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We've Been Reducing Risk As Cycle Nears Peak: Commonwealth CIO · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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• 0:27
  Speaker 1: We are broadcasting live from the Commonwealth Financial Networks Annual
• 0:30
  Speaker 1: National Conference of Advisors from the Marriotte in Austin, Texas.
• 0:34
  Speaker 1: We are so pleased to say we are joined now
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  Speaker 1: by Brad McMillan, Managing Principal and Chief Investment Officer at
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  Speaker 1: Commonwealth Financial Network And Brad, given the fact that you
• 0:44
  Speaker 1: look after assets of more than one and a half
• 0:47
  Speaker 1: billion dollars, I'm just wondering from your d and fifty
• 0:51
  Speaker 1: six billion dollars. Excuse me, I'm just wondering from your perspective,
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  Speaker 1: whether the October route in stock markets reduced the froth
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  Speaker 1: enough to make a buying opportunity at this point. Well,
• 1:02
  Speaker 1: when you look at valuations, and I think that's really
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  Speaker 1: the only way we can look at it. What October
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  Speaker 1: told us was there is a lot of excess confidence
• 1:11
  Speaker 1: in there. So on the one hand, we're down at
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  Speaker 1: the lower level of valuations we've seen for the past
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  Speaker 1: five years. You can make a good case that, yeah,
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  Speaker 1: the froughth is out of the system. I'm not convinced
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  Speaker 1: to that, though, because I think the underlying reality is
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  Speaker 1: we're starting to see interest rates move back into something
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  Speaker 1: closer to a normal level, and I think that ultimately
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  Speaker 1: that's going to apply value imply the valuations dropped to
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  Speaker 1: something like a normal level. So I think this is
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  Speaker 1: just the opening round. I don't think it's gonna happen soon,
• 1:40
  Speaker 1: but we can definitely see the time or clicking. Brad.
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  Speaker 1: Can I just push a little bit and say normal
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  Speaker 1: for whom because there's of us who are old enough
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  Speaker 1: to remember interest rates? Yes, I agree with you, but
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  Speaker 1: there are people who have come of age during a
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  Speaker 1: time when money was relatively inexpensive. That's a great question, Tim,
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  Speaker 1: and it's really kind of what we struggle with because
• 2:02
  Speaker 1: I have some younger folks on my team, and for them,
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  Speaker 1: normal is to you know, that is what they've grown.
• 2:08
  Speaker 1: You tell them that it used to be ten percent,
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  Speaker 1: fifteen percent, and that the world didn't end. I get
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  Speaker 1: the look you used to give your dad and I
• 2:16
  Speaker 1: used to give my dad when you talked about walking
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  Speaker 1: uphill to school both ways, So they don't really believe it.
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  Speaker 1: But nonetheless, you can already see right now. We saw
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  Speaker 1: interest rates dropped significantly in two thousand and eight, and
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  Speaker 1: they stayed in a fairly narrow range until eleven, and
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  Speaker 1: then the Greek crisis took rates down to a new low. Well,
• 2:33
  Speaker 1: guess what, We've just moved back into the O eight
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  Speaker 1: oh eleven range. So we're above where we were, and
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  Speaker 1: it's looking like it's gonna stick. So well, and I
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  Speaker 1: guess what I'm trying to I want to go back
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  Speaker 1: something you were saying, which is this is sort of
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  Speaker 1: the opening south of what we saw in October, that
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  Speaker 1: they're more declines and risk your assets to come as
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  Speaker 1: And I'm assuming, as you talk, part of this is
• 2:54
  Speaker 1: predicated on the idea that interest rates are normalizing, so
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  Speaker 1: some of the froth is going to have to dissipate
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  Speaker 1: in the froth still is there, right, So I'm wondering,
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  Speaker 1: I mean, how do you advise investors or investment advisors
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  Speaker 1: to sort of plan with that in mind, given the
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  Speaker 1: fact that it might not be imminent, and given the
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  Speaker 1: fact that there still might be gains in some of
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  Speaker 1: these risk assets, well, it's a question of what you
• 3:13
  Speaker 1: want to optimize around. And this is something I've been
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  Speaker 1: writing about. Do you want to optimize around reducing your
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  Speaker 1: risk or do you want to optimize around maximizing your returns?
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  Speaker 1: And that's a decision we haven't We've been able to
• 3:24
  Speaker 1: have both over the past decade. And now you've got
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  Speaker 1: really got to start thinking about, you know, what are
• 3:30
  Speaker 1: you trying to do, and if you're trying to protect
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  Speaker 1: those gains, if you're trying to minimize the downside, and
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  Speaker 1: by the way, is people get older, that's becoming more
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  Speaker 1: and more important, then you need to start taking in
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  Speaker 1: more defensive stance, have more in cash, modify your return
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  Speaker 1: expectations much. It depends on the situation. Um, it depends
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  Speaker 1: on how defensive you want to be. I mean, I
• 3:53
  Speaker 1: just finished a book we're handing it out of the
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  Speaker 1: conference here. As a matter of fact, that suggests that
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  Speaker 1: when things get bad, you really we should move substantial
• 4:01
  Speaker 1: portions of your portfolio to cash. So I mean, I
• 4:04
  Speaker 1: think cash is an underappreciated asset class and the only reason,
• 4:07
  Speaker 1: we don't appreciate it. So we've gotten used to things
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  Speaker 1: going up for ten years in a row. Well, that
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  Speaker 1: may go on forever. I have my doubts, am, I'm
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  Speaker 1: more worried about return of capital or return on capital.
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  Speaker 1: It's the old Will Rogers line. Do you know people
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  Speaker 1: who have six months worth of what it takes for
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  Speaker 1: them to live in cash? And I don't mean in
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  Speaker 1: a brokerage account, I mean in a bank. Yes, are
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  Speaker 1: there more or less of them today than there were,
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  Speaker 1: let's say in two thousand and eight. There are in
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  Speaker 1: two thousand and eight before the crisis, or afore the crisis,
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  Speaker 1: before the crisis, because after the crisis it gets a
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  Speaker 1: little harder. Well, I think they're probably about the same
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  Speaker 1: number now because we're hitting the peak of the economic cycle.
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  Speaker 1: You look at consumer confidence, it's actually higher than it
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  Speaker 1: was in oh seven. You know, we're at levels we've
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  Speaker 1: only seen at the peak of the dot com boom.
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  Speaker 1: You look at there are a lot of numbers you
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  Speaker 1: go out there and the highest we've ever seen except
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  Speaker 1: for two thousand. That comes up more and more. So
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  Speaker 1: we're getting to the point where things are about as
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  Speaker 1: good as they can get and now is the time
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  Speaker 1: to start thinking about being defensive. So would you say
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  Speaker 1: that right now greed is driving most people in the market. Absolutely. Okay,
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  Speaker 1: So you think that we're getting to that point where
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  Speaker 1: it is getting a little bit of animal spirits E. Well,
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  Speaker 1: when you absolutely, when you're starting to see you're starting
• 5:21
  Speaker 1: to see the merger boom take off, that's typically what
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  Speaker 1: happens at the peak of the cycle. You're starting to
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  Speaker 1: see people continuing to feel good. That's what happens at
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  Speaker 1: the peak of the cycle. You're starting to see the
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  Speaker 1: big up and down moves. This may sound familiar after
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  Speaker 1: the past couple of weeks. That's typically what happens at
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  Speaker 1: the peak of the cycle. I don't think we're quite
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  Speaker 1: there yet. You know, they're still gains to be had.
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  Speaker 1: I think there probably are through year end. But what
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  Speaker 1: happens when we hit a recession. That's typically when things
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  Speaker 1: blow up. And that's what I'm watching for personally. Is
• 5:53
  Speaker 1: your thought that people ought to wait in cash versus
• 5:57
  Speaker 1: fixed income. Well, the thing about fixed income is over
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  Speaker 1: the past thirty years, we've had we've had two sources
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  Speaker 1: of returns. We've had coupons which have been higher and
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  Speaker 1: are now hour, and we've had capital appreciation going forward.
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  Speaker 1: If rates even just stay the same, you're just gonna
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  Speaker 1: have coupon. If rates go up, then all you're gonna
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  Speaker 1: have is coupon minus capital depreciated. Right, But if your
• 6:20
  Speaker 1: scenario plays out that where as good as it gets,
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  Speaker 1: consumer confidences as high as it's gonna get, and you're
• 6:27
  Speaker 1: worried about the next recession, wouldn't that mean that investors
• 6:31
  Speaker 1: will go to safety, And that means they're gonna go
• 6:33
  Speaker 1: and look to buy US treasuries. They're gonna look to
• 6:36
  Speaker 1: buy bonds, and as a result, the price of those
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  Speaker 1: bonds is going to go up. And historically that's absolutely
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  Speaker 1: been true. But now we have the supply of US
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  Speaker 1: bonds going up as the Treasury issues more and more.
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  Speaker 1: We have the buying power going down, as China and
• 6:52
  Speaker 1: Japan start to back off. In other words, it's no
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  Speaker 1: longer as clear cut as it was. You're absolutely right
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  Speaker 1: based on history, but the underwing dynamics are changing, and
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  Speaker 1: I don't think we can rely on that. So you've
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  Speaker 1: got to watch your duration. You've got to manage your expectations.
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  Speaker 1: You can be in fixed income you're getting paid for
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  Speaker 1: the risk and the shorter durations now, but going out
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  Speaker 1: you're still making a pretty big bet. Is there any
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  Speaker 1: area that you've advised investment managers reduced entirely from their portfolio.
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  Speaker 1: It depends if you look at, for example, US stocks,
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  Speaker 1: if you look at on a monthly basis, we drop
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  Speaker 1: below the two day moving average, you can make a
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  Speaker 1: case for getting out there. You would have been out,
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  Speaker 1: you would be back in now. So that's not always
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  Speaker 1: a good signal, but it is a good time to
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  Speaker 1: pay attention. I would be reducing risk right now. I
• 7:37
  Speaker 1: wouldn't necessarily be taking it off the table, but I
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  Speaker 1: would be saying, okay, if I'm gonna be reducing exposure
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  Speaker 1: anyway for tax reasons, now is a good time to
• 7:46
  Speaker 1: be thinking about that. Just quickly, give you twenty seconds
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  Speaker 1: to people a lot of themselves about how much risk
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  Speaker 1: they're able to take. People tell themselves the absolute truth,
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  Speaker 1: and then they change change their mind when the risk
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  Speaker 1: actually shows up. Well done, Thanks very much, thanks for
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  Speaker 1: showing it up. Brad McMillan is the Chief Investment Officer
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  Speaker 1: for Commonwealth Financial Network, helping to manage more than a
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  Speaker 1: hundred and fifty five billion dollars of Customer Assets based
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  Speaker 1: in Waltham, Massachusetts, and we appreciate you being here and
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  Speaker 1: hosting us at the Commonwealth Financial Networks Annual National Conference
• 8:19
  Speaker 1: of Advisors here in Austin, Texas. Coming up on Bloomberg Markets,
• 8:24
  Speaker 1: we're gonna talk about new chairman of Tesla, although Elon
• 8:30
  Speaker 1: Musk is still going to be the chief executive. You're
• 8:33
  Speaker 1: listening to Bloomberg Market sign Pim Fox along with Lisa Abramwitz.
• 8:40
  Speaker 1: I want to bring you some breaking news just crossing
• 8:43
  Speaker 1: of the Bloomberg terminal. The probe into a Malaysian high
• 8:47
  Speaker 1: profile corruption probe has widened, and a Lloyd Blank find
• 8:51
  Speaker 1: the former chief executive of Goldman Sachs was the unidentified
• 8:55
  Speaker 1: high ranking Goldman SAX executive referenced in US Cork documents
• 8:58
  Speaker 1: who attended a two thousand nine meeting that helped forge
• 9:01
  Speaker 1: some of the ties with the Malaysian leader UH and
• 9:04
  Speaker 1: its new sovereign wealth fund that led to the bank
• 9:08
  Speaker 1: helping it raise six and a half billion dollars that
• 9:10
  Speaker 1: has sparked investigations across many nations. We will bring you
• 9:14
  Speaker 1: more about this UH in the hours ahead. Pimp. Yes,
• 9:17
  Speaker 1: we'll be following that story. That is a Bloomberg exclusive.
• 9:21
  Speaker 1: We are broadcasting from the Commonwealth Financial Networks Annual National
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  Speaker 1: Conference of Advisers in Austin, Texas. Our guest is Christina Hooper,
• 9:29
  Speaker 1: chief market strategist for Investco. Christina, thank you very much
• 9:33
  Speaker 1: for being with us. Following the results of the mid
• 9:37
  Speaker 1: term elections. Do you believe that there is an investment
• 9:41
  Speaker 1: thesis that infrastructure spending can drive the price of selective
• 9:47
  Speaker 1: stocks higher. I think there's definitely an investment thesis for that.
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  Speaker 1: UM Now having said that, an infrastructure bill is far
• 9:56
  Speaker 1: from a done deal, but I do believe that the
• 9:59
  Speaker 1: press send it would like to see infrastructure spending, how
• 10:02
  Speaker 1: Democrats would like to see infrastructure spending, and we might
• 10:06
  Speaker 1: see enough senators on the Republican side of the aisle
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  Speaker 1: also support it, especially if we see some kind of
• 10:14
  Speaker 1: dip in economic growth in two thousand nineteen. So there
• 10:17
  Speaker 1: are a lot of good reasons, and in particular, if
• 10:20
  Speaker 1: we want to think about how the US is trying
• 10:22
  Speaker 1: to be competitive with China, UM an important way to
• 10:26
  Speaker 1: do that is to invest in infrastructure, because clearly, uh
• 10:29
  Speaker 1: China's infrastructure, it's more robust, it's newer, it's in better condition,
• 10:33
  Speaker 1: and that's one way we can compete. So there are
• 10:35
  Speaker 1: a variety of reasons for supporting infrastructure, and I think
• 10:39
  Speaker 1: we could see a deal in So if somebody wanted
• 10:42
  Speaker 1: to get ahead of that and make investments, where would
• 10:45
  Speaker 1: they Where would they go? Right now? Well, I think
• 10:47
  Speaker 1: you need to be selective, but many material stocks would
• 10:51
  Speaker 1: be poised to benefit from an infrastructure spending bill. Now
• 10:54
  Speaker 1: we need to know exactly what would be spent on
• 10:58
  Speaker 1: in the infrastructure bill, because keep an mind, it could
• 11:00
  Speaker 1: be a telecom heavy infrastructure spending bill. But my guess
• 11:04
  Speaker 1: is that because we have so much in the way
• 11:07
  Speaker 1: of traditional infrastructure that needs repair or replacement, that that's
• 11:12
  Speaker 1: likely where we would see the greatest benefit. So, for example,
• 11:17
  Speaker 1: cement companies, I mean, the most basic of materials would
• 11:20
  Speaker 1: really benefit from a traditional infrastructure spending bill. Then why
• 11:24
  Speaker 1: do we see, for example, industrial metals such as copper
• 11:28
  Speaker 1: continue to make new loads. Well, copper is a unique
• 11:32
  Speaker 1: phenomenon and I know that it is widely viewed as
• 11:36
  Speaker 1: a great indicator for economic growth. What we've seen is
• 11:39
  Speaker 1: demand in China has been strong for copper, but in
• 11:43
  Speaker 1: fact the traders have impacted where copper prices have gone.
• 11:47
  Speaker 1: So I don't look at copper as any kind of
• 11:50
  Speaker 1: indication anymore of demand in general, because there are other
• 11:54
  Speaker 1: forces at work there. It's a great question. I just
• 11:57
  Speaker 1: think that that, um, there are better gauges of demand,
• 12:02
  Speaker 1: and of course we won't even see demand really increase
• 12:05
  Speaker 1: until we get some kind of infrastructure spending bill. If
• 12:08
  Speaker 1: there really is going to be some kind of infrastructure
• 12:11
  Speaker 1: spending plan, what does that mean for the US deficit?
• 12:13
  Speaker 1: And frankly, whether or not people should own longer term
• 12:17
  Speaker 1: US treasuries, Well, it means that all else being equal,
• 12:20
  Speaker 1: the deficit is going to continue to grow. This is
• 12:23
  Speaker 1: not a new concept though. Um, we're already seeing the
• 12:27
  Speaker 1: deficit increase. And I and I think for Republicans it
• 12:31
  Speaker 1: will be the same question they asked themselves when they
• 12:34
  Speaker 1: came to support the tax reform bill, which was, if
• 12:37
  Speaker 1: we get enough economic growth, do we believe that that
• 12:40
  Speaker 1: will ultimately make up in tax revenues what we may
• 12:44
  Speaker 1: lose in terms of budgets. On a second, I mean
• 12:47
  Speaker 1: that's been debunked at this point. It's not that. I mean,
• 12:49
  Speaker 1: maybe it sort of took the edge off some of
• 12:52
  Speaker 1: the increase in the deficit, but for all intents and purposes,
• 12:54
  Speaker 1: almost nobody is saying that it's going to completely pay itself,
• 12:58
  Speaker 1: pay for itself at this point and ut realize it
• 13:00
  Speaker 1: for the longer term. So I guess I'm just trying
• 13:01
  Speaker 1: to figure out at what point does that mean much
• 13:04
  Speaker 1: higher borrowing costs for the US or do you think
• 13:06
  Speaker 1: that what we've seen over the past few months is
• 13:09
  Speaker 1: that there are sufficient demand UH domestically in the United
• 13:12
  Speaker 1: States to suck up and soak up some of the
• 13:14
  Speaker 1: UH sort of higher treasury bond auction sizes. It's a
• 13:18
  Speaker 1: huge question. I don't know if we're going to see
• 13:20
  Speaker 1: sufficient demand. Thus far, we've seen it, but quite frankly,
• 13:24
  Speaker 1: we're flooding the market with treasuries because it's not just
• 13:27
  Speaker 1: issuance as a result of deficit spending, but we also
• 13:31
  Speaker 1: have balance sheet normalization going on, and that's accelerating every quarter. UM.
• 13:35
  Speaker 1: So that is a very significant question that I think
• 13:39
  Speaker 1: will be answered over time. But um from the perspective
• 13:43
  Speaker 1: of whether or not we will see legislators supporting this,
• 13:46
  Speaker 1: members of Congress supporting this, I think they may fall
• 13:49
  Speaker 1: back on that argument that they need to stimulate growth
• 13:52
  Speaker 1: and they will see it come back in tax revenue.
• 13:54
  Speaker 1: Tell us a little bit about technology, because there seems
• 13:58
  Speaker 1: to be from both the President and the Democrats an
• 14:03
  Speaker 1: idea about greater regulation and greater taxation of technology companies. Well,
• 14:09
  Speaker 1: that's clearly been a theme that we've heard from both
• 14:12
  Speaker 1: the Democrats as well as the President. And so the
• 14:15
  Speaker 1: question is will the Senate stand in its way? And Uh.
• 14:19
  Speaker 1: While I think the Senate would stand in the way
• 14:21
  Speaker 1: of the President and House Democrats who want to control
• 14:24
  Speaker 1: drug pricing, I don't believe they will be as much
• 14:27
  Speaker 1: of an obstacle in terms of greater regulation of technology
• 14:30
  Speaker 1: as well as greater taxation of technology. And quite frankly,
• 14:33
  Speaker 1: when you're running larger deficits, you're always looking for great
• 14:37
  Speaker 1: sources um of taxation, and tech seems front and center
• 14:42
  Speaker 1: on that list. Christina, I'd love to get your opinion
• 14:45
  Speaker 1: on the route that we saw in US equities in October.
• 14:48
  Speaker 1: Do you think that it sufficiently took the froth out
• 14:50
  Speaker 1: of the market to be buying opportunity or do you
• 14:52
  Speaker 1: think that it was assigned that there's more to come.
• 14:56
  Speaker 1: Yes and no. So we certainly saw some of the
• 14:59
  Speaker 1: froth taken out of the market. Do I believe all
• 15:01
  Speaker 1: the froth has come out of the market. No. UM,
• 15:04
  Speaker 1: All we need to do is go back to November
• 15:06
  Speaker 1: nine of two thousand and sixteen, when this extraordinary rally began.
• 15:12
  Speaker 1: At that time, I worried that UM, while many of
• 15:15
  Speaker 1: the Administration's agenda items are pro growth, not all of
• 15:19
  Speaker 1: them are, and in fact, to really UM run counter
• 15:23
  Speaker 1: to growth. UM, and I mean specifically protectionism and very
• 15:29
  Speaker 1: strict immigration policies. And so the market was reacting as
• 15:33
  Speaker 1: though it was an entirely pro growth agenda. And UM,
• 15:36
  Speaker 1: quite frankly, the kind of give up we saw in February,
• 15:40
  Speaker 1: and we've made such a quick recovery, the kind of
• 15:42
  Speaker 1: give up we saw in October, to me, doesn't take
• 15:44
  Speaker 1: all that froth out of the market. Just quickly give
• 15:48
  Speaker 1: you twenty seconds. Federal minimum wage increase. Do you see
• 15:52
  Speaker 1: that coming? I think that Senate Republicans would stand in
• 15:55
  Speaker 1: the way of a minimum wage increase. UM. That's my view.
• 16:00
  Speaker 1: I think it's much more likely that we get greater
• 16:02
  Speaker 1: tech regulation and taxation. I think that they would stand
• 16:05
  Speaker 1: where they would on drug pricing, which is, we don't
• 16:08
  Speaker 1: want to see an increase in minimum wage I could
• 16:10
  Speaker 1: be wrong, though, um, and certainly I think so much
• 16:13
  Speaker 1: of this will be dependent on the polls because legislators
• 16:16
  Speaker 1: are going to care what people are thinking. That's right,
• 16:18
  Speaker 1: especially heading in Christina Hooper, thank you so much for
• 16:21
  Speaker 1: being with us here at Commonwealth Conference here in Austin, Texas.
• 16:25
  Speaker 1: Christina Hooper is chief Global market Strategist at Investco, helping
• 16:28
  Speaker 1: to oversee nearly a trillion dollars. Based in New York.
• 16:31
  Speaker 1: But you know, we're all here to enjoy the weather
• 16:34
  Speaker 1: or the music or the barbecue in Austin, Texas. And
• 16:37
  Speaker 1: we're gonna be here tomorrow too. I can't wait. We're
• 16:39
  Speaker 1: gonna go get some barbecue and Lisa Ron went along
• 16:42
  Speaker 1: with my co hosting colleague Pim Fox Bluebric Politics, Policy,
• 16:45
  Speaker 1: power and Law. Up next, we're broadcasting live from the
• 16:51
  Speaker 1: Commonwealth Financial Networks Annual National Conference of Advisors in the
• 16:55
  Speaker 1: Mariott Hotel in Austin, Texas. I'm Pim Fox along with
• 16:59
  Speaker 1: my co host Lisa brahma Witz. Joining us now from
• 17:02
  Speaker 1: our Interactive Broker's studio is Larry Liebert, our national security editor. Larry,
• 17:07
  Speaker 1: You're normally based in Washington, d C. Where there were
• 17:11
  Speaker 1: a lot of tearful goodbyes for former Attorney General Jeff
• 17:16
  Speaker 1: Sessions yesterday. Can you tell us what the change at
• 17:20
  Speaker 1: the top of the Department of Justice will mean for
• 17:23
  Speaker 1: Robert Mueller's investigation? Well, I can't entirely, because it depends
• 17:29
  Speaker 1: on which course his acting successor, Matthew Whittaker takes. Whittaker
• 17:36
  Speaker 1: has been openly critical as a commentator previously of Mueller
• 17:41
  Speaker 1: perhaps going too far and it suggested constraining this investigation.
• 17:47
  Speaker 1: But does he mean he would fire Muller, which he
• 17:51
  Speaker 1: could could have the power to do, or does he
• 17:53
  Speaker 1: mean he will quietly, behind the scenes try to limit
• 17:57
  Speaker 1: his avenues of investigation. And that's a real possibility. And
• 18:01
  Speaker 1: then the question is will the rest of us know it,
• 18:03
  Speaker 1: either through leaks or Mueller quitting or will it remain
• 18:07
  Speaker 1: a very secret course. Well, Larry, I'm just looking at
• 18:12
  Speaker 1: a CNN report that says that Robert Mueller is actually
• 18:16
  Speaker 1: finishing up the final report that he has been working on.
• 18:20
  Speaker 1: If that is true, what could matt Whittaker do as
• 18:24
  Speaker 1: the acting a g to alter that at this point?
• 18:28
  Speaker 1: I mean, in other words, is it too far along? Well,
• 18:30
  Speaker 1: the Bloomberg has reported that he is close. Muller is
• 18:34
  Speaker 1: to uh some key findings. Whether it's the final final report,
• 18:39
  Speaker 1: I'm not sure, but we've already said he's close to
• 18:42
  Speaker 1: some key findings. One of the things that his new boss, Whittaker,
• 18:46
  Speaker 1: can decide is what happens with those findings. He has
• 18:50
  Speaker 1: the power to decide whether they made public, sent to
• 18:53
  Speaker 1: congressional committees, where they're short leak, are are kept private. Uh.
• 18:58
  Speaker 1: There's no rules beyond uh beyond his oversight. So when
• 19:03
  Speaker 1: we hear about Mueller's report being issued, I always try
• 19:07
  Speaker 1: to change that, uh that wording in our stories to
• 19:10
  Speaker 1: say his findings are being completed. Uh, they may not
• 19:14
  Speaker 1: be issued in the public sense. And that's one of
• 19:17
  Speaker 1: the powers that Whittaker may have. Larry Liebert, how long
• 19:21
  Speaker 1: can Matthew Whittaker remain as the acting Attorney General? Well,
• 19:26
  Speaker 1: there's a period of months, but that can be extended
• 19:32
  Speaker 1: if the President has trouble uh with whoever he nominates
• 19:37
  Speaker 1: to be the permanent attorney Generally, since he's going to
• 19:40
  Speaker 1: make that nomination, it clearly won't be acted on until
• 19:43
  Speaker 1: uh the new uh Congress UH takes uh as seat
• 19:48
  Speaker 1: in January. If anything, approval of a new Attorney General
• 19:54
  Speaker 1: is more likely since the Republicans gained a couple at
• 19:57
  Speaker 1: least a couple of seats in the Senate. Uh. But
• 20:00
  Speaker 1: if you say one nominee fails, as I understand that
• 20:03
  Speaker 1: there could be extensions, uh, while a new one is proposed.
• 20:07
  Speaker 1: So it's going to be at least a matter of
• 20:08
  Speaker 1: some months. Larry, I'm struggling to understand what check there
• 20:12
  Speaker 1: is or is not by the House, which has flipped
• 20:16
  Speaker 1: to the Democratic or by the existing Democrats. Are people
• 20:20
  Speaker 1: who are opposed to crimping Muller's investigation? I mean, is
• 20:23
  Speaker 1: there any way that Matt Whittaker could be sort of
• 20:27
  Speaker 1: forced to comply with uh, certain parameters enforced by Congress. Well,
• 20:32
  Speaker 1: there's a number of things. They gain the power of
• 20:34
  Speaker 1: investigation and oversight that the Republicans have had before, and
• 20:37
  Speaker 1: that means they can issue subpoenas, they can demand testimony,
• 20:41
  Speaker 1: they can demand, as they're already doing while not having
• 20:44
  Speaker 1: the dominant power, the preservation of all documents, so they
• 20:48
  Speaker 1: can pursue this. The ultimate power, of course, would be
• 20:52
  Speaker 1: the power of impeachment. And UH, while there are grassroots
• 20:56
  Speaker 1: Democrats already demanding that democratically they won't go Larry, before
• 21:02
  Speaker 1: jumping to that level, right, I mean, I'm just wondering,
• 21:05
  Speaker 1: with respect to uh sort of oversight of Matt Whittaker,
• 21:08
  Speaker 1: is there any real way to do that in the
• 21:11
  Speaker 1: near term or now? Well, what I was saying is
• 21:13
  Speaker 1: I was saying Democrats won't go there to impeachment. They
• 21:15
  Speaker 1: are going to demand testimony, presumably including by him. They're
• 21:20
  Speaker 1: demanding documents that can issue subpoenas, but they can't do
• 21:24
  Speaker 1: any of that except by pleading until January. So if
• 21:27
  Speaker 1: he moves quickly, if Muller is UH in his last
• 21:32
  Speaker 1: stages of preparing his reports, that it may all be
• 21:34
  Speaker 1: moved by then. So there's only so much they can
• 21:36
  Speaker 1: do until they take over, and then it depends on
• 21:40
  Speaker 1: how severa constitutional crisis they they believe has taken place
• 21:47
  Speaker 1: just quickly. And Larry, you mentioned the evidence that Mr
• 21:50
  Speaker 1: Mueller has assembled in order to prepare his report. What
• 21:54
  Speaker 1: happens to that actual evidence? Well, what again, the findings
• 21:59
  Speaker 1: that he issue us all? As I mentioned, there's a
• 22:01
  Speaker 1: question whether they become public. But so much of what
• 22:04
  Speaker 1: Mueller has done has already played out in indictments and
• 22:07
  Speaker 1: court proceedings. He's made a lot of referrals to US
• 22:10
  Speaker 1: attorney's offices, and they can pursue that evidence whether he's
• 22:15
  Speaker 1: there or not. And so in a way, there's a
• 22:17
  Speaker 1: lot that Mueller has done that would be impossible to undo.
• 22:22
  Speaker 1: Larry Liebert, thank you so much for being with us.
• 22:23
  Speaker 1: Larry Libert, national security editor for Bloomberg News, talking about
• 22:27
  Speaker 1: the situation in Washington, d C. As it unfolds with
• 22:31
  Speaker 1: respect to the independent investigation into Russia collusion and interference
• 22:36
  Speaker 1: in elections. We are broadcasting live from the Commonwealth Financial
• 22:41
  Speaker 1: Networks Annual National Conference of Advisors from the Marriott in Austin,
• 22:46
  Speaker 1: Texas and unusually chilly daycare actually him, I was sort
• 22:49
  Speaker 1: of surprised. I was expecting Texas to be warm and
• 22:52
  Speaker 1: it is instead of fifty degrees and somewhat wet. Joining
• 22:56
  Speaker 1: us now, Virgil Kale, President, owner of spring Ridge Financial Group,
• 22:59
  Speaker 1: UH from Pennsylvania, but joining us here, Virgil, I want
• 23:03
  Speaker 1: to start with this idea that you know, there's sort
• 23:07
  Speaker 1: of an institutional memory of two thousand and eight and
• 23:10
  Speaker 1: a collective fear that's sort of still pervasive in the markets.
• 23:13
  Speaker 1: What is the biggest concern right now of the clients
• 23:16
  Speaker 1: who you work with. I think clients understand that it
• 23:19
  Speaker 1: has been a nice recovery from two thousand and eight.
• 23:22
  Speaker 1: I still think that they are subconsciously worried about something
• 23:28
  Speaker 1: terribly going wrong in the markets or the financial system
• 23:31
  Speaker 1: and seeing their their values drop substantially, as I remember
• 23:35
  Speaker 1: in two thousand eight, in the first two weeks, right,
• 23:37
  Speaker 1: so people still worry about that. And I think my
• 23:42
  Speaker 1: memories of two thousand eight, I compared it to h
• 23:45
  Speaker 1: being like an e R doctor and all your patients
• 23:48
  Speaker 1: are in the R at the same time, and you
• 23:49
  Speaker 1: have to save them from from making the wrong decision. Um.
• 23:54
  Speaker 1: But as far as UM you know I, you basically
• 23:58
  Speaker 1: have to go through with clients. Okay, this is what
• 24:00
  Speaker 1: caused it? Is it likely to happen again? Um? Can
• 24:05
  Speaker 1: we ever be sure? Can we ever be sure? I'm
• 24:08
  Speaker 1: not worried about our financial system in the US. Perhaps
• 24:12
  Speaker 1: I might be worried about a financial system issue in
• 24:14
  Speaker 1: another country. Um, but we commit rhymes with I'll let
• 24:24
  Speaker 1: you do the poetry. But I want to ask an
• 24:26
  Speaker 1: Virgil if you don't mind. UM, in a previous life,
• 24:29
  Speaker 1: you were a certified public accountant. Okay, you still have
• 24:32
  Speaker 1: the designation and I'm wondering if you could tell us
• 24:34
  Speaker 1: a little bit about what did you learn from that
• 24:38
  Speaker 1: experience that you have been able to apply in the
• 24:42
  Speaker 1: role that you have at spring Ridge Because a c
• 24:46
  Speaker 1: p A. Uh, First of all, it's a legal designation.
• 24:50
  Speaker 1: I mean you you have a level of responsibility that
• 24:53
  Speaker 1: many people may not recognize. Well. I do think that
• 24:56
  Speaker 1: having a cp A background definitely, uh. I would say
• 25:02
  Speaker 1: influences the way I look at the markets and the
• 25:04
  Speaker 1: way I look at UM valuations. Even though we've been
• 25:08
  Speaker 1: told that, you know, studying the pe ratios isn't exactly
• 25:11
  Speaker 1: the best way to decide whether the markets overheating or
• 25:13
  Speaker 1: not because they go to one extreme to another. But
• 25:17
  Speaker 1: I think when you have when because I was an
• 25:20
  Speaker 1: auditor when I was in public accounting, and I had
• 25:23
  Speaker 1: to do balance sheets and income statements and I kind
• 25:25
  Speaker 1: of know what goes into it and cash flow statements
• 25:27
  Speaker 1: and all that stuff matters. So when we talk about
• 25:30
  Speaker 1: the markets and you know whether the SMP and indexing
• 25:34
  Speaker 1: is the right thing to do, I tend to think
• 25:36
  Speaker 1: more on a from a fundamental standpoint. So that does
• 25:39
  Speaker 1: influence my way of looking at the markets. And I
• 25:42
  Speaker 1: don't know if I wasn't a c p A first,
• 25:44
  Speaker 1: if I would be that strong on that, Okay, In
• 25:46
  Speaker 1: other words, it's really important to look at the cash
• 25:48
  Speaker 1: flows and not just invest in a basket of companies
• 25:51
  Speaker 1: and and hope for the best. Is that is that
• 25:53
  Speaker 1: what you're saying. I would say that the cash flow
• 25:54
  Speaker 1: statement is is the statement that doesn't lie? Right, But
• 25:58
  Speaker 1: but but here's here's here's the challenge to that is
• 26:01
  Speaker 1: that that is true, and yet it also doesn't lie.
• 26:04
  Speaker 1: Is diversification And if you have a couple of bad apples,
• 26:06
  Speaker 1: in general, you'll have enough winners that you'll get more
• 26:10
  Speaker 1: You'll get more of an upside than potentially downside in
• 26:13
  Speaker 1: terms of outperforming or just performing with the rest of
• 26:15
  Speaker 1: the market with an index fund. I'm just wondering from you,
• 26:18
  Speaker 1: I mean, is there any proof that you sort of
• 26:19
  Speaker 1: looked to to show your clients why active is preferable
• 26:24
  Speaker 1: to passive, because that seems to be the argument here. Well, yeah,
• 26:27
  Speaker 1: and and I would say most of my allocation and
• 26:30
  Speaker 1: when I build a portfolio is active. But now there
• 26:34
  Speaker 1: is a time and place for passive. If you really
• 26:36
  Speaker 1: feel like the entire market has you know, gotten significantly oversold,
• 26:41
  Speaker 1: and you just want your clients to participate in the
• 26:43
  Speaker 1: entire market upswing, you know, or a sector that oversold.
• 26:48
  Speaker 1: I could see being passive in certain circumstances. But on
• 26:51
  Speaker 1: the other hand, you know, I guess we should be
• 26:54
  Speaker 1: No one loves what happened in October, but by the
• 26:57
  Speaker 1: same token, we should be maybe thankful that had happened,
• 26:59
  Speaker 1: because it kind of, uh, the fluff of the market,
• 27:03
  Speaker 1: you know, I feel like has dissipated and now we
• 27:06
  Speaker 1: can't really say that we're stretched invaluations, and and I
• 27:10
  Speaker 1: feel like that's as healthy. It's healthy to that point.
• 27:14
  Speaker 1: Um if volatility is going to pick up, and it
• 27:17
  Speaker 1: should pick up, and I believe it will pick up
• 27:19
  Speaker 1: for the next couple of years after a very low
• 27:21
  Speaker 1: volatile seen and a very low volatile decade. Actually, I
• 27:26
  Speaker 1: feel active managers can I identify the inefficiencies that are
• 27:31
  Speaker 1: out there. When the market's going straight up and there's
• 27:34
  Speaker 1: no volatility, it's harder for active managers to outperform. That's
• 27:37
  Speaker 1: why all of the data saying, you know, active managers
• 27:39
  Speaker 1: can outperform, but most of the time that's focused on
• 27:42
  Speaker 1: the large cap US market, and that's not a fully
• 27:45
  Speaker 1: diversified portfolio. So it's kind of you know, there's just
• 27:49
  Speaker 1: there's no simple way to say active versus passive. You
• 27:53
  Speaker 1: have to look at it with every sliver of of
• 27:56
  Speaker 1: the asset class pie and and make a judgment call
• 27:59
  Speaker 1: on whether broad exposure or a manager that has proven
• 28:03
  Speaker 1: themselves that it's highly rated of, you know, strong on
• 28:06
  Speaker 1: their Lipper average or their morning Star rating, or your
• 28:09
  Speaker 1: knowledge of of the team that's in place with that
• 28:12
  Speaker 1: fund or the e t F. You know, I feel
• 28:15
  Speaker 1: like there is a time and place for everything, and
• 28:17
  Speaker 1: I'm looking forward to active management actually having better results
• 28:22
  Speaker 1: as volatility picks up and as we head into maybe
• 28:25
  Speaker 1: uh coming from peak growth and peak earnings growth to
• 28:29
  Speaker 1: more disappointments in twenty nineteen and and the economy maybe
• 28:34
  Speaker 1: slowing down a little bit eventually. So um yeah, that's
• 28:38
  Speaker 1: why I look at I want to thank you very
• 28:40
  Speaker 1: much for sharing your information with us in your story
• 28:43
  Speaker 1: of Virgil kale Is, the president and the owner of
• 28:46
  Speaker 1: spring Ridge Financial Group, helping to manage about seven hundred
• 28:50
  Speaker 1: million dollars worth of assets. Much appreciated and thank you
• 28:54
  Speaker 1: for being here with us at the Commonwealth Financial Networks
• 28:58
  Speaker 1: National Conference twenty eighteen, over two thousand attendees, and we'll
• 29:03
  Speaker 1: be carrying more information from the conference. This is Bloomberg.
• 29:08
  Speaker 1: I'm Pim Fox along with Lisa Abramowitz. Thanks for listening
• 29:12
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 29:15
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 29:18
  Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter
• 29:22
  Speaker 1: at pim Fox. I'm on Twitter at Lisa abramowits one
• 29:26
  Speaker 1: before the podcast. You can always catch us worldwide on
• 29:29
  Speaker 1: Bloomberg Radio.