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Increasing Longevity Is Putting Strain On Global Pensions: Yik · 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 A. Bramowitz. Each day
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• 0:27
  Speaker 1: Four hundred trillion dollars. That is the gap between what
• 0:33
  Speaker 1: pension funds have and what they will need by twenty fifty.
• 0:38
  Speaker 1: Our next guest has been studying the brewing pension crisis,
• 0:42
  Speaker 1: and we're very lucky to have Han Yick, head of
• 0:44
  Speaker 1: Institutional Investors at the World Economic Forum. He has worked
• 0:48
  Speaker 1: in the pension industry on all sides and is intimately
• 0:51
  Speaker 1: aware of this. Han, can you talk about the problem globally?
• 0:55
  Speaker 1: Is it the same everywhere? And our pensions dealing with
• 0:59
  Speaker 1: this by lowering the returns assumptions to increasing the contributions
• 1:04
  Speaker 1: of members. Sure, thanks for having me. I think um
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  Speaker 1: First of all, it is a global crisis. We've looked
• 1:09
  Speaker 1: at this analysis on a very global level. Are are
• 1:13
  Speaker 1: We have a project which are running called retirement Investment
• 1:15
  Speaker 1: Systems reform and we're looking and working with countries from
• 1:18
  Speaker 1: around the world. I will say some countries are in
• 1:21
  Speaker 1: better shape than other countries. But overall, if you look
• 1:24
  Speaker 1: at what it means to have the gap, UM you
• 1:26
  Speaker 1: have liabilities and assets. The liabilities are you have retirement
• 1:31
  Speaker 1: aages when pension payments start. And the bad news right
• 1:35
  Speaker 1: now from a pension's perspective is because we're all living longer, Uh,
• 1:39
  Speaker 1: it means that the pension benefits have to last us
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  Speaker 1: much much longer. And that's the problem that all countries
• 1:45
  Speaker 1: are facing. You know, longevity is increasing gay for us overall,
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  Speaker 1: but from a pension perspective, that's putting strain. If nothing
• 1:51
  Speaker 1: else is changing, it's just math that the amount that
• 1:55
  Speaker 1: we need to UH to account for the amount of
• 1:58
  Speaker 1: money just needs to go up. That money needs come somewhere.
• 2:01
  Speaker 1: Is there is the dependence on defined contribution rather than
• 2:04
  Speaker 1: define benefit plans contributing to this problem. I think the
• 2:09
  Speaker 1: shift from defined benefits to define contribution has caused UM
• 2:14
  Speaker 1: a different a shift in the responsibility of clear tensions. Yeah.
• 2:19
  Speaker 1: So the issue there is that now the individual bears
• 2:22
  Speaker 1: the burden of being their own actuary, being being their
• 2:25
  Speaker 1: own asset manager UM and and the burden of the
• 2:28
  Speaker 1: savings themselves. So that's actually caused quite a bit of
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  Speaker 1: of gap as well. So is that considered to be
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  Speaker 1: a positive element or a negative element? Um? Uh, I
• 2:40
  Speaker 1: would maybe have a lot of different people who are
• 2:42
  Speaker 1: personally responsible for their own retirement. It gets very difficult
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  Speaker 1: to implement any kind of change if, for example, you
• 2:49
  Speaker 1: and people at the World Economic Form and a variety
• 2:51
  Speaker 1: of government officials sit down and figure out a solution
• 2:54
  Speaker 1: that it doesn't it make it more challenging to actually
• 2:57
  Speaker 1: affect any kind of change. I think that's I think
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  Speaker 1: that's true. One of the issues is it is a
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  Speaker 1: global issue, UM, but the solutions will have to be
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  Speaker 1: done at a more regional level. UM. If you look
• 3:10
  Speaker 1: at the U S specifically the four one case situation,
• 3:14
  Speaker 1: there is a little different than the fine contributions schemes
• 3:17
  Speaker 1: in other countries. So, for example, the Netherlands has done
• 3:19
  Speaker 1: a very good job in terms of a collectivized DC
• 3:22
  Speaker 1: plan because mandatory, it's mandatory. UM. Also look at Australia,
• 3:27
  Speaker 1: they have mandatory contributions. Now the word mandatory here in
• 3:30
  Speaker 1: the US not so popular. It's getting exactly so sometimes
• 3:35
  Speaker 1: the solutions are can be difficult politically, but in the US,
• 3:39
  Speaker 1: for example, one of the things that UM that can
• 3:42
  Speaker 1: help is auto enrollment and auto escalation. So the idea
• 3:47
  Speaker 1: still maintain choice, but have people opt out rather than
• 3:50
  Speaker 1: opt in. So I want to talk about the investment
• 3:53
  Speaker 1: strategies of these pensions. So what they do is they
• 3:55
  Speaker 1: take the contributions they get, they invest them in assets
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  Speaker 1: like bonds and stocks in private equity, and hope to
• 4:01
  Speaker 1: earn a return in order to meet the seven or
• 4:04
  Speaker 1: eight percent obligations that they need to pay out each year. UM.
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  Speaker 1: First of all, some have ratcheted back those expectations for returns,
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  Speaker 1: but widely people do not think they've come down enough.
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  Speaker 1: How much have you looked into potential losses in some
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  Speaker 1: riskier strategies that pensions have been going into in order
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  Speaker 1: to get those bigger returns that they are still seeking
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  Speaker 1: in other words, like the private equity for example, which
• 4:29
  Speaker 1: firms have a record amount of cash and are investing
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  Speaker 1: in companies at peak valuations. Potentially. Yeah, so UM, on
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  Speaker 1: our end, we're looking a little more. Uh, I guess
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  Speaker 1: a high level than that in terms of UM. In
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  Speaker 1: terms of this is the problem these are the steps
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  Speaker 1: they are needed to solve it. From the investment strategy perspective,
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  Speaker 1: that's something that UM that the individual pension funds will
• 4:53
  Speaker 1: need to tackle. But it's an area that UM that
• 4:58
  Speaker 1: UH will need to be examined because the problem when
• 5:02
  Speaker 1: once you have a gap you have with the liabilities
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  Speaker 1: and the assets, it's really the gap sounds like one number,
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  Speaker 1: but it's really based on two numbers. I just wrote
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  Speaker 1: a blog that the George Georgetown Center for Retirement Initiatives
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  Speaker 1: published where I talk about this tale of two numbers. UM.
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  Speaker 1: Once you have a gap where the liabilities are higher
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  Speaker 1: than the assets, you need to close that which means
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  Speaker 1: the assets needs to be growing faster than than the liabilities.
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  Speaker 1: And if the liabilities are growing because we're living longer,
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  Speaker 1: if nothing else changes on that front, if we don't
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  Speaker 1: increase retirement age, if we don't reduce benefits, UM, then
• 5:35
  Speaker 1: you know then the liability will continue to grow at
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  Speaker 1: a certain rate. Then we need to increase assets in
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  Speaker 1: order to close that gap. UM. Now the problem then
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  Speaker 1: becomes what you said, do we go into asset classes
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  Speaker 1: that can be potentially riskier but have a potentially greater
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  Speaker 1: long term return UM I would argue that steps need
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  Speaker 1: to be made on both sides in order to close
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  Speaker 1: that gap, because just mathematically it cannot work out if
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  Speaker 1: one number is increasing quicker than the other. We're talking
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  Speaker 1: about numbers, and I'm wondering whether the benefits that were
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  Speaker 1: describing that will not be there if we continue on
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  Speaker 1: our current path. Can they in any way be replaced
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  Speaker 1: by the actual services that need to be rendered too
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  Speaker 1: elderly people, And I mean things like healthcare, shelter, food,
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  Speaker 1: and so on. In other words, you put a price
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  Speaker 1: on them, but that's really just a mechanism. The actual
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  Speaker 1: service itself doesn't have to be priced, does it. Um.
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  Speaker 1: That's a great, great question or a great point. UM.
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  Speaker 1: I would say that for our analysis, the way we've
• 6:43
  Speaker 1: looked at it is in terms of um UH as
• 6:46
  Speaker 1: a replacement ratio, In terms of UH the fact that
• 6:50
  Speaker 1: you may need a smaller percentage of your current income
• 6:53
  Speaker 1: in order to mean to maintain a certain lifestyle. Now
• 6:56
  Speaker 1: that's UM something that is UH usually good approximation. It
• 7:01
  Speaker 1: allows us to compare country different countries because UM that
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  Speaker 1: does factor into account healthcare standards, you know, the things,
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  Speaker 1: the cost of living, things like that in different countries.
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  Speaker 1: UM in general what's needed though in retirement you cannot
• 7:16
  Speaker 1: separate what's need in retirement with healthcare. UM. That's something
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  Speaker 1: we're going to explore in the third phase of the
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  Speaker 1: project most likely because UM, the two aren't are definitely linked.
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  Speaker 1: If you live longer, what's the quality of life? What's
• 7:29
  Speaker 1: the cost needed for that? And that will play a
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  Speaker 1: huge impact on terms of what's needed as a pension.
• 7:34
  Speaker 1: Tell people how they can just learn more about your work. Sure,
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  Speaker 1: I would say you can go to the World Economic
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  Speaker 1: Form website. We have a page on the Retirement Investment
• 7:43
  Speaker 1: Systems Reform Project. We have a white paper UM and
• 7:46
  Speaker 1: as I mentioned in the Georgetown Center for Retirement Initiatives
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  Speaker 1: have a new blog post outlining hopefully in easy language,
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  Speaker 1: in terms of what this means is in terms of
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  Speaker 1: the gap the tail of two numbers. Thank you very
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  Speaker 1: much for being with us, so much appreciated. Han Yak
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  Speaker 1: is head of Institutional Investors at the World Economic Forum.
• 8:04
  Speaker 1: And coming up, of course, we have Bloomberg Politics, policy,
• 8:08
  Speaker 1: power and law and Amy Morris. What have you got
• 8:11
  Speaker 1: on tap for us? You know, Facebook's reviewing the invitation
• 8:14
  Speaker 1: for Zuckerberg to testify on Capitol Hill, so we'll talk
• 8:17
  Speaker 1: to Congressman Greg Walden, the lawmaker who extended that invitation.
• 8:21
  Speaker 1: We'll be listening. That's coming up Bloomberg Politics, Policy, power
• 8:25
  Speaker 1: and law. Thanks for listening. I'm Pim Fox along with
• 8:28
  Speaker 1: my co host and colleague Lisa Abramwitz. This is Bloomberg.
• 8:35
  Speaker 1: We are broadcasting from the Quinnipiac Game eight form. Global
• 8:39
  Speaker 1: asset management education is the topic of the day here
• 8:43
  Speaker 1: at the New York Hilton, and coming up there'll be
• 8:45
  Speaker 1: a conversation with Neil Kashkari. He is the Federal Reserve
• 8:49
  Speaker 1: President of the the Federals Bank of Minneapolis, interviewed by our
• 8:52
  Speaker 1: own Kathleen Hayes. Right now we have David Auerlick. He
• 8:55
  Speaker 1: is managing director and special Advisor to the Chairman of
• 8:58
  Speaker 1: GAMCO Assets on the management at Gamco forty billion dollars.
• 9:02
  Speaker 1: But he also happens to hold the title of a
• 9:04
  Speaker 1: Commissioner and Chair of the Investment Committee of the New
• 9:07
  Speaker 1: York State Insurance Fund. Mr rol Like, thank you very
• 9:10
  Speaker 1: much for being here, much appreciated. Tell people what is
• 9:14
  Speaker 1: the remit of the New York State Insurance funds so
• 9:16
  Speaker 1: we understand what we're talking about. Sure, UM, thank you
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  Speaker 1: for having me. The New York State Insurance Fund is
• 9:22
  Speaker 1: a hundred and seven year old state agency that is
• 9:26
  Speaker 1: a mono line insurance company UM it UH rights workmen
• 9:31
  Speaker 1: comp insurance policies UH covering approximately thirty seven percent of
• 9:36
  Speaker 1: every worker in New York State UM from large policy
• 9:40
  Speaker 1: holders UM million plus two UH. Most of the policy
• 9:46
  Speaker 1: holders are five ten thousand annually. It's a off budget
• 9:50
  Speaker 1: state agency. It has full time employees. UM seventeen billion
• 9:56
  Speaker 1: dollar fund office is located in fifteen office located in
• 10:02
  Speaker 1: UH in New York throughout New York State. So this
• 10:05
  Speaker 1: is UH. This is an agency that has to have
• 10:07
  Speaker 1: a long term approach and has to meet a certain
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  Speaker 1: amount of returns each year to meet potential obligations. You're
• 10:13
  Speaker 1: a few weeks away from changing your investment thesis, your
• 10:18
  Speaker 1: investment strategy. Can you give us a taste of kind
• 10:21
  Speaker 1: of how you're planning to change your allocation? Sure? Just
• 10:24
  Speaker 1: so you understand. So, UM approximately ten or eleven billion
• 10:27
  Speaker 1: dollars is managed internally to meet our liabilities paying insurance claims.
• 10:35
  Speaker 1: The balance is used to provide a backstop in case
• 10:41
  Speaker 1: our actuaries say we need more money in our liability pool,
• 10:45
  Speaker 1: so we can take it from the surplus. So the
• 10:47
  Speaker 1: asset allocation UM is that we are shortly going to
• 10:53
  Speaker 1: complete will provide us with additional diversification within at portfolio.
• 11:01
  Speaker 1: So UM we will expect to see UM investments in
• 11:07
  Speaker 1: alternatives UM broadly speaking, private markets which includes it could
• 11:13
  Speaker 1: be optimist credit, it could be bank loans um UM,
• 11:18
  Speaker 1: it could be private lending strategy increasing allocations, that's correct,
• 11:21
  Speaker 1: Private equity UM could include infrastructure, real estate UM. So
• 11:27
  Speaker 1: those are going to be UM new asset classes for us.
• 11:32
  Speaker 1: So we're going to be one of the We're building
• 11:36
  Speaker 1: out a alternatives portfolio de novo UM and so that's
• 11:42
  Speaker 1: going to be quite an interesting UM undertaking for us.
• 11:47
  Speaker 1: At this event, there are many young people. I'm wondering
• 11:49
  Speaker 1: if you could explain, what is it you would like
• 11:51
  Speaker 1: to communicate to them? What message would you like to
• 11:54
  Speaker 1: leave them with. One of the things that I will
• 11:58
  Speaker 1: be talking about is the perspective of a long term
• 12:01
  Speaker 1: investor UM and how we are UM UM patient. We
• 12:09
  Speaker 1: don't get caught up in UM UH sort of quarterly
• 12:14
  Speaker 1: monthly daily gyrations that we have to be consistent. We
• 12:18
  Speaker 1: have to be UH patient investors. We have to have
• 12:23
  Speaker 1: a diversified portfolio to spread out our risk across UM
• 12:29
  Speaker 1: different environments, through different markets, and hopefully UH engaged them
• 12:36
  Speaker 1: in a dialogue because they are students and I expect
• 12:39
  Speaker 1: them to ask us budget questions. You know, one thing
• 12:41
  Speaker 1: that I thought was interesting as we were talking ahead
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  Speaker 1: of this is UH that you are reducing your allocation
• 12:48
  Speaker 1: somewhat too active managers, at least in the large cap space,
• 12:53
  Speaker 1: although replacing that with passive instead. UM I find it
• 12:58
  Speaker 1: interesting is it's basically a bifurcation where you're basically going
• 13:01
  Speaker 1: into passive for the broad market exposure and then trying
• 13:04
  Speaker 1: to increase your exposure to more esoteric markets. Is that
• 13:07
  Speaker 1: basically the broader thesis here UM. I think, UM, what
• 13:12
  Speaker 1: we had experienced over the last ten years is this
• 13:16
  Speaker 1: the market has gone up, and you can capture that
• 13:21
  Speaker 1: in a passive index for a lot less than active management. UM.
• 13:26
  Speaker 1: I don't necessarily believe in that same thesis UM in
• 13:31
  Speaker 1: small and mid cap I think active management UM is
• 13:35
  Speaker 1: adding alpha and adding value. UM. I also think that
• 13:39
  Speaker 1: in a in volatile markets, you need active market, you
• 13:43
  Speaker 1: need active you need active management UM. And UH, so
• 13:48
  Speaker 1: it's it's strategic. It's hard to um uh argue that
• 13:52
  Speaker 1: large cap active managers have been consistently outperforming the benchmark
• 13:56
  Speaker 1: as opposed to passive managers. UM so hopefully, um we
• 14:02
  Speaker 1: still have active on on large cap, but it made
• 14:06
  Speaker 1: sense to have a portion of it managed passively. David
• 14:10
  Speaker 1: our Like, thank you so much for being with us,
• 14:12
  Speaker 1: Have fun on your panel and the best of luck.
• 14:14
  Speaker 1: David our liked Managing director and special advisor to the
• 14:17
  Speaker 1: Chairman for GAMCO, overseeing forty billion dollars. Also commissioner and
• 14:21
  Speaker 1: chair of the Investment Committee for the New York State
• 14:25
  Speaker 1: Insurance Fund. Does buy the dip? Still apply with us
• 14:33
  Speaker 1: to discuss? Phil Orlando, chief equity market strategist at Federated
• 14:37
  Speaker 1: friend to this show, Phil, thank you so much for
• 14:39
  Speaker 1: being here, pleasure, Thanks for having me back. So we've
• 14:42
  Speaker 1: seen a little bit of red in the past few days. Um.
• 14:45
  Speaker 1: In the past there is a pavlavi in response to
• 14:48
  Speaker 1: immediately buy any dip, no matter how small. Today we
• 14:52
  Speaker 1: saw that in pre market trading was down. It is
• 14:54
  Speaker 1: now up largely except for the NASDAC. Were you in
• 14:57
  Speaker 1: there buying No, we we weren't. And um so yeah,
• 15:01
  Speaker 1: you had this two and a half percent correction yesterday.
• 15:03
  Speaker 1: Everyone's scared to death about the impact on tariffs and
• 15:06
  Speaker 1: trade wars, and that's all reasonable and understands. I think. So, um, now,
• 15:13
  Speaker 1: if if, if you were ready to turn here, today
• 15:16
  Speaker 1: would have been a big move day up and the
• 15:19
  Speaker 1: SMP had a nice you know, green in the futures.
• 15:22
  Speaker 1: But then I guess we're largely flat, maybe fractionally higher.
• 15:26
  Speaker 1: That that tells you that we're not there yet. You know,
• 15:29
  Speaker 1: the kids in the back of the car, are we
• 15:31
  Speaker 1: there yet? We're not there yet. And and from our
• 15:34
  Speaker 1: perspective again, you gotta remember sort of the typical pattern here.
• 15:38
  Speaker 1: You had this nice move up in the beginning of
• 15:40
  Speaker 1: the year, and then this waterfall collapse. We're down twelve
• 15:43
  Speaker 1: and then you bounce and then what you what you
• 15:45
  Speaker 1: need to do technically is sort of retest that low.
• 15:48
  Speaker 1: And we haven't done that retest. That's where we are now.
• 15:51
  Speaker 1: It's that retest process. And and so you know, our
• 15:55
  Speaker 1: best guess is that you probably are looking at a
• 15:57
  Speaker 1: retest at the two day moving average, probably over the
• 16:01
  Speaker 1: course of the next couple of weeks um ahead of
• 16:04
  Speaker 1: the earning season. I think the only season is gonna
• 16:07
  Speaker 1: be pretty good. But that's just that you've got I
• 16:10
  Speaker 1: think a little more downside. I think that two hundred
• 16:12
  Speaker 1: day moving averages around twenty's like okay, But I got
• 16:20
  Speaker 1: the advantage I have the actually charting. Yeah yeah, savant
• 16:25
  Speaker 1: with a computer and yeah right exactly in my dreams.
• 16:28
  Speaker 1: Uh you know, okay, So eight four. So I want
• 16:32
  Speaker 1: to know who do you believe are all the smart
• 16:35
  Speaker 1: sellers or the market participants ince January six that have
• 16:40
  Speaker 1: caused this increase in volatility. It's not like the companies
• 16:45
  Speaker 1: are all different, it's not like the economy is all different.
• 16:48
  Speaker 1: There's got to be something that explains why. When you
• 16:50
  Speaker 1: look at a chart of the S and P five
• 16:53
  Speaker 1: it looks really lovely going up to the twenty sixth
• 16:55
  Speaker 1: of January, and then from then on in it looks
• 16:58
  Speaker 1: like a heart patient who's having a stroke. So understand
• 17:03
  Speaker 1: that the stock market from just before the election back
• 17:05
  Speaker 1: in sixteen through that January aforementioned peak stock market was
• 17:11
  Speaker 1: up like or some ridiculous number. And the reality is
• 17:16
  Speaker 1: that looking at some of the fundamentals, looking at some
• 17:18
  Speaker 1: of the technicals, the move up in January, and I
• 17:21
  Speaker 1: think we were up like seven and a half or
• 17:23
  Speaker 1: eight percent in that first three or four weeks. Was
• 17:25
  Speaker 1: probably ahead of itself, and we were due for a correction,
• 17:28
  Speaker 1: and we were due, frankly for a a more healthy
• 17:33
  Speaker 1: spate of volatility. The VICS last year was was sitting
• 17:37
  Speaker 1: between like eight and ten. You know, I know, but
• 17:39
  Speaker 1: but Phil, but who or is it a machine? Because
• 17:42
  Speaker 1: I understand, you know, it was ahead of itself, but
• 17:45
  Speaker 1: I mean, every time we use those pronouns, there's got
• 17:47
  Speaker 1: to be something behind it. And the market doesn't move
• 17:49
  Speaker 1: all by itself. There's either a human being or there's
• 17:52
  Speaker 1: a decision being taken, or there's a machine that's program
• 17:55
  Speaker 1: that says, you know, when it does X sell or
• 17:58
  Speaker 1: when it does why by so we're we're told, we're
• 18:02
  Speaker 1: hearing that there were some al goes, you know, some
• 18:04
  Speaker 1: of the really smart hedges that were you know, taking
• 18:07
  Speaker 1: some money off the top there back in in late January,
• 18:10
  Speaker 1: and then we dropped twelve percent in a couple of weeks.
• 18:12
  Speaker 1: We were dramatically oversold in our view. We did buy there,
• 18:16
  Speaker 1: uh and we had a nice so eight to ten
• 18:18
  Speaker 1: percent bounce or so, and then we've been uh, you know,
• 18:22
  Speaker 1: sort of patiently waiting for the retest here. So I
• 18:25
  Speaker 1: think we may get more aggressive in a couple of
• 18:27
  Speaker 1: weeks if we get down to this four level as
• 18:31
  Speaker 1: you talk about him. We are expecting that that corporate
• 18:34
  Speaker 1: earnings in the first quarter are going to be very solid.
• 18:36
  Speaker 1: We think the full year is going to be very solid.
• 18:38
  Speaker 1: We're in a hundred and fifty five s and P
• 18:41
  Speaker 1: versus one one thirty last year or thereabouts now. When
• 18:45
  Speaker 1: we raised our number to one fifty five, you know,
• 18:47
  Speaker 1: in the fourth quarter of last year, people thought we
• 18:50
  Speaker 1: were star craving lunatics. Well go back and look at
• 18:53
  Speaker 1: your little computer screen there. The consensus has now moved
• 18:56
  Speaker 1: up to one fifty eight for this year. We're now
• 18:58
  Speaker 1: behind the consensus. So now, well, so what we thought
• 19:02
  Speaker 1: we saw three or four months ago, the rest of
• 19:04
  Speaker 1: the street is starting to catch on, and that is
• 19:06
  Speaker 1: that the fiscal policy initiatives that are playing out I
• 19:10
  Speaker 1: have a positive impact on underlying you know, company and
• 19:14
  Speaker 1: market fundamentals. So we think the market will grind up
• 19:17
  Speaker 1: over the course of the year. But this period right
• 19:19
  Speaker 1: now is ugly. It's uncomfortable. Uh and and this is
• 19:23
  Speaker 1: what we're living through, all right, you know, it's uncomfortable
• 19:25
  Speaker 1: right now Mark Zuckerberg and his dinner time conversations. Facebook
• 19:29
  Speaker 1: shares have declined since March sixte They've declined eleven per cent.
• 19:35
  Speaker 1: Is this a buy an opportunity? Well, I don't follow
• 19:38
  Speaker 1: the stock closely enough to make that judgment. I did
• 19:41
  Speaker 1: hear that them forward multiple on on. A lot of
• 19:44
  Speaker 1: these sort of fang stocks are are down pretty sharply.
• 19:47
  Speaker 1: I thought I heard a comment that that Bill Miller, uh,
• 19:50
  Speaker 1: you know, one of the greatest value investors in the
• 19:53
  Speaker 1: game for the last twenty or thirty years now thinks
• 19:55
  Speaker 1: that the stock could be you know, attractive. He maybe
• 19:59
  Speaker 1: you know, dip into toe in the water. So one
• 20:01
  Speaker 1: guy like Bill Miller says this thing is starting to
• 20:03
  Speaker 1: get cheap. You perk up your forty little years and
• 20:06
  Speaker 1: you start to pay attention. So I don't know definitively
• 20:09
  Speaker 1: that we're ready to buy, but you know, if a
• 20:11
  Speaker 1: guy like Bill Miller says it's cheap, then then maybe
• 20:13
  Speaker 1: it's worth taking a look at. Just quickly, if you
• 20:16
  Speaker 1: take a look at the SMP five hundred, go back
• 20:18
  Speaker 1: to this time last year, we are up thirty Okay,
• 20:22
  Speaker 1: uh that is that? Okay? Can you live with that, Yeah,
• 20:25
  Speaker 1: I could certainly live with that. And from here we
• 20:28
  Speaker 1: think we could do mid teens over the course of
• 20:30
  Speaker 1: this year and next year. We're still a thirty one
• 20:32
  Speaker 1: hundred this year, thirty five hundred next year, no recession
• 20:36
  Speaker 1: before probably twenty twenty late one, early on the horizon.
• 20:42
  Speaker 1: So we think that that, you know, you can still
• 20:44
  Speaker 1: make some some pretty good money here before we have
• 20:48
  Speaker 1: to worry about the positioning more defensively. Thank you very
• 20:51
  Speaker 1: much for being with us. Expert Savanta phil Orlando, chief
• 20:55
  Speaker 1: equity market strategist at Federated. You're listening to Bloomberg Market
• 21:00
  Speaker 1: Time pim Fox along with Lisa Bramwitz. This is Bloomberg.
• 21:06
  Speaker 1: We're broadcasting live from the Quinnipiac Game eight form educating
• 21:11
  Speaker 1: future financial professionals here at the New York Hilton in
• 21:14
  Speaker 1: Midtown Manhattan. And one of the things we're gonna have
• 21:17
  Speaker 1: to deal with this political risk, Well, how do you
• 21:19
  Speaker 1: factor in the resignation of a president's attorney or indeed
• 21:24
  Speaker 1: even a replacement as a national security advisor. Well, perhaps
• 21:27
  Speaker 1: the first thing might be to call Mark Rosenberg. He
• 21:30
  Speaker 1: is the chief executive of geo quant and he can
• 21:33
  Speaker 1: be followed on Twitter at geo underscore Quant. Mark Rosenberg,
• 21:40
  Speaker 1: thank you very much for being with us. Tell us
• 21:42
  Speaker 1: exactly what is geo quant What are you trying to accomplish?
• 21:47
  Speaker 1: We what we do is generate high frequency political risk
• 21:51
  Speaker 1: indicators that measure political risk across the arrangements vectors at
• 21:55
  Speaker 1: the same frequency as financial market. So it's increasingly accepted
• 21:59
  Speaker 1: that politics pack markets. Um. Political risk is rarely quantified,
• 22:03
  Speaker 1: and if it is, it's really done at the same
• 22:05
  Speaker 1: frequency as as the market that it impacts. So what
• 22:08
  Speaker 1: geo quant does is produced daily as objective as possible
• 22:12
  Speaker 1: political risk indicators across each country we cover. Mark, it's
• 22:17
  Speaker 1: got to be tough to objectively quantify the risk. Before
• 22:22
  Speaker 1: I get into just the specifics of how you do that,
• 22:26
  Speaker 1: please bring us up to date. Where are we now?
• 22:28
  Speaker 1: We have a lot of turmoil. People are talking about
• 22:31
  Speaker 1: the change in the National Security Advisor in Washington, the tariffs. Uh,
• 22:37
  Speaker 1: how much has your geo political risk indicators skyrocketed in
• 22:40
  Speaker 1: the US? Well, frankly, the indicators haven't moved. All risk
• 22:45
  Speaker 1: indicators are off, of course, but they haven't moved that
• 22:47
  Speaker 1: much simply because um, the political political risk indicators have increased.
• 22:52
  Speaker 1: So much up to this point. I think these events
• 22:55
  Speaker 1: are really a symptom rather than a cause of political
• 22:58
  Speaker 1: risk in the United States. Political risk is in building
• 23:01
  Speaker 1: up for quite a while, and I think up until now,
• 23:04
  Speaker 1: or up until that's at least the first court of
• 23:06
  Speaker 1: this year, equity markets are they're kind of UM shielded
• 23:11
  Speaker 1: from the impacts UM, and now that's no longer the case.
• 23:14
  Speaker 1: So I think what we're seeing here, the civilian, the
• 23:16
  Speaker 1: Trump administration, the the hawkish ad hoc policy moves, these
• 23:21
  Speaker 1: are symptoms of a significant build up in political risky
• 23:25
  Speaker 1: United States over the past eighteen months that are now
• 23:27
  Speaker 1: coming to their well mark. To follow up on a
• 23:31
  Speaker 1: Lisa's question, so how do you actually do this and
• 23:34
  Speaker 1: how do you assign some statistical measure to what is
• 23:38
  Speaker 1: in many cases a qualitative issue. Sure, well, political scientists
• 23:44
  Speaker 1: has made significant strides and recent heurs in terms of
• 23:47
  Speaker 1: quantifying quantifying previously qualitative concepts. So we do have models
• 23:53
  Speaker 1: to use UM just as you as you would in
• 23:55
  Speaker 1: economics and finance, in order to systematize and quantify UM
• 24:00
  Speaker 1: the political factors that drive markets and economies. And in addition,
• 24:04
  Speaker 1: we have new technology to UM scrape in h what
• 24:08
  Speaker 1: would be an example I understand all this, but what
• 24:11
  Speaker 1: would be an example of of of putting a a
• 24:14
  Speaker 1: numerical uh point on a score on on something that
• 24:20
  Speaker 1: is h Let's say the change in the head of
• 24:22
  Speaker 1: the president national Security advisor. How do you turn that
• 24:25
  Speaker 1: into a number? So we we measure a few things
• 24:29
  Speaker 1: relevant to that. We measure geo political risk, We measure
• 24:32
  Speaker 1: the capacity of the state, We measure the level of
• 24:36
  Speaker 1: support in the society for the government. So if that
• 24:39
  Speaker 1: move impacts any of those indicators aren't adjust accordingly. So,
• 24:43
  Speaker 1: for instance, our risk indicator for the United States increase
• 24:48
  Speaker 1: about zero point nine over the past day given recent
• 24:52
  Speaker 1: events um and and that's a function of all the
• 24:55
  Speaker 1: different elements of politics that are now riskier um as
• 24:59
  Speaker 1: a result of re an event. As I said, it
• 25:01
  Speaker 1: is not that big because we're already at such a
• 25:04
  Speaker 1: high level of this for the United States. If you
• 25:06
  Speaker 1: look at our indicator on your Bloomberg, you'll see relative
• 25:10
  Speaker 1: to history, the United States is already um uh quite high.
• 25:15
  Speaker 1: So these events don't move they need all that much.
• 25:18
  Speaker 1: So I'm wondering. You know, there's been a big question
• 25:20
  Speaker 1: as to how much markets are factoring in this political risk.
• 25:25
  Speaker 1: So what's the answer. Well, what we found up till
• 25:30
  Speaker 1: now is that photocals because really has been reflected in
• 25:34
  Speaker 1: in tarrency markets in particular dollar and and and as
• 25:37
  Speaker 1: well asn't rising markets. And I think what you've seen
• 25:41
  Speaker 1: over the past quarter is the increasing reflection of photocalist
• 25:45
  Speaker 1: and equity markets UM. I think initially as a response
• 25:49
  Speaker 1: to UM concerns about inflation, which I think we're alternately
• 25:53
  Speaker 1: driven by, you know, a pro cyclical fiscal policy and
• 25:56
  Speaker 1: concerned about an overheating economy. And the recontel have also
• 26:00
  Speaker 1: been politically driven a nature around central trade policy policy
• 26:05
  Speaker 1: shifts that are more protectionists, around the Muller investigation. Yeah,
• 26:09
  Speaker 1: I think what you're seeing is that equity markets are
• 26:12
  Speaker 1: not waking up to the political risk that have already
• 26:14
  Speaker 1: been self and currency and bond market. Mark Rosenberg, thank
• 26:19
  Speaker 1: you so much for being with us. Mark Rosenberg, chief
• 26:21
  Speaker 1: executive officer and co founder of geo quant. Their index
• 26:26
  Speaker 1: seeks to measure political risk from both the perhaps personnel changes,
• 26:33
  Speaker 1: but also from a voter partisan level. Thanks for listening
• 26:40
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 26:43
  Speaker 1: and listen to interviews at Apple podcasts, SoundCloud, or whatever
• 26:46
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 26:50
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramowits one
• 26:54
  Speaker 1: before the podcast. You can always catch us worldwide on
• 26:57
  Speaker 1: Bloomberg Radio to te