high
Speaker 1: on the most red list right now, Shinali where uh
Speaker 1: he talks about you know, Morgan Stanley betting E trade
Speaker 1: will dodge the Dean Witter jokes um and and I'm
Speaker 1: just gonna read the lead. Morgan Stanley's murder of quarter
Speaker 1: century ago with a brokerage that had branches and sears
Speaker 1: was met with sneers. Wall Streeter's joked it was a
Speaker 1: deal combining white shoes with white socks. I mean, that's
Speaker 1: kind of amazing in a way. Right. Do you remember
Speaker 1: they used to call it stocks and socks because they
Speaker 1: would try to sell stocks and sears branches. Uh. Yeah,
Speaker 1: it didn't really work that well, did it? And so
Speaker 1: will it work this time around? I remember, just a
Speaker 1: couple of months ago, I was sitting at a lunch
Speaker 1: with the former Morgan Stanley in Weston banker, one of
Speaker 1: the top bankers in the world, and he started joking
Speaker 1: because you know what makes Morgan Stanley so successful? And
Speaker 1: I say what? And he goes the stock brokers, he
Speaker 1: goes all those people around America that are pedaling with stocks,
Speaker 1: and you know that that is a tough one because
Speaker 1: you remember when Morgan Stanley, if you think about it,
Speaker 1: it's also one of the world's top investment banks. Gorman
Speaker 1: said he owns a pair of jeans. He's not worried
Speaker 1: about the culture clash. But is that true? Let's see
Speaker 1: how that played out. But but I mean, we know
Speaker 1: the train had to do something right because of the
Speaker 1: TV marriage trade and Schwab hook up, so we knew
Speaker 1: the trade was on the hunt. But it's just interesting
Speaker 1: that Morgan Morgan Stanley was the one who did it.
Speaker 1: And you know what does that mean for now others.
Speaker 1: What does this mean for interactive brokers? What does this
Speaker 1: mean for Robin Hood? I think it could become a
Speaker 1: real problem because you see Wall Street playing the stating
Speaker 1: game and matching up very quickly, and there are other
Speaker 1: firms that you start to question does this business model work.
Speaker 1: The thing we didn't talk about about the trade was
Speaker 1: the fact that fees are going to zero, and so
Speaker 1: Morgan Stanley does get scale. They have a three trillion
Speaker 1: dollar asset manager now compared to two point six trill
Speaker 1: in at ubs. So that's great. How do you make
Speaker 1: money off of those clients? That's the question, right, Yeah,
Speaker 1: and those are very different kind of asset managers, as
Speaker 1: you know, far better than we do. All right, Shinelli Bask,
Speaker 1: Thank you so much. Great interview with James Morgan, ro
Speaker 1: Marc a journal. Yeah but you let me drive. Oh no,
Speaker 1: no, no no, non please, I'll do the road rivals me.
Speaker 1: I want to drivel, Just drive, baby, it's the questions trying.
Speaker 1: This is the Drive to the Globe Community. Thanks. We'll
Speaker 1: drying us on Bloomberg Radio and it's time for the
Speaker 1: Drive to the closed. Markie Patel back with US, senior
Speaker 1: portfolio manager for Wells Fargo as set management. They look
Speaker 1: after more than half a trillion dollars five hundred nine
Speaker 1: billion dollars. Give her takes, She joined on the phone
Speaker 1: from Boston. All Right, Margie, we're feeling pretty good about
Speaker 1: this market the last day or two when here comes
Speaker 1: a little bit of a bearish feel. What are people
Speaker 1: thinking out there? What are you thinking? Well, I'm thinking
Speaker 1: this is just another one of those minor little shades
Speaker 1: that we have that never follows through and correction. We
Speaker 1: hit the market us down a lot more this morning,
Speaker 1: it's already come back, and when you think about all
Speaker 1: the negatives out of China, it really telegraphs the fact
Speaker 1: the market has tremendous Southern life support and really wants
Speaker 1: to go higher from here. I do wonder at some point,
Speaker 1: obviously we're going to get through, you know, hopefully sooner
Speaker 1: rather than later, the coronavirus, right, and we'll have a
Speaker 1: stop to it and we'll know kind of the final cost.
Speaker 1: I do wonder when you start to take that out,
Speaker 1: when you look at the fundamentals that are out there, Margie,
Speaker 1: is it a good Enviro pernament for the equity markets? Well?
Speaker 1: I think it's Okay, it's good enough with interest rates
Speaker 1: continuing to be at these very low levels one to
Speaker 1: two percent, and I think that's a good enough back drop.
Speaker 1: The set is committed to liquidity to make equities outperform
Speaker 1: um the fixed income classes, particularly treasuries. And this was really,
Speaker 1: i'd say, a pretty mediocre earning seasons after all, So
Speaker 1: we didn't say much of a negative correction from that.
Speaker 1: And so what do you make of earnings going forward
Speaker 1: into the next quarter of excuse me um, you know,
Speaker 1: especially given maybe some of that backdrop of the virus
Speaker 1: and that's starting to play through even you know, the
Speaker 1: lakes of Apple and other big names. I think the
Speaker 1: market will look and differentiate and say which of those
Speaker 1: names have a temporary hit because of the China virus
Speaker 1: and will bounce back going forward. And what's important to
Speaker 1: me as the fact we had the pretty much globally
Speaker 1: monetary authorities have the East over the last year, and
Speaker 1: it will take a quarter or two for that easing
Speaker 1: to flow through into better economic growth. So we may
Speaker 1: be pretty much near the the bottom rate and economic
Speaker 1: growth trying to take in a little downtick, and maybe
Speaker 1: we may see somewhat better growth in the second half
Speaker 1: of the year, so again that would support equity prices
Speaker 1: up from here. What's interesting you like another guest that
Speaker 1: we had earlier in the weekendink it was Henley Smith
Speaker 1: who talked about UM believing that many investors are still
Speaker 1: underinvested in the equity markets. I think Henley specifically talking
Speaker 1: about cash on the sidelines. What's out there that tells
Speaker 1: you that there's cash on the sidelines. Well, I think
Speaker 1: not only is there cash on the sidelines, but there
Speaker 1: are billions of dollars i'd say trapped in low vall
Speaker 1: low volatility strategy as a reaction to the financial crisis
Speaker 1: and O eight that is still poised there waiting for
Speaker 1: the big correction to jump in. Big correction is never UM.
Speaker 1: This money is gradually going to be flowing out of
Speaker 1: those low volatility, low return sectors into the equity market,
Speaker 1: and I think that's what's really providing the floor where
Speaker 1: we don't really see any big equity correction even when
Speaker 1: we get bad news. And so what sort of sector
Speaker 1: has become appealing in this type of market markie low
Speaker 1: interest rates and you know, maybe a slower earnings growth
Speaker 1: and all the things that you describe where do you
Speaker 1: put your money. Well, we're still sticking with what looks
Speaker 1: like secular growing areas, so that is technology, health care,
Speaker 1: and certain parts of the industrials market. We also think
Speaker 1: the utility sector will continue to be at least an
Speaker 1: average performer, which is pretty good because they should have
Speaker 1: mid single digital earnings growth plus dividend yield. So we
Speaker 1: think that if we are looking at say eight ten
Speaker 1: type of toll return for the year, those sectors all
Speaker 1: be very competitive. Well, and I do wonder though, then
Speaker 1: in this environ meant um, what's the mix you know,
Speaker 1: or how much do you want to kind of throw
Speaker 1: in cash at this point? I mean, what's what's the
Speaker 1: part poliomics that you're looking at right now? Well, we're
Speaker 1: pretty fully invested, and as I said, I wouldn't be
Speaker 1: surprised to see some of the cash on the sideline
Speaker 1: come in because returns are so low. But also these
Speaker 1: other parts of the financial markets that have really perspectively
Speaker 1: very low rates of return finally throwing in the towel
Speaker 1: and now locating more money into I think US equities
Speaker 1: because I think the US market still has the best
Speaker 1: fundamentals globally, so I think we'll still see money domestically
Speaker 1: plus foreign money come into the US equity market. Margie,
Speaker 1: how soon in do you start to make decisions based
Speaker 1: on the political climate. Well, I think we have to
Speaker 1: sort of round the bend on mid year and see
Speaker 1: who the candidates will be from the two major parties.
Speaker 1: And uh, I'm not putting any money yet on the
Speaker 1: elections either way, too, we have much clearer picked. I
Speaker 1: may even wait until we see the election and see
Speaker 1: where that really leaves us as far as UH is,
Speaker 1: what the opinions are towards government action, little effect the
Speaker 1: financial markets. All Right, We're gonna leave it on that now, Markie,
Speaker 1: thank you so much for your time today. Market Patel,
Speaker 1: she's senior portfolio manager at Wells Fargo Asset Management five
Speaker 1: nine billion dollars in assets under management and joining us
Speaker 1: on the phone from Boston. Thanks for listening to Bloomberg
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