Latest / Bloomberg Intelligence / The Market Isn't Correctly Pricing In Climate Risk, Samama Says

Transcript

The Market Isn't Correctly Pricing In Climate Risk, Samama Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well.
• 0:32
  Speaker 1: In addition to the meeting of the United Nations General
• 0:34
  Speaker 1: Assembly week, there is also something called the Sustainable Investment Form.
• 0:40
  Speaker 1: It is scheduled for tomorrow at the Crown Plaza Hotel
• 0:43
  Speaker 1: here in New York City, and one of the participants
• 0:46
  Speaker 1: is our guest, Fred Samama. He is a deputy Global
• 0:49
  Speaker 1: head of Institutional and Sovereign Clients at a Mundi And
• 0:52
  Speaker 1: for those that may not be familiar with the Mondy,
• 0:54
  Speaker 1: I believe it's the largest publicly traded asset manager in
• 0:58
  Speaker 1: Europe and it is as out of the combination of
• 1:01
  Speaker 1: the asset management business of credit agricole and go ahead
• 1:06
  Speaker 1: and suck and yeah, well, okay, you can tell us more.
• 1:09
  Speaker 1: Fred Samana, thanks for being here. The reason I wanted
• 1:12
  Speaker 1: people to understand about a Munday just a little bit
• 1:14
  Speaker 1: is because they reached they purchased pioneer investments I believe
• 1:18
  Speaker 1: from UNI credit and so that has really kind of
• 1:21
  Speaker 1: changed the profile of a mundy to something that most
• 1:25
  Speaker 1: Americans will will sern Louis know about. So I'm wondering
• 1:29
  Speaker 1: if you could explain your company's dedication to sustainable UH
• 1:33
  Speaker 1: finance initiatives and what are you going to be talking
• 1:36
  Speaker 1: about tomorrow. Yes, good morning, and I'm very glad to
• 1:39
  Speaker 1: be with you this morning. Um. Sustainable investment is part
• 1:43
  Speaker 1: of our DNA. We strongly believe that when you invest
• 1:47
  Speaker 1: over the long run, you must integrate these e G
• 1:51
  Speaker 1: criteria in your investment process, not only to have a
• 1:54
  Speaker 1: positive sorry what kind of criteria e s G. Tell
• 1:58
  Speaker 1: people what that is and ther Montal Social and governance
• 2:02
  Speaker 1: criteria not only to have a positive impact on society,
• 2:06
  Speaker 1: but to manage long term oriented risk as well, because
• 2:10
  Speaker 1: we think that this criteria are helping generate returns over
• 2:14
  Speaker 1: the long run. So this is this is a crucial
• 2:16
  Speaker 1: point because when people talk about sustainable investing out of
• 2:20
  Speaker 1: the goodness of your heart, people in the investing universe,
• 2:24
  Speaker 1: they want to feel good about themselves with their eyes
• 2:26
  Speaker 1: glaze over because it's not their job. Their job is
• 2:28
  Speaker 1: to manage risks and their job is to get returns.
• 2:31
  Speaker 1: And so what you're saying is that you are showing
• 2:33
  Speaker 1: people how they can hedge against some of the economic
• 2:37
  Speaker 1: risks of climate change by investing in certain kinds of companies.
• 2:41
  Speaker 1: Can you give us an example of companies that investment
• 2:44
  Speaker 1: managers would invest in with an eye toward climate change,
• 2:48
  Speaker 1: and can you give us a sense of what returns
• 2:50
  Speaker 1: have been like to date. You're absolutely right here, we
• 2:53
  Speaker 1: are talking about generating um returns over the long run. Conqutely,
• 2:59
  Speaker 1: we have in emted for two large European investors a
• 3:03
  Speaker 1: P four on low carbon indexes. These indexes are a
• 3:08
  Speaker 1: way to decabonize passive investments instruments. It's a way to
• 3:13
  Speaker 1: reduce climate change related risks without changing market returns of
• 3:18
  Speaker 1: other short runds. How because we do a screening a
• 3:22
  Speaker 1: sector per sector, and we will look at the cabin
• 3:24
  Speaker 1: food print or how a company is exposed to climate
• 3:27
  Speaker 1: change related risks. Concrete example that speaks to everybody. If
• 3:32
  Speaker 1: you take the example of the auto car makers. On
• 3:35
  Speaker 1: the one hand, you have a company named volves Wagon
• 3:38
  Speaker 1: developing softwares in order to to to lie on climate change.
• 3:42
  Speaker 1: On the other hand, you have corporates like Toyota or
• 3:45
  Speaker 1: Tesla developing cars that are anticipating a shift towards EVS.
• 3:52
  Speaker 1: So you can see that for all sectors you actually
• 3:55
  Speaker 1: have managements either denying what's happening or autist painting. And
• 4:00
  Speaker 1: we strongly believe that it's better to be to be
• 4:04
  Speaker 1: invested into the latter ones than in the former ones.
• 4:07
  Speaker 1: And the good news is that investors, having started the
• 4:10
  Speaker 1: process of using the low carbon indexes, have outperformed before
• 4:16
  Speaker 1: a for beating the standout indexes. And now this technology,
• 4:20
  Speaker 1: having been developed in Europe, is now spreading around the planet.
• 4:25
  Speaker 1: Calster's New York Command Right Tirement Fund, New Zealand Superagnution Fund,
• 4:29
  Speaker 1: they're all using this technology in order to reduce their
• 4:33
  Speaker 1: climate change related risks, with that impacting their returns or
• 4:37
  Speaker 1: the short run. Is that a strategic decision on the
• 4:40
  Speaker 1: part of these pension funds that they've decided, I mean,
• 4:42
  Speaker 1: as you mentioned, whether it's the New York Common Retirement Fund,
• 4:46
  Speaker 1: Unilever's corporate pension fund, is that a strategic position that
• 4:50
  Speaker 1: they stake as well that they must pay attention to
• 4:53
  Speaker 1: these issues. Absolutely. To take a concrete example, it doesn't
• 4:57
  Speaker 1: really even matter whether the money manager believes the this
• 5:00
  Speaker 1: is something good to be done out of the goodness
• 5:02
  Speaker 1: of everybody's heart. The mandate from the manage, from the
• 5:06
  Speaker 1: from the people who actually aren't responsible for the money,
• 5:09
  Speaker 1: the pension fund managers. They are telling their potential vendor, Look,
• 5:15
  Speaker 1: this is how I want you to invest the money. Correct.
• 5:18
  Speaker 1: Concrete example News New Zealand Supernuition Fund and we have
• 5:22
  Speaker 1: been speaking to them for four years on this topic.
• 5:25
  Speaker 1: They have announced a couple of weeks ago that the
• 5:27
  Speaker 1: West switching ten billion dollars of the equity funds towards
• 5:32
  Speaker 1: low carbon indexes. So, to make a long story short,
• 5:34
  Speaker 1: it's not to look good in an annual report, it's
• 5:37
  Speaker 1: not to be on any you know, pictures at the
• 5:40
  Speaker 1: UN assemblies. It's really because they believe that here they're
• 5:44
  Speaker 1: facing a market figure markets being shot and oriented. They
• 5:48
  Speaker 1: don't price correctly the risks associated with climate change, and
• 5:52
  Speaker 1: so it becomes their fidusual responsibility to arn aerlie those
• 5:56
  Speaker 1: risks and to try to reduce their waitings. It's exactly
• 5:59
  Speaker 1: the stage of mc county, the governor of the Bank
• 6:02
  Speaker 1: of England says, if you don't integrate climate change rootide
• 6:06
  Speaker 1: risks while being a coupled punchion fund manager, you're breaching
• 6:11
  Speaker 1: your fidushery responsibility based on worlds. Well, Fred, you know,
• 6:16
  Speaker 1: I'd love to get your sense though, because there's been
• 6:18
  Speaker 1: there's been some pushback about e s G funds and
• 6:20
  Speaker 1: even carbon neutral funds, basically saying, how do you really
• 6:24
  Speaker 1: determine that a lot of companies can kind of manipulate
• 6:27
  Speaker 1: how they look, but it doesn't really matter that it's
• 6:30
  Speaker 1: not really reducing their carbon footprint all that much. You know,
• 6:34
  Speaker 1: on e h G um, it's slightly different from cabin
• 6:38
  Speaker 1: e h G is differs from one country to the
• 6:41
  Speaker 1: other one. To take a contricrete example, if you talk
• 6:44
  Speaker 1: about e s G in Japan, it will be all
• 6:47
  Speaker 1: about governance. If you talk about e G in China,
• 6:50
  Speaker 1: it will be all about climate change. When I'm trying
• 6:54
  Speaker 1: to say here it has this world conveys different meanings
• 6:59
  Speaker 1: depending on the country is you're in on climate change
• 7:02
  Speaker 1: is different. The cabin food print of a Chinese, Japanese,
• 7:06
  Speaker 1: or European or US corporate is either same one. How
• 7:11
  Speaker 1: polting you are or are you exposed to strongded assets,
• 7:15
  Speaker 1: meaning you have asset that could be kept on the ground,
• 7:18
  Speaker 1: So it has no um I would say moral values behind.
• 7:22
  Speaker 1: It's all about materality and risks of a long run.
• 7:26
  Speaker 1: And then for that we have particular pictures which provide
• 7:29
  Speaker 1: us having an allied that for for more than one decade.
• 7:33
  Speaker 1: You know. Just just briefly, I just wanted to mention
• 7:35
  Speaker 1: because we were talking about the New Zealand Superannuation Fund
• 7:38
  Speaker 1: and at the time, I believe was Adrian Or at
• 7:42
  Speaker 1: the fund who who said that they are still going
• 7:44
  Speaker 1: to invest in fossil fuel uh companies, but that they
• 7:48
  Speaker 1: don't feel that they're being adequately rewarded for the risk.
• 7:50
  Speaker 1: So to your point, and they said they reduced what
• 7:53
  Speaker 1: the billion dollar fund exposure to emissions and reserves by
• 7:57
  Speaker 1: around twenty percentage. Yeah. That the point that the point
• 8:00
  Speaker 1: is not to get rid of fossil fuel companies. The
• 8:02
  Speaker 1: point is not to disinvest. Equation is within each industry,
• 8:07
  Speaker 1: which corporates our well positioned facing this this shift of society. Yeah,
• 8:12
  Speaker 1: Fred's mama, thank you so much for joining us. I
• 8:14
  Speaker 1: we could talk to you all afternoon. This is actually
• 8:16
  Speaker 1: fascinating and you're raising a two billion dollars in funds
• 8:19
  Speaker 1: to create the largest green bond fund for emerging markets.
• 8:22
  Speaker 1: Fred's mama, Deputy Global Head of Institutional and Sovereign Clients.
• 8:24
  Speaker 1: For a MUNDI let's turn our attention now to what
• 8:39
  Speaker 1: to do with your money and some of the world
• 8:42
  Speaker 1: strategies that you might employ. Brad McMillan is the Chief
• 8:44
  Speaker 1: Investment Office for Commonwealth Financial Network and he joins us
• 8:48
  Speaker 1: here in our eleven three oh studio. Brad, always a pleasure,
• 8:51
  Speaker 1: Thanks for being here. I'm wondering if, if maybe you
• 8:55
  Speaker 1: can describe the importance of let's say a non style
• 9:00
  Speaker 1: or uh not fixed income number. And this has to
• 9:03
  Speaker 1: do with household income, because I was reading a note
• 9:06
  Speaker 1: that you put out a couple of weeks ago, and
• 9:08
  Speaker 1: it had to do with paying attention to median household
• 9:12
  Speaker 1: income in the United States and what that would mean
• 9:15
  Speaker 1: for investors. Tell us about it, well, the point of
• 9:19
  Speaker 1: the piece was to talk about the We talk about
• 9:21
  Speaker 1: the stock market records, but there are underlying records that
• 9:24
  Speaker 1: are much more important when we see where the stock
• 9:27
  Speaker 1: market is likely to go, and one of the most
• 9:29
  Speaker 1: important ones recently has been household income. Media, household income,
• 9:34
  Speaker 1: the household income half the people make more, half make less,
• 9:37
  Speaker 1: has actually hit a new record for the first time
• 9:39
  Speaker 1: since nine Now think about that for a minute. There's
• 9:44
  Speaker 1: there's some good news in there, and there's some bad news.
• 9:45
  Speaker 1: The bad news is it took almost a full generation
• 9:48
  Speaker 1: to hit a new high. The good news is that
• 9:51
  Speaker 1: we have hit a new high, and we've done it
• 9:53
  Speaker 1: without a ton of economic growth. So that being the case,
• 9:56
  Speaker 1: if we look forward, if we see growth accelerating and
• 9:59
  Speaker 1: we may ellen the rest of the year, then that
• 10:02
  Speaker 1: actually would mean that wage growth could take up, and
• 10:04
  Speaker 1: actually income could get even better. People could spend more,
• 10:08
  Speaker 1: and we could move into a positive circle. That would
• 10:11
  Speaker 1: be great for the market. So, Brad, it sounds like
• 10:14
  Speaker 1: you're bullish right now over the short term, I am.
• 10:18
  Speaker 1: I think the markets actually going to do pretty well
• 10:20
  Speaker 1: through the rest of the year. I think the signs
• 10:22
  Speaker 1: for at least at the start of the year very good.
• 10:26
  Speaker 1: I guess I was just gonna In that case, do
• 10:29
  Speaker 1: you perceive that companies will spend some of the money
• 10:32
  Speaker 1: that they have either raised through bond issues or because
• 10:36
  Speaker 1: they've just amassed large cash piles. Will they start spending
• 10:40
  Speaker 1: that on something other than share buybacks and dividends. Will
• 10:43
  Speaker 1: they spend it on wage increases? Will they spend it
• 10:45
  Speaker 1: on technology to make their businesses more productive? I think
• 10:49
  Speaker 1: they're gonna have to start spending it on wage increases.
• 10:52
  Speaker 1: We're already seeing signs are starting to invest more and
• 10:55
  Speaker 1: that actually is the key to future income growth, which
• 10:59
  Speaker 1: is increasing more or productivity. That's when one of the
• 11:01
  Speaker 1: problems companies are running out of bodies to throw with
• 11:04
  Speaker 1: the problem. Now they're going to have to start buying equipment,
• 11:07
  Speaker 1: and that's going to be another positive for the economy. Brad,
• 11:10
  Speaker 1: At what point are we going to start seeing inflation.
• 11:14
  Speaker 1: We're gonna start seeing prices rise, We're gonna start seeing,
• 11:17
  Speaker 1: as you said, wages increase. That will lead to higher
• 11:21
  Speaker 1: benchmark borrowing costs. And Alan Krueger of Princeton was on
• 11:25
  Speaker 1: Bloomberg Television earlier and break. He was talking about how
• 11:28
  Speaker 1: he could see a ten year treasury yields rising to
• 11:32
  Speaker 1: four percent pretty quickly if we start to see that,
• 11:35
  Speaker 1: Do you agree and how disruptive would that be? I
• 11:37
  Speaker 1: do agree with that, because right now we've had very
• 11:40
  Speaker 1: little inflation, and the assumption is what's never going to
• 11:42
  Speaker 1: show up I think that when it shows up, it'll
• 11:44
  Speaker 1: show up faster than people think, and that could well
• 11:47
  Speaker 1: be in the next eighteen months. Now that that's the case,
• 11:50
  Speaker 1: And what kind of inflation? What are we talking about? Energy, food,
• 11:54
  Speaker 1: home prices? What kind across the board. One of the
• 11:57
  Speaker 1: reasons we've had low inflation is because wage growth has
• 12:00
  Speaker 1: been so constrained. Wage growth feeds into everything else. We've
• 12:03
  Speaker 1: had a number of things getting cheaper and cheaper. We've
• 12:06
  Speaker 1: had cars. Globalization is continuing to work its way. But
• 12:09
  Speaker 1: why is that connect? In other words, maybe I'm getting
• 12:12
  Speaker 1: the wrong. Wages have not, as you said, waited a
• 12:16
  Speaker 1: long time for wages to come back. Wages rise, but
• 12:20
  Speaker 1: that doesn't necessarily mean the prices are going to go up.
• 12:22
  Speaker 1: I thought inflated. One of the reasons that inflation has
• 12:24
  Speaker 1: been held in check is because every time you turn around,
• 12:26
  Speaker 1: someone else's vent invented the same thing for less money,
• 12:30
  Speaker 1: deliver it to you faster, like an Amazon for example. Well,
• 12:33
  Speaker 1: you can look at it a couple of different ways.
• 12:35
  Speaker 1: You can look at it as a company and say,
• 12:36
  Speaker 1: if I have to pay more wages now, either I'm
• 12:38
  Speaker 1: going to make less money or I have to raise prices.
• 12:41
  Speaker 1: That's where price increases come from, from a cost in
• 12:44
  Speaker 1: the inputs or because there's just not enough capacity. Companies say,
• 12:47
  Speaker 1: you know what, I can't make enough to sell all
• 12:50
  Speaker 1: I need, so I'm just gonna raise prices and match
• 12:52
  Speaker 1: my production with the demand at the higher price. That
• 12:55
  Speaker 1: being the case, you can see those dynamics start to
• 12:57
  Speaker 1: set up in place, and that's what would generate the inflation. Brad.
• 13:02
  Speaker 1: If if you could see ten year treasury yields, which
• 13:05
  Speaker 1: are now about twenty basis points over two, rising to
• 13:08
  Speaker 1: four percent over the next eighteen months, conceivably, if we
• 13:12
  Speaker 1: start to see uh sort of increase in wages and inflation,
• 13:16
  Speaker 1: what would that do to stock markets? Well, it would
• 13:19
  Speaker 1: do something bad to the economy, and it could do
• 13:21
  Speaker 1: something worse to markets. I mean, the one thing that
• 13:23
  Speaker 1: really causes a stock market pullback a big one, is
• 13:26
  Speaker 1: a recession, and rising rates is one of the key
• 13:29
  Speaker 1: indicators of a recession. If you look at all of
• 13:32
  Speaker 1: the major indicators. We're fine right now. We're fine for
• 13:35
  Speaker 1: the next twelve months or so, but sometime in the
• 13:37
  Speaker 1: next couple of years we are going to have a recession,
• 13:39
  Speaker 1: and that could be one of the causal factors. So
• 13:42
  Speaker 1: in other words, if things accelerate meaningfully more, that will
• 13:45
  Speaker 1: put us much closer to a recession. It could. Yes,
• 13:50
  Speaker 1: are you calling for one? And what two years? I think?
• 13:53
  Speaker 1: I think the next eight to twenty four months. It's
• 13:55
  Speaker 1: quite possible. I do a monthly I track significant factors
• 13:59
  Speaker 1: on my blog every months. Right now, we're still in
• 14:01
  Speaker 1: the green light zone, but you can actually see the
• 14:03
  Speaker 1: decay and for example, hiring trends. We're on a downward path.
• 14:07
  Speaker 1: Things are slowing down and somewhere in the next year
• 14:10
  Speaker 1: or two that can hit The trouble is that is
• 14:12
  Speaker 1: that hiring slowing down because it just quickly because the technology,
• 14:15
  Speaker 1: or not just because of the economy, just because we're
• 14:17
  Speaker 1: running out of people. All right, that's the simple part.
• 14:20
  Speaker 1: We don't have enough workers. Brad McMillan, thank you so
• 14:23
  Speaker 1: much for joining us. Brid mcbillan, chief Investment Officer for
• 14:26
  Speaker 1: Commonwealth Financial Network, overseeing ussets of a hundred and fourteen
• 14:30
  Speaker 1: billion dollars and based in Waltham, Massachusetts. Uh. This is
• 14:35
  Speaker 1: this is a very important issue and you raise an
• 14:38
  Speaker 1: incredibly interesting point. Even though investors have pretty much dismissed
• 14:41
  Speaker 1: the idea of higher rates. Some are still saying they
• 14:44
  Speaker 1: are near. We want to focus now on the aftermath
• 14:59
  Speaker 1: the economic sequences of natural disasters such as Hurricane Irma
• 15:03
  Speaker 1: Hurricane Harvey. Joining us Brian Eger, a senior Gaming and
• 15:07
  Speaker 1: lodging analyst for Bloomberg Intelligence. Brian, thanks for joining us.
• 15:11
  Speaker 1: Here's our studio. UM. I understand that if Florida had
• 15:14
  Speaker 1: the hospitality and tourism industry in Florida is worth about
• 15:18
  Speaker 1: ninety billion dollars UH, and the storm took a direct
• 15:24
  Speaker 1: hit on that, and I'm wondering if you could tell
• 15:26
  Speaker 1: us the effects, but also how outsized are the ramifications.
• 15:32
  Speaker 1: Is it unusual because we know hurricane season exists and
• 15:36
  Speaker 1: we know that you know, many businesses try to prepare
• 15:38
  Speaker 1: for it. So Florida is about the twelfth largest hotel
• 15:41
  Speaker 1: market in the US in terms of room supply. It's
• 15:44
  Speaker 1: also a very big cruise deployment market, as you might
• 15:47
  Speaker 1: expect about about a annywhere from a third to a
• 15:50
  Speaker 1: half of these cruise lines capacity is deployed in the Caribbeans.
• 15:54
  Speaker 1: So the potential for disruption exists. Fortunately, I would say
• 15:57
  Speaker 1: with respect to Irma, UH, this storm could have been
• 16:00
  Speaker 1: far worse in terms of its lingering impact. You know,
• 16:03
  Speaker 1: I have to wonder just in general though, with the
• 16:05
  Speaker 1: clean up, with this unpredictability, with this feeling that one
• 16:09
  Speaker 1: hurricane after another just keep slamming in the same area,
• 16:13
  Speaker 1: is there going to be a long term dampening effect
• 16:16
  Speaker 1: on demand for some of these cruise lines as well
• 16:20
  Speaker 1: as frankly some of the hotels that are in on
• 16:23
  Speaker 1: the coast in Florida. Well, I think for cruise lines
• 16:25
  Speaker 1: you have to pass between disruption of cruises versus damage
• 16:29
  Speaker 1: to cruise ports. Because cruise ships are are maneuverable assets.
• 16:34
  Speaker 1: You can redeploy them. So you know, the twenty five
• 16:37
  Speaker 1: or so kore imports resssessments I've seen, or about a
• 16:41
  Speaker 1: dozen or open, some other half dozen or closed. The
• 16:43
  Speaker 1: rest are pending reassessments. Now, there were a number of cancelations.
• 16:47
  Speaker 1: By some estimates, about ten cruises were canceled, ten were
• 16:51
  Speaker 1: delayed as a result of this, and that does result
• 16:54
  Speaker 1: in some uh necessary maneuving on maneuvering on the part
• 16:58
  Speaker 1: of cruise lines. But you know, the difference you have
• 17:01
  Speaker 1: to pass between is what happens with the ports now,
• 17:03
  Speaker 1: for um, for cruises in the Caribbean, once possible beneficiary
• 17:09
  Speaker 1: in a in a perverse sense might be Mexico, the
• 17:12
  Speaker 1: Mexican Yucatan Peninsula. There are three cruise ports there which
• 17:16
  Speaker 1: are likely to see more arrivals because a lot of
• 17:19
  Speaker 1: Eastern Caribbean cruises which might be canceled they're disrupted, might
• 17:22
  Speaker 1: get redeployed there because considerably less damage in places like Cosmo. Well,
• 17:28
  Speaker 1: I understand that the tourism officials in the Caribbean are
• 17:32
  Speaker 1: still trying to assess the damage that you've certainly got
• 17:37
  Speaker 1: situation where Royal Caribbean said the future sailings aren't even
• 17:40
  Speaker 1: going to stop at the ports in Saint Martin, St.
• 17:42
  Speaker 1: Thomas or Key West until the islands have recovered. That's
• 17:46
  Speaker 1: exactly it is. As you know, of the or so
• 17:49
  Speaker 1: odd some odd ports in the Caribbean, um as I said,
• 17:53
  Speaker 1: about half are open, but the rest and they're in
• 17:55
  Speaker 1: some transitional state of reevaluation and UH and damage assessment
• 18:01
  Speaker 1: or actually being closed. And that does UH push a
• 18:05
  Speaker 1: lot of that traffic that might have gone to the
• 18:06
  Speaker 1: Eastern Caribbean to the Western Caribbean, some very desirable destinations
• 18:10
  Speaker 1: they are, no doubt, but that is a source of
• 18:12
  Speaker 1: disruption and if you're on one of those cruises that
• 18:15
  Speaker 1: got canceled because of the last hurricane UH, you would
• 18:17
  Speaker 1: get a full refund and a partial credit towards the
• 18:21
  Speaker 1: future cruise. So there are some ways that cruise lines
• 18:24
  Speaker 1: try to make it up to affect the passengers in
• 18:26
  Speaker 1: terms of their policies. Have we already gotten any guidance
• 18:29
  Speaker 1: from Carnival, Royal Caribbean, Norwegian Cruise Line about how much
• 18:32
  Speaker 1: of a hit this will cause UH to their third
• 18:35
  Speaker 1: quarter earnings? We have not yet, although Carnival will like
• 18:38
  Speaker 1: report their earnings within in the next two weeks, perhaps
• 18:40
  Speaker 1: next week, because they just finished their August quarter. UM.
• 18:43
  Speaker 1: You know, very often in some past storms that disruption
• 18:46
  Speaker 1: in terms of an earnings per share impact has been
• 18:49
  Speaker 1: relatively manageable. I mean, when Hurricane Sandy came about in
• 18:53
  Speaker 1: it affected um UH annual earnings per share for companies
• 18:57
  Speaker 1: like Royal Caribbean by about two cents per shares. So
• 19:00
  Speaker 1: there might very well be some impact in terms of
• 19:03
  Speaker 1: UH cost of issuing vouchers or some disruption or operational costs,
• 19:07
  Speaker 1: but historically pretty manageable. Well, but you know, there's a
• 19:10
  Speaker 1: difference between the immediate costs and say the cost of
• 19:14
  Speaker 1: not really being able to land at a port, and
• 19:16
  Speaker 1: we're not really having clients that want to passengers that
• 19:20
  Speaker 1: want to go to an island that has been decimated
• 19:23
  Speaker 1: by a hurricane and doesn't even have lodging or things
• 19:26
  Speaker 1: to see, right, I mean, and is there some kind
• 19:28
  Speaker 1: of sense of what that impact could be. We don't
• 19:30
  Speaker 1: know yet. I mean, certainly for Eastern Caribbean ports, for
• 19:33
  Speaker 1: the US Vision Islands, for Martin's Islands like Save Martin,
• 19:36
  Speaker 1: which are popular cruise destinations. We have the reality of
• 19:40
  Speaker 1: ongoing economic and infrastructure damage and damage to ports. Uh
• 19:44
  Speaker 1: and I said, just as some of the Chinese cruises
• 19:47
  Speaker 1: were rerouted from South Korea to Japan, so some of
• 19:50
  Speaker 1: these Caribbean cruises might have been rerouted from the Eastern
• 19:53
  Speaker 1: Caribbean to the Western Caribbean. It's not ideal, um, it
• 19:56
  Speaker 1: happens every year. I think part of the issue will be,
• 19:59
  Speaker 1: or what we're watch is whether or not there will
• 20:01
  Speaker 1: be more hurricanes for the remainder of this season, which
• 20:04
  Speaker 1: could further either disrupt cruises or cause damage. But at
• 20:07
  Speaker 1: least for this storm, as bad as it was, things
• 20:10
  Speaker 1: could have been far worse. Brian just to get trying
• 20:12
  Speaker 1: to get an update the Keys, the Florida Keys Monroe
• 20:15
  Speaker 1: County UH, saying that there's no fuel, no electricity, no
• 20:19
  Speaker 1: running water, no cell service, general aviation at key West
• 20:23
  Speaker 1: International as well as Florida Keys Marathon International they're closed. UH.
• 20:28
  Speaker 1: Any estimates how long it's going to be before this
• 20:30
  Speaker 1: is up and running really don't know. I will tell
• 20:32
  Speaker 1: you that if you look at a one week impact,
• 20:34
  Speaker 1: for example, that the hotel industry centered or not Miami,
• 20:37
  Speaker 1: there was indeed an effect. If you look at aupans
• 20:40
  Speaker 1: rates or revenue per available room, those metrics are down
• 20:43
  Speaker 1: thirty to thirty five percent year of a year for
• 20:46
  Speaker 1: the weekended um UH September ninth. Now, of course if
• 20:50
  Speaker 1: you roll out over a four week period, things are
• 20:52
  Speaker 1: pretty flat, but certainly the hotel industry there no doubt
• 20:56
  Speaker 1: took a hit. Brianger, thank you so much for joining us.
• 20:58
  Speaker 1: Brian Eger, a senior game and lodging analysts for Bloomberg Intelligence,
• 21:02
  Speaker 1: joining us here in our Bloomberg eleven three oh studios,
• 21:05
  Speaker 1: and we have seen a hit to those shares of
• 21:08
  Speaker 1: cruise liners, and there's a question of whether they will
• 21:10
  Speaker 1: rebound as people reassess there is a growing chorus that
• 21:25
  Speaker 1: perhaps markets are too sanguine about this. I want to
• 21:28
  Speaker 1: bring in Jack Ablin to weigh in on this. Jack
• 21:30
  Speaker 1: Avelin as chief investment Officer of BEMO Private Bank overseeing
• 21:33
  Speaker 1: about sixty eight billion dollars of assets from Chicago. Jack,
• 21:37
  Speaker 1: thank you so much for joining us earlier in the program.
• 21:40
  Speaker 1: Brad McMillan of Commonwealth Financial Network, so that there was
• 21:43
  Speaker 1: a real likelihood that benchmark treasury yields could rise substantially
• 21:48
  Speaker 1: over the next eighteen months to two years and spur recession.
• 21:54
  Speaker 1: Do you agree, Um, You know, we are in that
• 21:59
  Speaker 1: point of the business cycle where we're kind of reaching
• 22:01
  Speaker 1: that full capacity, and so perhaps moving toward a higher
• 22:08
  Speaker 1: rates slower growth in the future is certainly a possibility. Jack.
• 22:13
  Speaker 1: Can I just turn your attention to obviously, this ongoing
• 22:16
  Speaker 1: issue of North Korea. It's nuclear ambitions and test firing
• 22:21
  Speaker 1: of these ballistic missiles. I understand it's terrible, and you know,
• 22:25
  Speaker 1: world leaders are spending their time trying to figure out
• 22:28
  Speaker 1: what to do about it. If something untoward were to happen,
• 22:32
  Speaker 1: Why would that be such a direct connection to what
• 22:35
  Speaker 1: happens to the stock market, Well, you know, it's interesting.
• 22:39
  Speaker 1: I did write a note about North Korea this morning, Pim,
• 22:42
  Speaker 1: and my focus is, let's not worry or now, let's
• 22:45
  Speaker 1: not focus so much on Kim June un. Let's let's
• 22:48
  Speaker 1: look at President she. I think it's really China certainly
• 22:52
  Speaker 1: holds the cards here, and our bottom line is, as
• 22:55
  Speaker 1: long as China is concerned, not concerned, we shouldn't be
• 22:58
  Speaker 1: concerned because really, in many respects, North Korea and China
• 23:02
  Speaker 1: share a number of political priorities, and as long as
• 23:07
  Speaker 1: Kim John un operates within those shared priorities, China is
• 23:12
  Speaker 1: gonna go ahead and let him flap his arms and
• 23:14
  Speaker 1: do whatever he's gonna do. Should he start to move
• 23:17
  Speaker 1: outside of that realm, perhaps if China sense that he
• 23:21
  Speaker 1: would launch an unprovoked attack, then I think they would intervene.
• 23:25
  Speaker 1: But for right now, I don't I don't see uh,
• 23:27
  Speaker 1: I don't see that happening. So right now, what is
• 23:31
  Speaker 1: the biggest concern as far as disrupting this record rally
• 23:35
  Speaker 1: that we're saying us stuff. I think it's really just
• 23:38
  Speaker 1: gonna be um. You know, obviously you know those unknowns
• 23:42
  Speaker 1: are outside my scope, but I will say, you know
• 23:46
  Speaker 1: it's going to be monetary policy. The fact is that
• 23:49
  Speaker 1: it's been easy policy and quantitative easing that got us
• 23:53
  Speaker 1: a lot of the way from two thousand nine till
• 23:55
  Speaker 1: where we are today. Uh. And it's possible that quantitative
• 23:58
  Speaker 1: tightening and a reversal of those moves. Um, could you know,
• 24:04
  Speaker 1: UM at least pamp some of that enthusiasm that we've had. Well,
• 24:08
  Speaker 1: and Jack, I guess the FED is made very clear
• 24:11
  Speaker 1: that it's not going to raise rates at a at
• 24:13
  Speaker 1: a fast pace unless they see some material economic growth
• 24:17
  Speaker 1: and inflation. In particular, what are the chances in your
• 24:20
  Speaker 1: mind that we do get more material inflation, more material wages,
• 24:25
  Speaker 1: wage increases that would lead to a more rapid rise
• 24:28
  Speaker 1: in benchmark borrowing costs. Yeah, I would say, Um, you're right. Um,
• 24:34
  Speaker 1: you know, on paper, I would say the Fed does
• 24:38
  Speaker 1: not have enough evidence currently um to really start to
• 24:41
  Speaker 1: restrict things race rates or really um reduce the balance sheet. Um.
• 24:47
  Speaker 1: Certainly not both. But given that that m chairwoman yelling
• 24:52
  Speaker 1: expects that she will not be reappointed, nor she may
• 24:54
  Speaker 1: not even take the position if she was offered it, Um,
• 24:58
  Speaker 1: she may want to do kind of a what what
• 25:01
  Speaker 1: Bernickey tried to do and just create some closure on
• 25:04
  Speaker 1: a strategy that she uh. Maybe she didn't open up herself,
• 25:08
  Speaker 1: but she certainly perpetuated, So there could be a motivation
• 25:12
  Speaker 1: to start something that, you know, all other things being equal,
• 25:17
  Speaker 1: she wouldn't have done on her own. Um that said,
• 25:20
  Speaker 1: you know, I think that you're right. I mean, we
• 25:23
  Speaker 1: could see some UH inflation pressure down the line. We haven't.
• 25:27
  Speaker 1: I would have expected to see, for example, three percent
• 25:30
  Speaker 1: wage growth by the end of this year, and we're
• 25:33
  Speaker 1: not close to that yet, but eventually it will happen,
• 25:36
  Speaker 1: and that's part of the business cycle. So I expect that,
• 25:41
  Speaker 1: you know, we can continue on this nice, steady path
• 25:44
  Speaker 1: higher probably through UH the first quarter, easily into two
• 25:49
  Speaker 1: thousand and eighteen. Then as um some of this inflation
• 25:52
  Speaker 1: data comes through, we start to see some higher rates. Um.
• 25:55
  Speaker 1: The second half of a team could be problematic for
• 25:58
  Speaker 1: equity investing. Does Jack Avelin believe that US equities are expensive? Yeah,
• 26:04
  Speaker 1: I believe they're expensive. The only lens you can peer
• 26:09
  Speaker 1: through too and squint to make them look cheap is
• 26:13
  Speaker 1: through the lens of bonds. If you take, for example,
• 26:16
  Speaker 1: the earnings yield. Historically the earnings yield, which is just
• 26:19
  Speaker 1: the reciprocal of the pe ratio and the triple B
• 26:23
  Speaker 1: pen your bond yield have been identical. They moved in
• 26:26
  Speaker 1: tandem on top of one another for decades. That was
• 26:30
  Speaker 1: until two thousand nine when they split apart. Right now,
• 26:33
  Speaker 1: the earnings yield is about one point six percent higher
• 26:37
  Speaker 1: than the earnings than the triple B bond yield. So
• 26:40
  Speaker 1: perhaps for those investors who are looking for some rationale
• 26:46
  Speaker 1: for jumping into the market, that would be it. So Jack,
• 26:50
  Speaker 1: it sounds like you think bonds are the most expensive
• 26:52
  Speaker 1: part of the market right now. US government bonds in particular,
• 26:56
  Speaker 1: I do. I have a very difficult time with it. Really,
• 26:59
  Speaker 1: the only um real use for them is is really
• 27:03
  Speaker 1: as a hedge. You know, if you felt that, you
• 27:06
  Speaker 1: know this is our this is our main scenario. But
• 27:08
  Speaker 1: if we're wrong, you know, we want to have something
• 27:10
  Speaker 1: to offset. But you know that really hasn't hasn't played out.
• 27:14
  Speaker 1: I will say interestingly, Um, this last quarter, high quality
• 27:20
  Speaker 1: corporate bonds outperform high yield bonds, So we may start
• 27:24
  Speaker 1: to see a turn in the credit cycle, and that
• 27:29
  Speaker 1: tends to go earlier than equities themselves, And that's something
• 27:32
  Speaker 1: we're just starting to watch although it's sort of interesting
• 27:34
  Speaker 1: because in the latest Bank of America Mary Lynch Fund
• 27:37
  Speaker 1: Manager survey for September, they actually showed that there are
• 27:40
  Speaker 1: a greater number of investors who are going underweight investment
• 27:43
  Speaker 1: grade in going more heavily waited towards high yield. So
• 27:46
  Speaker 1: it doesn't you know, it sort of means perhaps that
• 27:48
  Speaker 1: people got a little overly enthusiastic with investment grade and
• 27:51
  Speaker 1: now they're sort of shifting back, which is I thought
• 27:53
  Speaker 1: it was kind of interesting. Yeah, I mean that that
• 27:56
  Speaker 1: could be, Like I said, it's it's not enough of
• 27:58
  Speaker 1: a trend yet. Um, if we start to see high
• 28:01
  Speaker 1: quality bonds continually outperform high yield, and that's possible given
• 28:06
  Speaker 1: that where credit spreads are currently set, I mean they're
• 28:09
  Speaker 1: so low, Um, that could be an indication. And it was.
• 28:13
  Speaker 1: I mean, if you go back to the last financial crisis,
• 28:17
  Speaker 1: we saw credit spreads widen four quarters before. Uh it
• 28:22
  Speaker 1: was the fourth quarter two thousand seven, so it certainly
• 28:24
  Speaker 1: gave us a long warning period for two thousand and eight.
• 28:28
  Speaker 1: Thanks very much for spending time with us. Jack Avelin
• 28:31
  Speaker 1: is always chief Investment Officer be MO Private Bank, helping
• 28:35
  Speaker 1: to manage approximately sixty eight billion dollars of client assets.
• 28:39
  Speaker 1: Based in Chicago. Thanks for listening to the Bloomberg P
• 28:45
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 28:48
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 28:52
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 28:56
  Speaker 1: on Twitter at Lisa abramowits one before the podcast. You
• 28:59
  Speaker 1: can always catch us worldwide on Bloomberg Radio