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Ciocca on Relationship Between D.C. and Wall Street (Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Catherine Cowdery. You're listening to Taking Stock with Kathleen
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  Speaker 1: Hayes and Pim Fox on Bloomberg Radio. The Election and
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  Speaker 1: your investments. Doug Sioca is the chief executive officer and
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  Speaker 1: partner of Cavart Capital Partners, helping to manage nearly half
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  Speaker 1: a billion dollars. He's based in Leawood, Kansas. He can
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  Speaker 1: be followed on Twitter at Doug Cioca. CEE I O
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  Speaker 1: C c A. Alright, Doug Sioco, what is the relationship
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  Speaker 1: between presidential elections and market cycles? Ay, Pim, Good afternoon,
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  Speaker 1: Thanks for having me on. I think that, um, there
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  Speaker 1: are myriad correlations or correllaries that are drawn between the
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  Speaker 1: election and the markets, and I think the implications for
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  Speaker 1: the investor are probably more intense than they are for
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  Speaker 1: the markets. Right, This is a much more emotional than
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  Speaker 1: it is an economic consideration. Elections themselves by virtue of
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  Speaker 1: the design our binary events, but the influence of their outcome.
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  Speaker 1: I mean it's very very progressive. So people are are
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  Speaker 1: are considering what there's got to be another erosion of
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  Speaker 1: confidence in this market, which has been thin to begin
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  Speaker 1: with because the margin of victory of this election it
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  Speaker 1: could be historically small. Then we look at congressional alignment
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  Speaker 1: and is that the prospect of persistent gridlock. Then we're
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  Speaker 1: finally experiencing something that we should have expected in an
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  Speaker 1: election year. All along is an elevation of market volatility.
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  Speaker 1: So the confluence of rising rates and this ambiguous presidential
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  Speaker 1: election results, I think that is what's making a current
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  Speaker 1: environment somewhat combustible. But again, a lot of this is
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  Speaker 1: very short term in nature, and a long term implications
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  Speaker 1: that we are trying to share in preach to our
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  Speaker 1: clients have a lot of the performance is gonna have
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  Speaker 1: a lot more to do with the state of the economy,
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  Speaker 1: the evaluation of equity markets, the current cost of capital.
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  Speaker 1: That is going to have anything to do with the
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  Speaker 1: next occupant of the Oval office. All right, So having
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  Speaker 1: said that, where are you suggesting that investors put their money? Yeah,
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  Speaker 1: I mean, if you think of the world right within
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  Speaker 1: which we have opportunities to invest, you can characterize it
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  Speaker 1: by kind of three uh traits. You've got slow growth,
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  Speaker 1: you've got flat yield curves and flat I guess it
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  Speaker 1: would be an implication of a positive component of a
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  Speaker 1: yield curve, which is not the case all around the world,
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  Speaker 1: but it is. It is steepening just to hang on there.
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  Speaker 1: But when you talk about the yield curve, right, I mean,
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  Speaker 1: haven't we seen a steepening in the yield curve for
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  Speaker 1: US treasuries a little bit? And I think it's very
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  Speaker 1: you know, watch just this week, right, we saw and
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  Speaker 1: and absolute sell off on a long end, and we
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  Speaker 1: saw a little bit of a rally and the short end.
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  Speaker 1: And this was on Lal bernard Brainer's comments on Monday
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  Speaker 1: and the CPI this morning that came out. We've seen
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  Speaker 1: a little bit of back up on the long end
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  Speaker 1: and we've seen a little tightening on the short end.
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  Speaker 1: Is it it raises the prospect of UM at least
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  Speaker 1: maybe consideration of putting September back on the table, which
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  Speaker 1: we think is very unlikely. But historically, speaking of him,
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  Speaker 1: we're talking about pretty flat curves because we do have
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  Speaker 1: even though may see a little bit of thought into
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  Speaker 1: the winter, we have a frozen said if they do anything,
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  Speaker 1: I think it will be in the title of being
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  Speaker 1: symbolic than it is impactful if it's a quarter, and
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  Speaker 1: it's even of a point that takes place going into
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  Speaker 1: the your end, but slow growth flat curve. Frozen said,
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  Speaker 1: we think expected returns higher away from the US than
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  Speaker 1: in the US, and we're thinking about places for capital
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  Speaker 1: that have more of an economic than an interst rate
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  Speaker 1: sensitivity to that, such so healthcare stocks. Some they're just
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  Speaker 1: talking global healthcare then correct, absolutely, absolutely, and again but
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  Speaker 1: if you think about companies that sell products or offer
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  Speaker 1: services that have very high any elasticity of demand, that
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  Speaker 1: will always tend towards healthcare, particularly now in evaluations, become
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  Speaker 1: more attractive given the political punching bag that that sector is.
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  Speaker 1: Could that be an example like Johnson and Johnson, and
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  Speaker 1: they just announced today the purchase of Abbot's eye surgery
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  Speaker 1: unit more than four and a quarter billion dollars, which
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  Speaker 1: is we absolutely think that the healthcare sector has is
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  Speaker 1: kind of that that proverbial coiled spring of consolidation that
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  Speaker 1: awaits in whether they need some clearance because of the
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  Speaker 1: legislative clouds they were still coming off of the anti
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  Speaker 1: inversion regime, that Feiser was whacked down with. We've got
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  Speaker 1: the EpiPen public relations in pricing tobacco, we've got Martin
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  Speaker 1: Scarelli that's still in people's vernacular. And healthcare has been
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  Speaker 1: absolutely underspult and not every case undeservedly so. But I
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  Speaker 1: think when J and J who after making that today
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  Speaker 1: stock is very stable, we're seeing a rally and Abbot
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  Speaker 1: because that unlocking of value in a depressed sector is
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  Speaker 1: an invariability for profit seeking opportunists. Well, I our irony
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  Speaker 1: of ironies that you know, the Abbot eye surgery unit,
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  Speaker 1: Abbot Labs Medical Optics, it was it was at one
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  Speaker 1: point owned by Allergan. UM. Turn your attention now to
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  Speaker 1: all right, so we talked about healthcare, global healthcare. What
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  Speaker 1: else outside the United States? Consumer staples con staples sectors? UM.
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  Speaker 1: You know you and I have spoken in the past
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  Speaker 1: about our company's pension for the proverbial sin stocks. Right,
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  Speaker 1: Companies that sell self indulgent products, be they tobacco or alcohol,
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  Speaker 1: fast food, caffeine, things of that nature that it in
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  Speaker 1: have the high elasticity of demand that could be beneficiaries
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  Speaker 1: of strange currency meanderings. But they're seeing elevation of their
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  Speaker 1: cash flows. One of the things that's been fascinating over
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  Speaker 1: the last eighteen months has been the success of these
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  Speaker 1: low volatility ets. Right. I'm sure you've spoken to people
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  Speaker 1: in your program about boy, this is a comforting spot
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  Speaker 1: and an otherwise ambiguous market. Low volvo val and lo
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  Speaker 1: val has a connotation of high free cash FI, which
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  Speaker 1: is high dividends, which backs into those sectors that I
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  Speaker 1: just mentioned. Internationally, it has not been the case. And internationally,
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  Speaker 1: if you have low valve, because you've got brand franchises
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  Speaker 1: that have this kind of values, they are bound to
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  Speaker 1: attract some capital, particularly when you get a little more
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  Speaker 1: extraction of the benefits of monetary policy, which are far
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  Speaker 1: more in their infancy overseas than they are here. And
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  Speaker 1: what we learned from Mario drag You last week is
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  Speaker 1: he may not take it beyond that that that Kanzie endpoint, right.
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  Speaker 1: They may actually eliminate that super account dative, super accommodative
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  Speaker 1: monetary policy before it does more harm than good. Would
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  Speaker 1: Starbucks fall into this category you mentioned caffeine and it's
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  Speaker 1: global and I understand they're going to be opening four
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  Speaker 1: stores in China this year Like that would be a
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  Speaker 1: great example. Absolutely. What about looking for dividends, I think
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  Speaker 1: that's critical, right, And again, the only thing that that
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  Speaker 1: leaves its um less desirable is it's been so popular
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  Speaker 1: because the yield curve has been so weak for so
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  Speaker 1: long that that income starved investors have taken a little
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  Speaker 1: more more risk and move money exactly otherwise would be
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  Speaker 1: allocated to fixed income. But I think dividends have to
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  Speaker 1: be critical as evidence of financial security of companies. The
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  Speaker 1: best thing you want to do if you're looking for
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  Speaker 1: dividend paying companies here or overseas is be sure they
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  Speaker 1: are not lever dividends that have payout ratio that are
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  Speaker 1: not sustainable. So we're screening for that with activity, So
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  Speaker 1: we can look for balance and we can look for focus.
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  Speaker 1: And focus is a kind of atan of active management
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  Speaker 1: that we think is this market and the investor sort
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  Speaker 1: of traverses this tight rope between Washington and Wall Street
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  Speaker 1: between economic ambiguity and interest rate ambiguity. You need to
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  Speaker 1: have the balance and you also have that focus. That
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  Speaker 1: would be active management with high free cashal investments. Hey, Doug,
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  Speaker 1: all right, so we did healthcare. You talked about the
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  Speaker 1: dividend aspect of investing as well as giving your thoughts
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  Speaker 1: on you know, the the global nature, what about investing
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  Speaker 1: in UH defense stocks and that they certainly are global,
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  Speaker 1: they're globally and again I mean that that would have
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  Speaker 1: to fit a quant screen that for US is not
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  Speaker 1: often identified companies in that sector as attractive. So I
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  Speaker 1: I do think that if you were going to play
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  Speaker 1: that based on the outcome of the election would be difficult.
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  Speaker 1: If you go back to win Obama one in two
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  Speaker 1: thousand and eight, right, there were search sectors that the
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  Speaker 1: world was assuming was gonna We're going to perform terribly.
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  Speaker 1: Just the opposite has happened to gun company like Stewant Servant.
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  Speaker 1: Ruger is a great example. Got it all right, Thanks
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  Speaker 1: very much, We gotta run. Doug Sioca is the chief
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  Speaker 1: executive officer and partner of Cavar Capital Partners based in Leewood, Kansas.
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  Speaker 1: This is Bloomberg