Latest / Bloomberg Intelligence / Local Currency EM Debt Is A Good Play On Weaker Dollar: Stein

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Local Currency EM Debt Is A Good Play On Weaker Dollar: Stein · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
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  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: listening to Bloomberg Markets with Bim Fox and Lisa A.
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  Speaker 1: Bramowitz on Bloomberg Radio. If you're looking for international exposure
• 0:37
  Speaker 1: when it comes to your bond portfolio, you want to
• 0:39
  Speaker 1: ask Eric Stein. He is portfolio manager and co director
• 0:42
  Speaker 1: of Global Fixed Income for eating Vance, the whole company
• 0:46
  Speaker 1: helping to manage more than four hundred and thirty billion
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  Speaker 1: dollars of company of of customer assets, and they're of
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  Speaker 1: course based in Boston, home to Bloomberg one O six
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  Speaker 1: one Boston, Newburyport and thirty in Metro West and the
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  Speaker 1: South Shore. We welcome all of our listeners in Boston
• 1:01
  Speaker 1: and around the world. And Uh, Eric, well, maybe just
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  Speaker 1: talk a little bit about this new fund. This is
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  Speaker 1: the Eaton Vance International Emerging Markets Local Income Fund and
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  Speaker 1: it is UH focused not only on on a quorum
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  Speaker 1: bonds that are outside the United States. What I'm getting
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  Speaker 1: at is it's in local currency, correct, correct. So you know,
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  Speaker 1: we've been running a local currency strategy for for US
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  Speaker 1: investors dating back actually the June of two thousand seven.
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  Speaker 1: We just launched a version of that for overseas investors,
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  Speaker 1: but it's dominated um it's denominated, i should say, in
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  Speaker 1: local currency. So there's two different types of emerging market debt.
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  Speaker 1: There's dollar debt, which trades that has spread to treasuries
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  Speaker 1: like US HIEL bonds or US corporates, and then there's
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  Speaker 1: locally denominated emerging market debt. And so that's debt issued
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  Speaker 1: let's say, by the government of Brazil, but not issued
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  Speaker 1: in US dollars, issued in Brazilian ray ice. And it's
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  Speaker 1: certainly a more volatile part of the emerging market debtast class,
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  Speaker 1: but I also think it's one where return potentials also greater.
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  Speaker 1: It's also one that relies heavily on emerging market currency
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  Speaker 1: performance against the dollar. And I'm wondering, you know this,
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  Speaker 1: this implies to me that you see a weaker dollar
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  Speaker 1: going forward against these emerging markets currencies. What's giving you
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  Speaker 1: that confidence so you're exactly right. It's certainly based on
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  Speaker 1: emerging market currency strength or emerging market currencies just being
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  Speaker 1: flat and you're earning a higher rate of interest. And
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  Speaker 1: if you go back to two thousand, thirteen, fourteen or fifteen,
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  Speaker 1: when emerging market currencies were weak and the dollar was strong,
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  Speaker 1: that would be a headwind for a strategy like this.
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  Speaker 1: So I always tell people, you know, it's it's certainly
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  Speaker 1: one of my favorite parts of the fixed income markets,
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  Speaker 1: but I caution people that if you can't have a
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  Speaker 1: draw down in your fixed income, this probably isn't the
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  Speaker 1: right sector for you. I always caution you because of
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  Speaker 1: the currency component. As you mentioned. The other thing we
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  Speaker 1: had Bloomberg Intelligence is Damien Sassauer on yesterday and he
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  Speaker 1: was talking about liquidity and emerging markets credit and he
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  Speaker 1: was saying he's watching the bid asks spreads widen out.
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  Speaker 1: This is sort of a measure of the difference between
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  Speaker 1: what the prices that people are asking for on bonds
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  Speaker 1: and what they're actually able to get. Um are you
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  Speaker 1: concerned about that? And how do you sort of plan
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  Speaker 1: around that in a fun like this? So I think
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  Speaker 1: when you know, when you talk about a bit offer spreads.
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  Speaker 1: I think in em credit, I think of that more
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  Speaker 1: a sovereign credit. You know, certainly all fixed income markets
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  Speaker 1: have their liquidity challenges. I think you know, on our
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  Speaker 1: Advanced Global Income team, we put a big focus on trading.
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  Speaker 1: We have a twenty four hour trading desk based not
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  Speaker 1: only out of Boston, but London and Singapore, and we're
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  Speaker 1: always looking for different liquidity sources. So the interesting thing
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  Speaker 1: about local markets is it's not only trading with large banks.
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  Speaker 1: There's also local players on shore UH and some of
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  Speaker 1: these countries that we invest in, So liquidity is just
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  Speaker 1: different than I'd say it would be in US high
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  Speaker 1: yel bonds or even emerging market dollar bonds. What are
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  Speaker 1: some of the characteristics of the bonds that would go
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  Speaker 1: into this portfolio. So they would be issued by governments
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  Speaker 1: of emerging market countries, so you know countries and let's
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  Speaker 1: say Latin America, Eastern Europe, Africa, Asia, UH, and they'd
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  Speaker 1: be issued in local currency, so Brazilian RAI ICE, Turkish lyra,
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  Speaker 1: Indonesian RUPEA, And we think of them as having two
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  Speaker 1: main risks. You have local interest rate or local duration risk,
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  Speaker 1: and you also have currency risk as well. Okay, But
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  Speaker 1: in that in that context of risk, what do you
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  Speaker 1: susset as parameters? Are you looking at shorter duration longer duration?
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  Speaker 1: I mean in debt can be funded in a variety
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  Speaker 1: of different ways and secured in different ways. Yes, so
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  Speaker 1: certainly there is duration. There's local duration to these assets.
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  Speaker 1: So it's okay, how do Brazilian interest rates move or
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  Speaker 1: Indonesian interest rates move? And sometimes there can be correlations
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  Speaker 1: with US interest rates. We have seen that in the past.
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  Speaker 1: We saw that in two thousand thirteen. I actually think
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  Speaker 1: what's interesting is this year here, in two thousand eighteen,
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  Speaker 1: despite all the volatility we've seen in US treasuries, higher
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  Speaker 1: US yields, negative return, let's say on the Barkley's agg
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  Speaker 1: you know, yield in some of these emerging market countries
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  Speaker 1: continue to come down. They sold off a bunch and thirteen.
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  Speaker 1: Their central banks have the high rates of defend currencies
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  Speaker 1: and now they've been able to cut rates for the
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  Speaker 1: past couple of years. What's your most recent high conviction
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  Speaker 1: bet so, So maybe one I can talk about is India.
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  Speaker 1: So India as a country, you know, not without risk.
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  Speaker 1: There's always things that that that go on sometimes that
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  Speaker 1: are frustrating to those of us that that's send a
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  Speaker 1: lot of time following India. But you know, you get
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  Speaker 1: seven and a half or seven points six percent on
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  Speaker 1: government bond yield, it's not in the index. So I
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  Speaker 1: think that's kind of a specialty of our whole team
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  Speaker 1: is looking for bonds that are not necessarily in the index.
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  Speaker 1: In India, despite being a really large country, isn't in
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  Speaker 1: the index. And real quick, what's your biggest contrarian bet
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  Speaker 1: biggest contrarian bet? Um? You know, we're starting to like
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  Speaker 1: the Philippines paso. It's actually one of the currencies in
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  Speaker 1: Asia that people like to short a lot, and there
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  Speaker 1: are certainly issues. They used to have a current account
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  Speaker 1: surplus and then it went to deficit. We think their
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  Speaker 1: important number is actually gonna be very high in the
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  Speaker 1: fourth quarter because of a new tax regime and people
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  Speaker 1: are gonna get all flustered about that and the currency
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  Speaker 1: is selling off, but ultimately there's some inflation there. We
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  Speaker 1: think the central bank, the BSP is what they call
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  Speaker 1: the central bank in Philippines, they'll have to raise rates
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  Speaker 1: that should lead the currency strength. Thank you so much
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  Speaker 1: for being with us. Truly a pleasure speaking with you.
• 5:52
  Speaker 1: Eric Stein, portfolio manager and codirector of Global fixed Income
• 5:55
  Speaker 1: at Eaton a Vance, which manages about four hundred and
• 5:58
  Speaker 1: thirty billion dollars and is based in Boston, but he
• 6:01
  Speaker 1: joins us here in our Bloomberg eleven three oh studios.
• 6:07
  Speaker 1: This is Bloomberg Markets with Pim Fox and Lisa Abramowitz
• 6:11
  Speaker 1: on Bloomberg Radio. Obamacare is getting a pretty profound test
• 6:17
  Speaker 1: with a move by an Idaho based ensure. Here to
• 6:21
  Speaker 1: talk about that is Max Neeson, who covers the pharmaceutical
• 6:25
  Speaker 1: industry and all things healthcare for Bloomberg gad Fly, and
• 6:28
  Speaker 1: he joins us here in our Bloomberg eleven three oh studios. Max,
• 6:31
  Speaker 1: this is a fascinating story because it really goes to
• 6:34
  Speaker 1: the heart of the issue that UH insurers are looking
• 6:38
  Speaker 1: at whether they will be able to offer people lower
• 6:41
  Speaker 1: cost UH insurance plans if they're healthier and they'll get
• 6:47
  Speaker 1: less coverage, but that means higher premiums for sicker people.
• 6:50
  Speaker 1: Tell us about this place. Yeah, absolutely so. Um, what
• 6:54
  Speaker 1: what Blue Cross in Idaho is doing is is pretty
• 6:59
  Speaker 1: clearly in blatantly in violation of a number of of
• 7:03
  Speaker 1: statutes in the Affordable Care Act, namely UH no, no
• 7:07
  Speaker 1: limits on spending UM having to provide the same variety
• 7:10
  Speaker 1: of coverage people not denying coverage for sick people for
• 7:13
  Speaker 1: plans UM. And the issue is that if you offer
• 7:16
  Speaker 1: that kind of insurance and a c A compliant insurance
• 7:20
  Speaker 1: at the same time, inevitably healthy people are gonna flock
• 7:23
  Speaker 1: to those cheaper plans, leaving sicker people in the a
• 7:26
  Speaker 1: c A compliant plans skyrocketing premiums. So you can't really
• 7:30
  Speaker 1: have it both ways, and and that seems to be
• 7:33
  Speaker 1: what they're trying to do an Idaho. The question is
• 7:36
  Speaker 1: whether it will actually happen UM, you know, due to
• 7:40
  Speaker 1: legal threat or or action by the government. Max, could
• 7:44
  Speaker 1: you outline what this plan would look like for someone
• 7:48
  Speaker 1: that is shopping for health insurance. Yeah, so I think
• 7:52
  Speaker 1: they're gonna offer UM a bunch of different plans, But
• 7:56
  Speaker 1: the general idea basically is that you know, if you're
• 7:59
  Speaker 1: someone who's young and healthy, you might pick a plan
• 8:02
  Speaker 1: UM that, for example, doesn't cover certain types of drug,
• 8:06
  Speaker 1: doesn't cover certain types of care. UM offers more kind
• 8:10
  Speaker 1: of limited in basic skeletal care as opposed to the
• 8:14
  Speaker 1: sort of comprehensive benefits the under the C A Okay,
• 8:17
  Speaker 1: but but what I mean I'm looking here. For example,
• 8:19
  Speaker 1: it says the proposed plans have a one million dollar
• 8:22
  Speaker 1: annual per person limit to how much care the ensurer
• 8:26
  Speaker 1: will pay for. So if you're not gonna get any,
• 8:28
  Speaker 1: if you're not going to be ill, or you think
• 8:30
  Speaker 1: you're not going to be ill or need more than
• 8:31
  Speaker 1: a million dollars, what do we know what the premium is,
• 8:35
  Speaker 1: for example, on a monthly basis um. I don't know yet,
• 8:38
  Speaker 1: but I imagine that it would be substantially lower than
• 8:41
  Speaker 1: something on the c A because those plans literally, you know,
• 8:44
  Speaker 1: they have a set of ten essential health benefits that
• 8:46
  Speaker 1: they're required to cover um things like you know, for example,
• 8:49
  Speaker 1: maternity care. Um. Someone who doesn't want that, doesn't plan
• 8:53
  Speaker 1: on having a kid, um, they won't be paying for that.
• 8:55
  Speaker 1: So that's the appeal theoretically. But the problem is, you know,
• 8:59
  Speaker 1: the idea upon a C is that you make everyone
• 9:01
  Speaker 1: pay for that. I understand that. I mean, that's the
• 9:03
  Speaker 1: that's the whole idea of insurance, right, I mean, you've
• 9:05
  Speaker 1: got this bigger pool. But I'm just trying to look
• 9:07
  Speaker 1: at it from the consumer's point of view that someone
• 9:09
  Speaker 1: is currently faced let's say with you know, paying six
• 9:12
  Speaker 1: or seven a month for a plan when they have
• 9:15
  Speaker 1: a high deductible, they kind of look at it and a,
• 9:18
  Speaker 1: g Why am I paying six seven hundred bucks a
• 9:21
  Speaker 1: month when I've got this really high deductible. So I'll
• 9:24
  Speaker 1: never really end up using the unless unless something well.
• 9:28
  Speaker 1: But but of course you don't know that in the future, right,
• 9:31
  Speaker 1: you don't know whether you're going to be ill or
• 9:32
  Speaker 1: not well. I think that there's a big question, Max.
• 9:35
  Speaker 1: You're talking about the legal challenge to this, and to me,
• 9:39
  Speaker 1: that's the most interesting part because, as you said, this
• 9:42
  Speaker 1: is im blatant violation of the Obamacare plan. Who which
• 9:48
  Speaker 1: legal agency would be the one to go after them?
• 9:51
  Speaker 1: And since President Trump has voiced support for this type
• 9:56
  Speaker 1: of structure of a plan, will they go after them?
• 10:00
  Speaker 1: So that that's really the question. Um. So, alexas are
• 10:03
  Speaker 1: the new Secretary of Health and Human Services had said that,
• 10:06
  Speaker 1: you know, you have to enforce the rule of law.
• 10:09
  Speaker 1: The question is what exactly that means from him whether
• 10:11
  Speaker 1: they'll do it because HHS, you know, is the regulatory
• 10:14
  Speaker 1: agency that oversees this. It's their job to enforce the
• 10:18
  Speaker 1: law of the land. Um. But you know, as we've
• 10:21
  Speaker 1: seen in other areas, they have a certain amount of latitude,
• 10:25
  Speaker 1: but the amount of legal risk he is really acute.
• 10:27
  Speaker 1: You know, the insurer is likely to get suited if
• 10:30
  Speaker 1: they offer plans that UM sick people are inteligible before
• 10:33
  Speaker 1: they impose this lifetime limit. Idaho is likely to get
• 10:37
  Speaker 1: sued for allowing them to do it. And then if
• 10:39
  Speaker 1: HHS isn't informing in enforcing the law, there's legal risk
• 10:43
  Speaker 1: of the Trump administration as well. Okay, well, let's say
• 10:45
  Speaker 1: they don't enforce it. Do you expect other health insurance
• 10:49
  Speaker 1: companies to follow suit? UM at a minimum? You know,
• 10:54
  Speaker 1: just about every insurer on the exchanges in Idaho is
• 10:58
  Speaker 1: likely to to jump in as well, because if they
• 11:01
  Speaker 1: don't and they only offer a c A compliant insurance UM,
• 11:04
  Speaker 1: basically everyone's gonna get siphoned off into this third party UM,
• 11:08
  Speaker 1: into the blue Cross plane at this point that's offering
• 11:10
  Speaker 1: this type of insurance. So that's just a losing situation
• 11:13
  Speaker 1: for them. They'll have to balance basically the legal risk
• 11:16
  Speaker 1: of offering those plans against the possibility that they'll only
• 11:20
  Speaker 1: have UM, you know, a very sick and expensive to
• 11:23
  Speaker 1: cover population left for them. UM and be forced to
• 11:25
  Speaker 1: jack up premiums, but maybe not be able to keep
• 11:27
  Speaker 1: up anyway because they have no idea how to price
• 11:30
  Speaker 1: this market because you've never seen anything like it before.
• 11:33
  Speaker 1: Thanks very much for bringing this to our attention and
• 11:35
  Speaker 1: giving us this detail very interesting. Max Neeson is our biotechnology,
• 11:39
  Speaker 1: pharmaceutical and healthcare columnist for Bloomberg Gadfly, and you can
• 11:44
  Speaker 1: follow Max on Twitter at Max Neeson and I S
• 11:48
  Speaker 1: E and much appreciative. Coming up on a Bloomberg Markets,
• 11:52
  Speaker 1: we're gonna be speaking with Oxo Murky as the president
• 11:54
  Speaker 1: and the chief investment officer of Murk Investments, talk about
• 11:57
  Speaker 1: the volatility in the value of the US dollar and
• 12:00
  Speaker 1: whether gold would be something to buy for your portfolio.
• 12:06
  Speaker 1: You're listening to Bloomberg Markets with Pim Fox and Lisa
• 12:10
  Speaker 1: Abramowitz on Bloomberg Radio. Bloomberg Markets is brought to by
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  Speaker 1: Commonwealth Financial Network, the broker dealer r i A who
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  Speaker 1: has been putting relationships first since nineteen seventy nine. Find
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• 12:24
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• 12:29
  Speaker 1: a look at the value of gold since the beginning
• 12:31
  Speaker 1: of the year, it has increased about four percent. Is
• 12:34
  Speaker 1: that really a way to diversify your portfolio away from
• 12:37
  Speaker 1: the risk of stocks and bonds. Here to help us
• 12:40
  Speaker 1: answer this and many other questions is Axill Murky as
• 12:43
  Speaker 1: the president and the chief investment Officer of MRK Investments,
• 12:47
  Speaker 1: and he can be followed on Twitter at axel Mark
• 12:50
  Speaker 1: based in San Francisco. Oxell, thanks very much for being
• 12:52
  Speaker 1: with us. Talk a little bit about diversification and when
• 12:55
  Speaker 1: people diversify, but really they're not doing a good job
• 12:59
  Speaker 1: at it. Yeah, great to be with you. Well, let's
• 13:02
  Speaker 1: answer the second part of your question. First, the markets
• 13:05
  Speaker 1: have moved relentlessly higher, and obviously if you've done anything
• 13:08
  Speaker 1: other than by buying the SMP, you underperformed. And so
• 13:12
  Speaker 1: some people say they diversified to bonds, but in truth,
• 13:16
  Speaker 1: many of them have been grabbing yield and when you
• 13:18
  Speaker 1: when you buy junk bonds as a more extreme example
• 13:21
  Speaker 1: of that, they tend to be highly correlated with risk assets.
• 13:24
  Speaker 1: So it's been very, very difficult to get proper diversification.
• 13:27
  Speaker 1: And of course why should you diversified? And volatility is low?
• 13:30
  Speaker 1: The problem with that of causes at some point and
• 13:33
  Speaker 1: we saw it in recent weeks. Volatility edges higher, and
• 13:36
  Speaker 1: as that happens, people realize their misallocated and that sets
• 13:40
  Speaker 1: in motion this grinding process that they're struggling to find diversification.
• 13:44
  Speaker 1: And as people are realizing in recent weeks that's not
• 13:47
  Speaker 1: so easy. Um, And you mentioned gold in the beginning.
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  Speaker 1: Gold has historically had a correlation of zero to the
• 13:53
  Speaker 1: SMP in the long run. Um. And in the context
• 13:57
  Speaker 1: of volatility, if I can continue here, um, gold doesn't
• 14:00
  Speaker 1: have cash flow, and that's a good thing because when
• 14:03
  Speaker 1: volatility rises, cash flows get discounted. More so all risk
• 14:07
  Speaker 1: assets tend to get banged on the head. Everything else
• 14:11
  Speaker 1: equal anyway, whereas gold in comparison does well because it
• 14:16
  Speaker 1: doesn't have the cash flow. So when risk premier rise,
• 14:19
  Speaker 1: gold does well. And that is the reason why every
• 14:21
  Speaker 1: baire market since the early seventies gold has done well,
• 14:23
  Speaker 1: with the big exception, of course, of the early eighties
• 14:25
  Speaker 1: where real interest rates when they very high. Okay axel
• 14:29
  Speaker 1: uh full disclosure. Gold I find incredibly confusing and I
• 14:33
  Speaker 1: always thought of it as an inflation hedge, and exactly
• 14:37
  Speaker 1: as you're saying, you know it should do well in
• 14:41
  Speaker 1: times of inflation and growth, possibly even better than say
• 14:46
  Speaker 1: a fixed income instrument, especially tied to risk your credit.
• 14:49
  Speaker 1: And yet you really haven't seen that substantial of a
• 14:52
  Speaker 1: rally in gold on the heels of the sell off.
• 14:55
  Speaker 1: And yesterday we had a guest on who is saying
• 14:57
  Speaker 1: this is because interest rates are rising in the u US,
• 15:00
  Speaker 1: people are able to actually get more income. Uh so
• 15:04
  Speaker 1: because it's not interest producing security. Uh, it's sort of
• 15:07
  Speaker 1: being punished. Make make this make sense for me, please? Well,
• 15:11
  Speaker 1: is that incredible? This this this brick, this piece shiny
• 15:14
  Speaker 1: piece of metal that doesn't do anything, doesn't ever change.
• 15:18
  Speaker 1: Is so confusing because it's the one thing that's constant.
• 15:20
  Speaker 1: It's the world around it that's so confusing. And and
• 15:23
  Speaker 1: so um and and obviously the price of gold is
• 15:26
  Speaker 1: determined just like everything else by supply and demand, and
• 15:30
  Speaker 1: so the question is is there reason to to have
• 15:33
  Speaker 1: more of gold than this or that? And and clearly
• 15:35
  Speaker 1: the other things that are also quote unquote inflation hedges,
• 15:38
  Speaker 1: but neither of those perfect heades. People have historically said, right,
• 15:41
  Speaker 1: buying um real estate, buying equities might be inflation hedges.
• 15:46
  Speaker 1: And so um I tried to put it into this
• 15:48
  Speaker 1: is volatility framework, because that one I think makes perfect sense.
• 15:53
  Speaker 1: It doesn't have cash flow, and therefore the discounting works
• 15:56
  Speaker 1: differently now um in the context of higher inflation. First
• 15:59
  Speaker 1: of all, inflation is still very low and and so
• 16:02
  Speaker 1: there's fear of it ticking up um And we're not
• 16:05
  Speaker 1: talking about hyper inflation here, we're talking about the Federal
• 16:07
  Speaker 1: reserve potentially being attacked more assertive. And if there's one
• 16:12
  Speaker 1: big competition to gold, it is higher real interest rates.
• 16:15
  Speaker 1: And so if you get compensated for holding cash while
• 16:18
  Speaker 1: you don't need to hold something that doesn't throw off cash.
• 16:21
  Speaker 1: And the reason why gold has held up very well anyway,
• 16:24
  Speaker 1: in my view any way, is because people think that
• 16:26
  Speaker 1: there's a limit to how much tightening the Federal Reserve
• 16:29
  Speaker 1: can do, and so and when it was also seen
• 16:32
  Speaker 1: the dollar has been weakening despite higher rates, and of
• 16:35
  Speaker 1: course a lot of that has to do with how
• 16:36
  Speaker 1: much has been priced in. But just for the kind
• 16:39
  Speaker 1: of in the context of the reason about a volatility
• 16:42
  Speaker 1: and tandem we had in the market, I take something
• 16:45
  Speaker 1: that's kind of boring any time over something that moves
• 16:48
  Speaker 1: a thousand points in in in a few minutes, and
• 16:51
  Speaker 1: so it does play its role as a diversifier. But
• 16:55
  Speaker 1: but this is an environment I think where everybody, no
• 16:58
  Speaker 1: matter what your hold you're going to be tested. Um.
• 17:00
  Speaker 1: Correlations are breaking down, have been breaking down, and so
• 17:04
  Speaker 1: you're going to be tested with whatever view you have
• 17:06
  Speaker 1: on whatever I as said. You've got to have a
• 17:08
  Speaker 1: long term framework to think about what you want to do,
• 17:10
  Speaker 1: how much allocate the stocks, bonds, gold, or whatever it
• 17:13
  Speaker 1: might be. Because if you just look at any one
• 17:16
  Speaker 1: data point, any one day, UM, I think people will
• 17:19
  Speaker 1: be rightfully confused. Oxville. If you go back about five
• 17:23
  Speaker 1: years and you look at the value of gold, it
• 17:25
  Speaker 1: was trading it around sixteen hundred and five dollars four
• 17:29
  Speaker 1: an ounce. Right now we're hundred and fifty two. What
• 17:34
  Speaker 1: do you say to people that maybe bought gold then
• 17:39
  Speaker 1: and now look at their holdings and say, gee, I
• 17:42
  Speaker 1: can't buy the same amount in dollar terms that I
• 17:46
  Speaker 1: bought back then, And the value of the US dollar
• 17:49
  Speaker 1: may have even declined since then, so as a result,
• 17:52
  Speaker 1: I even have less money. Is gold a means to
• 17:56
  Speaker 1: an end or is it an end in itself? Actually
• 18:00
  Speaker 1: just got a message from somebody who said, oh, I
• 18:02
  Speaker 1: loaded up on too much gold and got burned during
• 18:04
  Speaker 1: those days that you're just a reference. And so even
• 18:06
  Speaker 1: when the price of gold goes higher, they might have
• 18:09
  Speaker 1: to sell some of it, and uh and and you
• 18:12
  Speaker 1: you get that from time to time. It comes down
• 18:15
  Speaker 1: to investment process. Right. If you take take if you
• 18:19
  Speaker 1: bought stocks in two thousand seven and two thousand eight
• 18:21
  Speaker 1: and and and and had were fully loaded in the stocks,
• 18:25
  Speaker 1: well you lose a lot of money, and then people
• 18:27
  Speaker 1: tell you to double down at the bottom. That is
• 18:29
  Speaker 1: completely irresponsible because you lost half of your net worth
• 18:32
  Speaker 1: and you lost more than you could afford to lease do.
• 18:34
  Speaker 1: So you've got to pay down your risk profile. So similarly,
• 18:37
  Speaker 1: if you loaded up on too much of anything, including
• 18:39
  Speaker 1: gold on the top and haven't diversified as as prices
• 18:44
  Speaker 1: were moving, well, odds are that you lost more than
• 18:47
  Speaker 1: you could afford to lose. But that doesn't make the
• 18:49
  Speaker 1: investment in bad investment. It means that you don't have
• 18:52
  Speaker 1: a discipline to rebalance your portfolio and and to to
• 18:55
  Speaker 1: understand the risks and and what happened in gold at
• 18:58
  Speaker 1: the time, volatility was too low and people weren't the
• 19:01
  Speaker 1: way of the risk. While anybody who buys anything, including gold,
• 19:04
  Speaker 1: should be aware these things can be very volatile and
• 19:06
  Speaker 1: people only realize that on the way down when volatility
• 19:09
  Speaker 1: spikes and doesn't make the investment worth But it does
• 19:12
  Speaker 1: remind people that the human and I'm not following the process.
• 19:15
  Speaker 1: And notably they didn't take chips off the table now
• 19:18
  Speaker 1: either um during the the bull market and hopefully they
• 19:20
  Speaker 1: got the wake up call of Laton in the market.
• 19:22
  Speaker 1: Shield axell Mark, thank you so much for joining us.
• 19:24
  Speaker 1: A pleasure having you on. Axel Mark is President, chief
• 19:27
  Speaker 1: investment officer of Mark Investments in San Francisco, California. It's
• 19:32
  Speaker 1: not gold that's confusing, it's the world around it. Let's
• 19:39
  Speaker 1: turn to farming equipment Deer and Company, which focuses on
• 19:43
  Speaker 1: supplying farmers and their infrastructure. Their shares are up nearly
• 19:48
  Speaker 1: four percent after beating estimates with their earnings. Karen yubile
• 19:52
  Speaker 1: Heart joins us now our industrials analysts for Bloomberg Intelligence.
• 19:56
  Speaker 1: Always full of insight. Karen, We're so happy to have
• 19:58
  Speaker 1: you here. So what's going on here? I just sort
• 20:01
  Speaker 1: of set the stage for why why the outlook in
• 20:05
  Speaker 1: general for farming is turning up? Uh, you know, it's
• 20:08
  Speaker 1: it's largely replacement demand. Um. They are in both construction
• 20:12
  Speaker 1: and agg and medals are surging um so and the
• 20:16
  Speaker 1: construction business is surging. But you know, grain commodity prices
• 20:19
  Speaker 1: have not really done anything. But the farmers have not bought,
• 20:23
  Speaker 1: particularly the large farmers for about three years, and they
• 20:26
  Speaker 1: there's the technology has changed a lot. Um. You know,
• 20:30
  Speaker 1: their equipment is getting a little old, and I think
• 20:32
  Speaker 1: they've just and they have enough confidence to get out
• 20:34
  Speaker 1: there and start buying. Well, the company already said, what
• 20:38
  Speaker 1: sales are up like the quarter? Yeah, yeah, um, And
• 20:41
  Speaker 1: well there's two things happening there. The end markets are
• 20:43
  Speaker 1: not up that much, but deer underproduced for three years,
• 20:47
  Speaker 1: so they get a kick, uh, an extra kick from
• 20:50
  Speaker 1: ramping back up to uh, you know, retail demand. So
• 20:54
  Speaker 1: internally they're going to do a lot better than the
• 20:55
  Speaker 1: end market this year. So what's the breakdown for deer
• 20:58
  Speaker 1: as far as where they get their rev new if
• 21:00
  Speaker 1: you look at construction versus farming, and which is the
• 21:04
  Speaker 1: brighter spot heading into the rest of the year. Uh,
• 21:07
  Speaker 1: you know, from a margin perspective, you want dear, you
• 21:10
  Speaker 1: want add to grow and because that's eight percent of
• 21:14
  Speaker 1: deer um right now on a sales basis. Well, it's
• 21:17
  Speaker 1: actually seventy after Vertican and it's still um, you know,
• 21:21
  Speaker 1: about sixty of earnings. And the one thing they did
• 21:25
  Speaker 1: say is large equipment is doing much better than they expected,
• 21:28
  Speaker 1: and that's margin they don't they you know, they'll make
• 21:31
  Speaker 1: a ten percent margin this year and at in um
• 21:33
  Speaker 1: construction and they'll do you know of fourteen percent margin
• 21:38
  Speaker 1: in agg so you know, because of the big stuff. Well,
• 21:41
  Speaker 1: they talked about agriculture and turf equipment sales. I think
• 21:44
  Speaker 1: they were up something like eighteen to but then even
• 21:47
  Speaker 1: more so construction and forestry equipment posting increase of nearly
• 21:52
  Speaker 1: sixty that's the that's the merger um. But it's still up.
• 21:57
  Speaker 1: If you take out Vertican, it's still about twenty percent.
• 22:00
  Speaker 1: But if you look at CATS numbers, which come out monthly,
• 22:03
  Speaker 1: they're up thirty percent in in overall in every region
• 22:07
  Speaker 1: is up at least um and both construction of mining
• 22:12
  Speaker 1: construction matters more to deer is up, are both surging
• 22:15
  Speaker 1: so um. You could see it in CATS numbers a
• 22:18
  Speaker 1: couple of weeks ago, and it's flowing through deer seeing
• 22:21
  Speaker 1: in construction as well, so expert and it's still up
• 22:24
  Speaker 1: a lot so with construction. I mean, we just got
• 22:27
  Speaker 1: housing starts that were the strongest in several years. Um.
• 22:32
  Speaker 1: What's driving the sort of optimism on that side? You know,
• 22:36
  Speaker 1: housing has been pretty good for a while. Um, and
• 22:39
  Speaker 1: I do you know jobs, um, a little bit more money, um,
• 22:43
  Speaker 1: you know, and just an overall more optimistic outlook about
• 22:46
  Speaker 1: the US economic growth I think is helping. And Deer
• 22:50
  Speaker 1: is very sensitive to housing, um, even more so than
• 22:53
  Speaker 1: Cat so and I just want to mention you keep
• 22:55
  Speaker 1: talking about the Verton acquisition. This was the German company, right,
• 22:59
  Speaker 1: and about a four point six billion dollar yes, and
• 23:04
  Speaker 1: they and they have very high margins and the road
• 23:06
  Speaker 1: machinery and Deer wasn't really in that business and they
• 23:09
  Speaker 1: have like a fourteen fifteen percent operating margin. Deer doesn't
• 23:11
  Speaker 1: break ten in their construction, So good from an end
• 23:14
  Speaker 1: market perspective, a regional perspective, as well as margins for
• 23:18
  Speaker 1: that business. What's the for for dear, what's the breakdown
• 23:21
  Speaker 1: with international sales versus domestic sales and how much of
• 23:26
  Speaker 1: a boost are they getting from sort of the I
• 23:28
  Speaker 1: hate saying this because it's such cliche synchronized global growth,
• 23:31
  Speaker 1: but that's what everybody says, well, it's true, So what's
• 23:37
  Speaker 1: going on? Um, they get about two thirds UM of
• 23:40
  Speaker 1: their sales in North America now pro forma with Vertkin,
• 23:43
  Speaker 1: that's gonna that's gonna go down, you know some because
• 23:46
  Speaker 1: you know, Verkan has much larger exposure outside, so we'll
• 23:50
  Speaker 1: probably be more like fifty five UM north America. So
• 23:53
  Speaker 1: they actually have a pretty high North American exposure, which
• 23:56
  Speaker 1: is good tax rate wise, right, so they'll get a benefit.
• 23:59
  Speaker 1: Do we hear it? A thing about dividend changes? Well,
• 24:02
  Speaker 1: that came up because they're relative to their sixty cents
• 24:05
  Speaker 1: to share right now. It's it's about um, it's under
• 24:08
  Speaker 1: their payout goal based on consensus, and the CFO basically said, oh,
• 24:13
  Speaker 1: we're talking about it, we're reviewing it because it's one,
• 24:15
  Speaker 1: I mean one one point four percent. That's not going
• 24:18
  Speaker 1: to get anybody interested. And with the cash flow, they
• 24:20
  Speaker 1: raised their cash flow expectations because things are doing, you know,
• 24:23
  Speaker 1: doing better than they expected. So I would expect they'll
• 24:25
  Speaker 1: do something with the dividend this year. All right, we'll
• 24:27
  Speaker 1: have to look for that because they haven't raised it
• 24:29
  Speaker 1: in a while. I think it was like fifty one
• 24:31
  Speaker 1: cents to share for quite a long period and sixty
• 24:33
  Speaker 1: cents to share, so right now, as I said, one
• 24:35
  Speaker 1: point four, and then they went into the downturn and
• 24:38
  Speaker 1: they were conserving cash. Right now, they can let it fly.
• 24:41
  Speaker 1: Let it fly. There you go. I like that all right,
• 24:43
  Speaker 1: thanks very much, Like Karen, let him fly along with
• 24:47
  Speaker 1: the synchronized global growth that's g G and let it fly.
• 24:50
  Speaker 1: Karen Jubile heard are industrials analysts for Bloomberg Intelligence. Shares
• 24:54
  Speaker 1: of Deer and Company. They are higher right now by
• 24:57
  Speaker 1: more than four percent. Thanks for listening to the Bloomberg
• 25:02
  Speaker 1: P and L podcast. You can subscribe and listen to
• 25:05
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 25:10
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 25:14
  Speaker 1: on Twitter at Lisa Abramowits one before the podcast. You
• 25:17
  Speaker 1: can always catch us worldwide on Bloomberg Radio.