Latest / Bloomberg Intelligence / I Don't See A Recession In 2019: Cumberland's Kotok

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I Don't See A Recession In 2019: Cumberland's Kotok · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. 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. Joining
• 0:32
  Speaker 1: us here in studio, David ko Talk, chairman and chief
• 0:35
  Speaker 1: investment officer for Cumberland Advisers. They are based in Sarasota, Florida,
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  Speaker 1: and he helps manage more than three billion dollars of
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  Speaker 1: customer assets. He is also the author co author rather
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  Speaker 1: of the book Adventures in Muni Land. David Kotalk, Welcome
• 0:50
  Speaker 1: and Mary. One day past Christmas. Are we going to
• 0:54
  Speaker 1: see a recession in I don't think so, Kim. Merry
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  Speaker 1: Christmas and happy holidays to all my friends here at Bloomberg.
• 1:03
  Speaker 1: I came up here to get cold, because in Florida
• 1:07
  Speaker 1: we need a little cold there to wake us up.
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  Speaker 1: So delighted you provided it. Okay, but there we've woken
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  Speaker 1: you up at what why do you why are you
• 1:14
  Speaker 1: sanguine about in terms of a potential recession of the
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  Speaker 1: US economy is in services, fully employed, short, shortage of
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  Speaker 1: people to fill all the jobs. Government. Who knows what
• 1:30
  Speaker 1: the government's ever gonna do. We already are going through
• 1:33
  Speaker 1: the umpty ump iteration of a shutdown. That we will
• 1:37
  Speaker 1: not have a permanent shutdown. That's a forecast. All forecasts
• 1:42
  Speaker 1: come with a guarantee. You invite me back, you give
• 1:45
  Speaker 1: me back the forecast. I guarantee you I'll give you
• 1:48
  Speaker 1: a new one. So no shutdown that's permanent. We're making
• 1:52
  Speaker 1: a trade deal with China. China's now going in the
• 1:55
  Speaker 1: right direction, cutting tariffs, stimulating. They are getting along. There
• 2:00
  Speaker 1: is no reason not to extend the truce. And lastly,
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  Speaker 1: the oil price. Every penny a gallon is a hundred
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  Speaker 1: and one and a half billion annualized tax cut to
• 2:15
  Speaker 1: the American consumer. Penny a gallon billion and a half annualized. Right,
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  Speaker 1: We've had a few of those pennies in a row.
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  Speaker 1: That's why spending is up, That's why Amazon's got good
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  Speaker 1: news today. I don't see a recession. Worry, yes, recession No, Well,
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  Speaker 1: you know, look, I mean we look at the fundamentals. Uh.
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  Speaker 1: I think economists and market participants can all agree that
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  Speaker 1: there's still some pretty sound footing here. But then I
• 2:39
  Speaker 1: go home for Christmas, every family member all they want
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  Speaker 1: to ask about is it is the economy tanking? Is
• 2:44
  Speaker 1: the stock market? I'm gonna fall off a cliff, And
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  Speaker 1: I wonder when the sentiment really become more of the
• 2:51
  Speaker 1: sort of headwind than the fundamentals themselves. Well, that's a
• 2:53
  Speaker 1: fundamental question we've asked ourselves since they traded stocks in
• 2:58
  Speaker 1: the buttonwood tree and still listen, I was not around that.
• 3:02
  Speaker 1: I think, Pemmy, it might have been figure Romaine. Let's
• 3:09
  Speaker 1: beat him up for the next twenty minutes and we'll
• 3:11
  Speaker 1: all get thrown out of here. You look at this
• 3:15
  Speaker 1: and you say, does sentiment drive the economy? Well, I
• 3:19
  Speaker 1: guess there's in a second derivative way it does. People
• 3:23
  Speaker 1: look at a four one k. They don't like what
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  Speaker 1: they see when they look at the four one Kay.
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  Speaker 1: We call it the wealth effect. You've talked about it.
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  Speaker 1: Does it stop somebody from buying something if their income
• 3:36
  Speaker 1: permits it. Well, most of the people in the United
• 3:39
  Speaker 1: States are not impacted by this big wealth effect shift.
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  Speaker 1: Now they read about in the newspaper, but they're not
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  Speaker 1: impacted by it. Now, I notice, for example, there's a
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  Speaker 1: terrible crisis in the news this morning. The seventy million
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  Speaker 1: dollar apartment in New York City is now being sold
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  Speaker 1: for fifty million, a markdown of price. You're a good negotiator,
• 4:02
  Speaker 1: got it down. Always wait to after Christmas to buy things,
• 4:06
  Speaker 1: because well that's it. So you know, do you do
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  Speaker 1: you see the negative wealth effect of peaking prices of
• 4:13
  Speaker 1: these phenomenally priced departments in New York affecting the other
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  Speaker 1: ten or fifteen million people in the neighborhood. I'm not
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  Speaker 1: so sure it does. Okay, But having said that, to
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  Speaker 1: what do you ascribe the sell off in stock prices,
• 4:30
  Speaker 1: Because it's not as if the entire ecout I mean,
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  Speaker 1: it's not as e boeing has changed. It's not as
• 4:35
  Speaker 1: if Apple has changed dramatically in the last three months,
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  Speaker 1: or have have they changed that much? Well, that's that's
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  Speaker 1: a debate. We're going to find that out another three
• 4:44
  Speaker 1: or six months. If we see reports that say there
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  Speaker 1: are major changes. There's interesting. You know, the cliche right
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  Speaker 1: stock market forecast nine in the last five recessions is
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  Speaker 1: just one of the half that is forecasting incorrectly. Are
• 4:57
  Speaker 1: we going to have a recession. The stock marker got
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  Speaker 1: gitimate worries about maddis, about Trump, about policies, about chaos
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  Speaker 1: in the White House. That's fair game. It reacted with
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  Speaker 1: the credit default spy swap spike last week on the
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  Speaker 1: United States. It trades in euro, it's in a different exchange.
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  Speaker 1: Most American investors don't see it. This is pretty technical stuff.
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  Speaker 1: But the fact is it's a reaction to chaos in Washington.
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  Speaker 1: And what's the reaction. You bit up the price, you
• 5:33
  Speaker 1: take a position to the credit default swap on the
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  Speaker 1: United States, you do it in EU row. Now you
• 5:38
  Speaker 1: take the other side of the trade and you sell
• 5:41
  Speaker 1: or short the US stock market in dollar, and you
• 5:44
  Speaker 1: saw the result happen in the foreign exchange market dollar
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  Speaker 1: versus euro. And you saw it in gold. Gold went up.
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  Speaker 1: All those trades are tied. Those are very technical trades.
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  Speaker 1: They are fair game when you have chaos. We have
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  Speaker 1: Washington in chaos. That's the cause. Our guest is David Kotak.
• 6:03
  Speaker 1: He is the chairman and chief investment officer for Cumberland
• 6:07
  Speaker 1: Advisers based in Sarasota, Florida, but he joins us here
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  Speaker 1: in the Studio David Kotak. I'm wondering if there's a
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  Speaker 1: case to be made for bonds and yield for the
• 6:17
  Speaker 1: thirty year bond at three percent, who would buy such
• 6:21
  Speaker 1: a debt? Only a preferred habitat that's a technical term
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  Speaker 1: buyer of an institutional type that needs to have very
• 6:31
  Speaker 1: long duration, no risk. But there's a case to be made.
• 6:35
  Speaker 1: You know, I've made it here with you before for
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  Speaker 1: a four percent tax free bund. It's sitting out there
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  Speaker 1: in the marketplace right now. So you say to yourself
• 6:48
  Speaker 1: taxable thirty years, I don't want to touch it. Four
• 6:54
  Speaker 1: tax free, high grade. I'm going to get paid. Gross
• 6:59
  Speaker 1: it up. It's over six or seven, depending on what
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  Speaker 1: state you're in. It's liquid. I can get out of
• 7:05
  Speaker 1: it in a few days. I'm talking MUNI said, Look,
• 7:09
  Speaker 1: there's a I didn't write. You know, I get accused
• 7:12
  Speaker 1: of a hammer looking for a nail because I say
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  Speaker 1: good things about munis. Let the MUNI yield get to
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  Speaker 1: the same level as the treasury doesn't have to go under.
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  Speaker 1: Get it to the same level a hundred and I'll
• 7:27
  Speaker 1: put the hammer in the in the shed and wait
• 7:30
  Speaker 1: for the next round. But when the munis a hundred
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  Speaker 1: and thirty of the treasury. It's up by Americans don't
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  Speaker 1: want to buy these bonds. They are afraid the rates
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  Speaker 1: are going up. They're afraid of everything. So they're immobilized.
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  Speaker 1: And the only buyers in the MUNI space are the
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  Speaker 1: banks in the middle of the yield curve, and they
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  Speaker 1: use ladders, which is a non thinker's way of doing
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  Speaker 1: a MUNI. So they stagger. They stagger so much for
• 8:02
  Speaker 1: the fifth year, six year, seven, eight nine, And what
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  Speaker 1: they've done is bit up the prices in the middle
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  Speaker 1: of the yield curve and they've left either end at
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  Speaker 1: the bargain. So what do you do. We do something
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  Speaker 1: it's called a barbel. We go a piece for the
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  Speaker 1: front and piece for the back. We avoid the overpriced
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  Speaker 1: middle and use the barbell instead of a flat type
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  Speaker 1: of distribution. When you look at the bond market, though,
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  Speaker 1: I mean one area that sort of jumped out of
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  Speaker 1: me as we've seen like a lot of the asset
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  Speaker 1: backed UH security is performing well. I mean, so we've
• 8:33
  Speaker 1: seen people move out of me and he's we've seen
• 8:35
  Speaker 1: people move out of government debt and they're starting to
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  Speaker 1: embrace a lot more at least. You know, for most
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  Speaker 1: of the year they were embracing uh, you know, the
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  Speaker 1: home the mortgage back dead as well as auto loane
• 8:45
  Speaker 1: back debt. And I wonder are we going to see
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  Speaker 1: that continue because I see a lot of advisors sort
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  Speaker 1: of trying to push more people into that sector. Well,
• 8:52
  Speaker 1: you get people who chase yield because they can't stand
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  Speaker 1: in the low yield and they've had ten years of chasing,
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  Speaker 1: so they chase high yield, or they chase structures they
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  Speaker 1: don't understand and they bid up the price down comes. Ye,
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  Speaker 1: we now have a situation with collateralized loans. Where's that
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  Speaker 1: going to end up? The high yield spread to high
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  Speaker 1: grade has widened in the last little bit of time
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  Speaker 1: a few weeks. Where does that end up? Well, how
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  Speaker 1: did it get to where it was if people chased
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  Speaker 1: yield didn't understand where they were. I don't agree with
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  Speaker 1: chasing yield. In fact, the tighter the spreads, the more
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  Speaker 1: important the high grade becomes, because you're not getting paid
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  Speaker 1: for the incremental risk to get a few basis points
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  Speaker 1: of yield. Some on the other side of that trade
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  Speaker 1: romain and have been for some time. A little bit
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  Speaker 1: more on munis. Do it through an e t F
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  Speaker 1: structure or a fund structure, or go out and buy
• 9:52
  Speaker 1: the actual bond, because that in a way enforces discipline. Well,
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  Speaker 1: if you know how to research community by the actual bond.
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  Speaker 1: If you're not sure, read the paperwork on the e
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  Speaker 1: t F very carefully. We manage an e t F
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  Speaker 1: I communities, and I say to people, understand the structure
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  Speaker 1: of the e t F we're managing. Don't go by
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  Speaker 1: it just because we're managing it. Dig understand. I would
• 10:20
  Speaker 1: add one quick thing. There is great transparency in the
• 10:24
  Speaker 1: state and local government space. Your school board passes a budget,
• 10:29
  Speaker 1: you can go to the meeting, you can read the budget.
• 10:32
  Speaker 1: Maybe technical. The sewerage authority has to collect the sewer bills.
• 10:37
  Speaker 1: The airport has certain planes landing that all the data
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  Speaker 1: is reliable, it's transparent, it's our government at work. People
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  Speaker 1: don't want to spend the time to find out about it,
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  Speaker 1: so they wring their hands about bonds generally, but they
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  Speaker 1: don't do the work. And the work is easy to do.
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  Speaker 1: It's not complex. You can find information. It's also easy
• 11:02
  Speaker 1: when it comes to record keeping. Do you find that
• 11:05
  Speaker 1: those investors individual investors perhaps that seek out municipal bonds
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  Speaker 1: like it because it is very straightforward, not only in
• 11:14
  Speaker 1: terms of the information, but in terms of the reporting requirements. Well,
• 11:18
  Speaker 1: I think you're right, Pim, that's right for those who
• 11:22
  Speaker 1: are willing to invest the time. I like to say
• 11:24
  Speaker 1: to people, do as much time investing in a municipal
• 11:27
  Speaker 1: bond as you would shopping a new car. Think about
• 11:31
  Speaker 1: that half an hour for a new car, half an
• 11:34
  Speaker 1: hour to learn something before you go put a hundred
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  Speaker 1: or two hundred thousand or a million into a credit
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  Speaker 1: that a governmental body is going to pay you back.
• 11:43
  Speaker 1: You want to know a little bit about well as
• 11:45
  Speaker 1: people are sort of doing their research for I mean,
• 11:48
  Speaker 1: you know, you look at the market over the last
• 11:50
  Speaker 1: few days and even on a daylight today, where we
• 11:52
  Speaker 1: were up you know, a couple of percentage points, and
• 11:54
  Speaker 1: now we're starting back into the red. This is a
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  Speaker 1: period of volatility on a day to day basis extreme
• 12:00
  Speaker 1: volatilely at least extreme relative to where we were the
• 12:02
  Speaker 1: last couple of years. And I wonder where is the
• 12:05
  Speaker 1: safety if you're trying to sort of invest for the
• 12:08
  Speaker 1: long term but still sort of protect yourself against somebody
• 12:11
  Speaker 1: these day to day and week to week moves, where
• 12:13
  Speaker 1: do you look well? Talking about safety, so you know
• 12:16
  Speaker 1: you can go to cash, get two, take no risk,
• 12:20
  Speaker 1: make no gain, and that's roughly the rate of inflation.
• 12:24
  Speaker 1: So after inflation you're at zero. That's where you would
• 12:27
  Speaker 1: expect to be. If you took zero risk, you wouldn't gain,
• 12:30
  Speaker 1: you wouldn't lose, You'd be exactly in the same place.
• 12:33
  Speaker 1: The questions do you want to do something else? I
• 12:36
  Speaker 1: look at the stock market today. Take the SMP index today,
• 12:42
  Speaker 1: it's thirteen times the earnings. Often we are a few
• 12:46
  Speaker 1: days away from If that is off by a little,
• 12:51
  Speaker 1: it's close. That's an earnings yield of eight percent. The
• 12:57
  Speaker 1: thirty year treasures at three, that's five hundred basis points
• 13:02
  Speaker 1: of equity risk premium. The last time I looked, every time,
• 13:06
  Speaker 1: you could see the stock market for sale at five
• 13:09
  Speaker 1: hundred basis points with an equity risk premium, and you
• 13:13
  Speaker 1: bought it. Twelve or eighteen or six or twenty two
• 13:16
  Speaker 1: months later you were glad you did. We are scaled
• 13:21
  Speaker 1: into this market. We think the stock market is a bargain.
• 13:25
  Speaker 1: We think it is worried about a whole lot of
• 13:27
  Speaker 1: serious things. And that's why it's cheap. Well done, Thank
• 13:32
  Speaker 1: you very much, David Kotalk Humbling Advisors. You know, just
• 13:35
  Speaker 1: to mention, I did a little calculation. If you're in
• 13:38
  Speaker 1: New York State, for example, a ten year MUNI two
• 13:42
  Speaker 1: point to seven, but the taxable equivalency yield there is
• 13:48
  Speaker 1: over three and three quarters of a percent, and that's
• 13:51
  Speaker 1: for ten years, so three point and if you want
• 13:57
  Speaker 1: to come to Florida, I'll get your visa. You can
• 13:59
  Speaker 1: come visit men, we will, Thanks very much, David Kotok, Chairman,
• 14:03
  Speaker 1: Chief investment Officer, Cumberland Advisors. Joining us now in our
• 14:17
  Speaker 1: Bloomberg Interactor Broker Studios is Marty Schanker, our chief content
• 14:21
  Speaker 1: officer for Bloomberg and Marty. Earlier today, the Commerce Department
• 14:25
  Speaker 1: released a note saying that they would not be reporting
• 14:30
  Speaker 1: any more economic data because of the government shutdown. And
• 14:37
  Speaker 1: while we know that many essential services in government are
• 14:41
  Speaker 1: up and running, the lack of economic data has got
• 14:47
  Speaker 1: to be adding to the confusion or the consternation of investors,
• 14:51
  Speaker 1: no question about it. I mean, it's not like those
• 14:54
  Speaker 1: statistics will go away forever. But to the extent that
• 14:58
  Speaker 1: markets take a cue from the fundamental economic activity, the
• 15:01
  Speaker 1: Commerce departments reports are important, and uh, we'll have to
• 15:05
  Speaker 1: do without them for what could be quite a long time. Okay,
• 15:09
  Speaker 1: well that's where I wanted to go. Do you have
• 15:11
  Speaker 1: a crystal ball on this? I don't have a crystal ball.
• 15:15
  Speaker 1: I only have my own opinion. And my opinion is
• 15:18
  Speaker 1: this standoff is going to be quite longer than a
• 15:20
  Speaker 1: lot of people think. Why Because I don't think the
• 15:23
  Speaker 1: Democrats this is an incredibly important symbolic moment for them.
• 15:29
  Speaker 1: They the Democrats and certainly in the House, feel that
• 15:33
  Speaker 1: they were given a mandate by the voters to put
• 15:36
  Speaker 1: a check on this president, and if in some way
• 15:39
  Speaker 1: they relent on the wall, which they have said they
• 15:42
  Speaker 1: will not do, um, it would be a sign of
• 15:46
  Speaker 1: weakness at the very beginning of this relationship. So I
• 15:50
  Speaker 1: don't see them backing down, and I certainly don't see
• 15:53
  Speaker 1: Donald Trump backing down. Now, there may be once Nancy
• 15:57
  Speaker 1: Pelosi takes the realt the of the House, there may
• 16:02
  Speaker 1: be an artful way out of this um and it
• 16:05
  Speaker 1: will take art because it will not be science for
• 16:08
  Speaker 1: them to figure out a compromise. When when does the public, though,
• 16:12
  Speaker 1: sort of start to pressure. I mean, we've had shutdowns before,
• 16:15
  Speaker 1: and it seems that generally the public either uh doesn't
• 16:19
  Speaker 1: really care as much, or if they do care, they
• 16:21
  Speaker 1: tend to blame uh Congress more than they do the President. Yeah. Well,
• 16:26
  Speaker 1: as we all know, the President famously took ownership of
• 16:30
  Speaker 1: this shutdown. But we have to remember this is a
• 16:32
  Speaker 1: partial shutdown. A number of agencies and parts of the
• 16:37
  Speaker 1: government still are functioning. Essential employees do have to come
• 16:41
  Speaker 1: to work even though they're not going to get paid,
• 16:43
  Speaker 1: but they will retroactively make sure that they do get paid. Um.
• 16:47
  Speaker 1: So it's you know, I think we're a long way
• 16:50
  Speaker 1: before the public really notices a difference. It's not like
• 16:53
  Speaker 1: this is a prime tour season where people are flooding
• 16:56
  Speaker 1: national parks. Um so, uh, you know, at the at
• 17:01
  Speaker 1: the margins there there may be slow down in various
• 17:05
  Speaker 1: permits and visa applications and things like that, but I
• 17:09
  Speaker 1: don't think there will be a fundamental change. So it's
• 17:12
  Speaker 1: a shutdown that a lot of people won't feel for
• 17:14
  Speaker 1: quite some time. One of the issues is the performance
• 17:18
  Speaker 1: of the US economy. So while the economy is strong,
• 17:22
  Speaker 1: political chaos may not necessarily reverberate. But as we heard earlier,
• 17:27
  Speaker 1: Charlie Pellett giving us to details from the Richmond FED
• 17:31
  Speaker 1: that gauge of economic activity, it's about factory production dropping. Also,
• 17:37
  Speaker 1: you add in the Kansas City FEDS index of manufacturing
• 17:41
  Speaker 1: that fell to a two year low in December. Also
• 17:44
  Speaker 1: the regional FED factory gauges Empire State Survey and the
• 17:48
  Speaker 1: FED the Philadelphia FED report there at their lowest level
• 17:52
  Speaker 1: in eighteen months. That's got to be concerning to a
• 17:57
  Speaker 1: president that is interested in tow to the strength of
• 18:01
  Speaker 1: the economy. Well, I uh, just the other day the
• 18:05
  Speaker 1: President outed the strength of corporate earnings and basically painted
• 18:09
  Speaker 1: a pretty rosy picture. So I don't think that he
• 18:11
  Speaker 1: is necessarily in the weeds on regional FED reports. Um.
• 18:15
  Speaker 1: That said, I do think that investors are concerned about
• 18:18
  Speaker 1: these little signs of weakness in the economy in an
• 18:23
  Speaker 1: era of rising interest rates. Um. And that is where
• 18:27
  Speaker 1: obviously Donald Trump has taken his his case. And in fact,
• 18:32
  Speaker 1: even though a lot of people disagree with the way
• 18:34
  Speaker 1: he's going about trying to influence the FED, there are
• 18:39
  Speaker 1: a number of investors and significant ones who think he's
• 18:42
  Speaker 1: right that the FED may be making a serious policy mistake. Well,
• 18:47
  Speaker 1: you know, I also want to talk about just this
• 18:48
  Speaker 1: general idea of a functioning government, because you know, in
• 18:51
  Speaker 1: addition to not having a budget, um, we also have
• 18:54
  Speaker 1: a White House that has two cabinet positions that that
• 18:57
  Speaker 1: don't have permanent uh replacements yet, as well as a
• 19:00
  Speaker 1: chief of staff position that is uh uh still sort
• 19:03
  Speaker 1: of on an acting basis. I guess with the appointment
• 19:06
  Speaker 1: of mcmulphaney, Oh, you know, do we get to a
• 19:08
  Speaker 1: stage here where we really have to start questioning whether
• 19:11
  Speaker 1: anything can get done simply because there's not really anyone
• 19:15
  Speaker 1: there to sort of carry out the orders of the president. Well,
• 19:18
  Speaker 1: I do think that the level of uncertainty emanating from
• 19:25
  Speaker 1: the White House is rather than presidented. Even within the
• 19:29
  Speaker 1: Trump administration itself, it's two years. So I do think
• 19:34
  Speaker 1: that that is a significant factor in the way the
• 19:37
  Speaker 1: markets are reacting. There is no certainty about anything unless
• 19:42
  Speaker 1: it and even the president's own pronouncements sometimes contradict each other.
• 19:48
  Speaker 1: So if you cannot predict with any certainty what is
• 19:52
  Speaker 1: going to happen in the next hour, let alone the
• 19:55
  Speaker 1: next week or month, Yeah, I do think it does
• 19:58
  Speaker 1: have an effect on investors, and I think it has
• 20:01
  Speaker 1: an effect on the economy, and this is not something
• 20:04
  Speaker 1: that's going to go away anytime soon. Thank you very much,
• 20:07
  Speaker 1: Marty Schenker, much appreciated. Marty Schenker is the chief content
• 20:10
  Speaker 1: officer for Bloomberg, speaking about the government shutdown on a
• 20:15
  Speaker 1: day that Kevin Hassett, the aide to President Donald Trump,
• 20:18
  Speaker 1: says that Federal Reserve Chair Jerome Pale's job is one
• 20:23
  Speaker 1: hundred percent safe. President Donald Trump expressing confidence in his
• 20:39
  Speaker 1: Treasury secretary. Here to tell us more. Chris Whalen, chairman
• 20:43
  Speaker 1: of Whalon Global Advisors. Chris Whalen, does it make sense
• 20:48
  Speaker 1: for the Secretary of the Treasury to speak individually to
• 20:53
  Speaker 1: the major banks of the United States, the chief executives
• 20:57
  Speaker 1: to reassure them that there's nothing wrong when there doesn't
• 21:01
  Speaker 1: seem to be anything wrong. Well, hello, Pim, by the way,
• 21:05
  Speaker 1: happy holidays. Of course, that's his job, but he shouldn't
• 21:09
  Speaker 1: go out on Twitter or any other public medium and
• 21:12
  Speaker 1: then talk about it. Uh. Federal regulators in the United
• 21:16
  Speaker 1: States have a longstanding policy you never talked about banks
• 21:19
  Speaker 1: while are open. The bank dies, if it's taken over
• 21:23
  Speaker 1: by the f d i C, then you have to
• 21:24
  Speaker 1: talk about it. But other than that you never talked
• 21:27
  Speaker 1: about specific institutions or even groups of institutions because it's
• 21:31
  Speaker 1: not helpful. Well, Chris, one of these there's no upside. Yeah, well, Chris.
• 21:36
  Speaker 1: One of the issues though, that that was also raised
• 21:38
  Speaker 1: was that there didn't seem to be any coordination between
• 21:40
  Speaker 1: the Treasury and some of the other federal agencies like
• 21:43
  Speaker 1: the SEC and some of the other members of f STOCK.
• 21:46
  Speaker 1: And I wonder how much of that might have actually
• 21:48
  Speaker 1: rattled the markets, that this was just sort of an
• 21:50
  Speaker 1: independent decision at least apparently an independent decision that Dominution made.
• 21:55
  Speaker 1: I don't really know the details. You raise a good point.
• 21:59
  Speaker 1: The prime very point of contact for financial institutions or
• 22:03
  Speaker 1: their their primary regulator, which is usually the occ that
• 22:07
  Speaker 1: the Treasury or the FED. UH. There's no need for
• 22:10
  Speaker 1: this to be aired in public. It's like the stress tests.
• 22:14
  Speaker 1: Stress tests should not have a public dimension. We shouldn't
• 22:17
  Speaker 1: have this media circus every year when the stress test
• 22:20
  Speaker 1: results are a release because they're as just speaking as
• 22:23
  Speaker 1: an analyst, they're not helpful at all. They don't tell
• 22:26
  Speaker 1: us anything, and I think it detracts from the dignity
• 22:30
  Speaker 1: and the effectiveness of senior public officials like Secretary Manuchin
• 22:35
  Speaker 1: when they get out on Twitter and kind of, you know,
• 22:38
  Speaker 1: imitate the president's political communications on something which shouldn't be
• 22:44
  Speaker 1: about politics. You know, you don't help anything when you
• 22:48
  Speaker 1: get out there. I always remind people of of what happened, uh,
• 22:53
  Speaker 1: you know during the crisis when you had to Hank
• 22:55
  Speaker 1: Paulson talking about buying bad assets from City Group, or
• 22:59
  Speaker 1: how Fannie and Freddie we're going to issue covered bonds.
• 23:02
  Speaker 1: He almost created the markets with those public comments. So
• 23:05
  Speaker 1: it's almost always negative. There is no upside to doing
• 23:10
  Speaker 1: that sort of thing. You talk to them privately, you listen,
• 23:13
  Speaker 1: you ask them if they know something that you don't know,
• 23:16
  Speaker 1: and then you share that information privately with the other
• 23:19
  Speaker 1: officials in the federal government, and you take action when necessary.
• 23:23
  Speaker 1: But you don't get out there and just gratuitously make
• 23:26
  Speaker 1: comments because it's not going to help. You know. The
• 23:28
  Speaker 1: big problem here is that the Fed has not articulated
• 23:32
  Speaker 1: what's going to happen as they shrink their balance sheet.
• 23:35
  Speaker 1: That's why the markets are seizing up, because liquidity is
• 23:38
  Speaker 1: tight and it's going to get tighter, and they have
• 23:41
  Speaker 1: not explained that to People are pretending that we're in
• 23:43
  Speaker 1: a normal narrative here and we're not. So I think
• 23:47
  Speaker 1: there's no way to fix that by getting out on
• 23:49
  Speaker 1: the soapbox and making gratuitous comments. Alright, But Chris Whalen,
• 23:54
  Speaker 1: Treasury Secretary Minution, is a veteran of financial markets, chief
• 23:59
  Speaker 1: investor officer Goldman Sachs, previously chairman, founder of One West
• 24:04
  Speaker 1: Bank Dune Capital Management. He knows all this. Why do
• 24:09
  Speaker 1: you think he did it? Uh? I think there are
• 24:13
  Speaker 1: times when people in public life believe that they have
• 24:17
  Speaker 1: to do something, that they have to say something, and
• 24:21
  Speaker 1: those are the times when their advisors and counselors need
• 24:24
  Speaker 1: to grab them and say, no, don't do that. Um.
• 24:28
  Speaker 1: You know, Steve and Ugens a very smart for accomplish man.
• 24:31
  Speaker 1: I think he knows better. And I don't know why
• 24:34
  Speaker 1: he did this. Maybe it was because the markets had
• 24:36
  Speaker 1: moved quite a bit, but I hope in the future
• 24:40
  Speaker 1: he will take a more considered approach. And yeah, you
• 24:43
  Speaker 1: want to communicate. His job is to listen. Of course,
• 24:46
  Speaker 1: it is the control of the currency who reports to him.
• 24:49
  Speaker 1: His job is to listen and to understand what's going
• 24:52
  Speaker 1: on in the markets. But you know, these federal agencies
• 24:55
  Speaker 1: should only be heard when there's really a crisis, and
• 24:59
  Speaker 1: then they have to act. You see that very clearly
• 25:02
  Speaker 1: with the way Sheila Bear in the f d i C.
• 25:05
  Speaker 1: The time of crisis. She was out front communicating every day.
• 25:08
  Speaker 1: When the crisis was over, that agency faded back into
• 25:12
  Speaker 1: the background and you almost never hear about them. But
• 25:15
  Speaker 1: that's the way you handle these things. You don't get
• 25:17
  Speaker 1: out there and start trying to guide perception with comments
• 25:21
  Speaker 1: that frankly, no one's gonna understand. They don't have access
• 25:24
  Speaker 1: to the information he received, so he can't share it
• 25:28
  Speaker 1: because it's obviously confidential. So my question to him was,
• 25:32
  Speaker 1: what was the point what we're trying to achieve by
• 25:35
  Speaker 1: going out on Twitter? And I can't imagine anything that
• 25:39
  Speaker 1: detracts more from the dignity of the office of the
• 25:42
  Speaker 1: Secretary of Treasury. And he should know better. He does
• 25:45
  Speaker 1: no better, of course he does, Thanks very much. Chris Whalen,
• 25:48
  Speaker 1: chairman of Whalen Global Advisers, speaking about Treasury Secretary Stephen
• 25:53
  Speaker 1: Minuchin and his conversation and tweet storm regarding US banking policy.
• 26:11
  Speaker 1: And you know, Romain of many people they are going
• 26:13
  Speaker 1: to be opening their account statements probably what the maybe
• 26:17
  Speaker 1: end of the first or the second week of January,
• 26:20
  Speaker 1: and they probably aren't gonna like what they see. Well,
• 26:23
  Speaker 1: if they're brave enough to look, I guess well done, right,
• 26:26
  Speaker 1: I mean, because right now we're taking a look at
• 26:28
  Speaker 1: the SMP five. Despite its rise today of more than
• 26:32
  Speaker 1: one and a quarter percent trades at twenty three eight three,
• 26:35
  Speaker 1: that is a drop of more than ten and a
• 26:38
  Speaker 1: half percent so far this year. So to help reduce
• 26:42
  Speaker 1: some of the panic, we've invited Avny Ramnani to join us,
• 26:46
  Speaker 1: director of financial Planning and wealth Management at Francis Financial,
• 26:50
  Speaker 1: joining us here in studio any thank you very much
• 26:52
  Speaker 1: for being here. Have you gotten a lot of calls
• 26:54
  Speaker 1: from clients over the last couple of weeks, You know,
• 26:58
  Speaker 1: not that many. We have trained our plans well and
• 27:01
  Speaker 1: we try to sort of get ahead of the ball
• 27:04
  Speaker 1: and send out emails when we see the market go
• 27:07
  Speaker 1: down and say don't panic. We expected this part of
• 27:10
  Speaker 1: the you know, keep your eye on the long term. Um,
• 27:14
  Speaker 1: so we haven't got that many calls. Do you think
• 27:17
  Speaker 1: there's a point though, or do you see a point
• 27:19
  Speaker 1: where we get to that stage where people do start
• 27:22
  Speaker 1: to not necessarily panic, but to start to worry. Uh,
• 27:25
  Speaker 1: they worry a little bit too much about some of
• 27:27
  Speaker 1: the short term moves and how that affects their sort
• 27:30
  Speaker 1: of long term outlook. Oh, yes, they're worrying for sure, um.
• 27:35
  Speaker 1: But our job is to sort of hold their hands
• 27:37
  Speaker 1: through this time and say, hey, we know this, um
• 27:42
  Speaker 1: and in you know, inherently in the economy, it looks
• 27:47
  Speaker 1: like there's good signs. They're not excellent signs, but they're
• 27:51
  Speaker 1: not too bad either. There are some structural issues going
• 27:54
  Speaker 1: on right now in the market, but if you look
• 27:57
  Speaker 1: ahead for a year or two, uh, it's it going
• 28:00
  Speaker 1: to be that bad. And that's what we tell our
• 28:03
  Speaker 1: clients that just hold on. Uh, these are the underlying
• 28:08
  Speaker 1: economy is good and this is going to turn around
• 28:12
  Speaker 1: as it usually does. Okay, as it as it usually does.
• 28:15
  Speaker 1: Having said that, how do you help clients manage their
• 28:20
  Speaker 1: risk tolerance? Not their risk, but their risk tolerance? Because
• 28:24
  Speaker 1: I have a feeling that if your stock portfolio, your
• 28:27
  Speaker 1: bond portfolio, your investment is up ten, you might say
• 28:34
  Speaker 1: I'm not worried about risk. I'm happy to take more risk.
• 28:38
  Speaker 1: But when you open that statement and you're down, your
• 28:42
  Speaker 1: whole risk profile changes. Even though nothing has really changed
• 28:47
  Speaker 1: in your brain or in the real world. That is
• 28:51
  Speaker 1: so true, pim Um. You know, when the markets are
• 28:54
  Speaker 1: going up, people are thinking, hey, I can take more risk.
• 28:57
  Speaker 1: This is great, But this is the time when it
• 29:00
  Speaker 1: truly tests your ability to take risk. And I tell
• 29:05
  Speaker 1: my clients look in this downturn, if you've lost sleep,
• 29:10
  Speaker 1: if you're having trouble, you know, if you're falling, sick
• 29:14
  Speaker 1: or something, then it's time to take a serious look
• 29:17
  Speaker 1: at whether this is the right portfolio for you. And
• 29:20
  Speaker 1: you know there this is a great time to do
• 29:23
  Speaker 1: it with a market downturn. Uh. There are three things
• 29:27
  Speaker 1: that actually come into play at this time. One is
• 29:30
  Speaker 1: that if you've had any tax gains during the course
• 29:34
  Speaker 1: of the year, this is a fantastic time to take
• 29:38
  Speaker 1: tax losses. So in the short term, as you mentioned before,
• 29:41
  Speaker 1: that's one of the things you can think about. Um,
• 29:45
  Speaker 1: So you know that's one thing. The second thing is
• 29:47
  Speaker 1: do you have cash sitting aside? This is a fire sale.
• 29:52
  Speaker 1: If you have cash sitting aside, you know, holiday cash,
• 29:55
  Speaker 1: from grandma's whatever it is, I would say put it in.
• 29:59
  Speaker 1: This is a grea eight time to get in. And
• 30:01
  Speaker 1: the third thing around that restolerance is look at your
• 30:04
  Speaker 1: asset allocation, because things would have shifted. With the equity
• 30:09
  Speaker 1: markets falling about ten percent this year, uh, your allocation
• 30:14
  Speaker 1: to equities have definitely gone down. So look at whether
• 30:18
  Speaker 1: this is a good time to do some kind of
• 30:20
  Speaker 1: a reallocation, keeping in mind if there are any tax
• 30:23
  Speaker 1: losses you need to take, or any cash sitting aside.
• 30:26
  Speaker 1: I'm going to go back to two point number two
• 30:28
  Speaker 1: because I mean, for people who have already been invested
• 30:30
  Speaker 1: in the market for some time, it's it's kind of
• 30:31
  Speaker 1: easy to tell them just sit this out and you
• 30:34
  Speaker 1: know you'll do fine over the long term. But what
• 30:36
  Speaker 1: about for say a younger generation that hasn't actually put
• 30:39
  Speaker 1: any money uh to work in the market in any
• 30:41
  Speaker 1: sort of meaningful way. If you get someone of that age, say,
• 30:45
  Speaker 1: you know, thirty years old, it comes to you and
• 30:48
  Speaker 1: are you are you hearing any sort of reticence to
• 30:50
  Speaker 1: even jump in, to take that first step. How do
• 30:53
  Speaker 1: you convince someone that it's safe to do that when
• 30:56
  Speaker 1: they're watching all these headlines go by over the past,
• 30:58
  Speaker 1: you know, a few weeks or months. That's an excellent point.
• 31:01
  Speaker 1: I think it's a great time, especially for younger people
• 31:05
  Speaker 1: to get in the market because they have such a
• 31:08
  Speaker 1: long time horizon in front of them that if they
• 31:12
  Speaker 1: look if this was, you know, sixty years from now,
• 31:15
  Speaker 1: they look back, this downtown in the market would be
• 31:19
  Speaker 1: a blip on the on the chart. So it really
• 31:22
  Speaker 1: doesn't matter. When there is an opportunity like this, you
• 31:25
  Speaker 1: get in. It's a fire sale. And that's what I
• 31:28
  Speaker 1: would tell them, and the other piece about just you know,
• 31:31
  Speaker 1: thinking about their risk tolerance, it's you're in this for
• 31:36
  Speaker 1: the long term unless you want to you know, keep
• 31:38
  Speaker 1: that money aside for buying a home or something. Uh,
• 31:42
  Speaker 1: you really want to get in right now. Okay, let's
• 31:46
  Speaker 1: talk specifics. I want to ask you about emerging markets.
• 31:49
  Speaker 1: Are emerging markets? Is that a conversation that you can
• 31:52
  Speaker 1: have calmly now with investors? Um, well defined calmly, but
• 31:59
  Speaker 1: I think that's definitely a very important conversation to have. Uh.
• 32:03
  Speaker 1: Last year, if you ask somebody at the end of
• 32:07
  Speaker 1: UH in, you know, to ask them to invest in
• 32:09
  Speaker 1: emerging markets, they would jump at the opportunity because emerging
• 32:13
  Speaker 1: markets return so um. But this year it's a blood path.
• 32:22
  Speaker 1: But that's the nature of the game. That's the nature
• 32:25
  Speaker 1: of the market, and well, you know, when you look
• 32:28
  Speaker 1: at asset allocation and thinking about constructing a portfolio, we
• 32:32
  Speaker 1: encourage clients to think about it as a um, as
• 32:36
  Speaker 1: a car, and different parts of your portfolio have different
• 32:40
  Speaker 1: functions to perform. Now, emerging markets is like that turbo
• 32:46
  Speaker 1: charge to your engine. So it's a very high risk
• 32:51
  Speaker 1: part of the market, but in the longer term that's
• 32:56
  Speaker 1: the place that is likely to get the most growth.
• 33:00
  Speaker 1: So if you look at that car and you want
• 33:04
  Speaker 1: to provide the turbo charge, that's where you put it.
• 33:07
  Speaker 1: I want to thank you very much for coming in
• 33:08
  Speaker 1: and spending time with us. Any Ramnani is the director
• 33:12
  Speaker 1: Financial Planning Wealth Management for Francis Financial. Thanks for listening
• 33:19
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 33:22
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 33:25
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 33:29
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 33:33
  Speaker 1: one before the podcast. You can always catch us worldwide
• 33:36
  Speaker 1: on Bloomberg Radio.