Latest / Bloomberg Intelligence / Pacific Heights' Cuggino Sees Global Growth Long Term (Audio)

Transcript

Pacific Heights' Cuggino Sees Global Growth Long Term (Audio) · Bloomberg Intelligence

• 0:03
  Speaker 1: Global business news twenty four hours a day at Bloomberg
• 0:06
  Speaker 1: dot Com, the Radio, plus Globo Last and on your radio.
• 0:10
  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
• 0:14
  Speaker 1: I'm Katherine Colly. Economic an earnings concerns are dragging the
• 0:17
  Speaker 1: stock market lower today. China and the UK reported weaker
• 0:21
  Speaker 1: than forecast factory data, reminding investors of the global economic slowdown,
• 0:25
  Speaker 1: and US earnings remain mixed. A i G shares are
• 0:27
  Speaker 1: defining after recorded a third straight on profitable quarter. Meanwhile,
• 0:32
  Speaker 1: Fiser shares are gaining after it raised its outlook. We
• 0:34
  Speaker 1: check the markets every fifteen minutes throughout the trading day.
• 0:37
  Speaker 1: Down Industrial averages down one hundred fifty two points seven
• 0:40
  Speaker 1: eight percent. Is trading at seventeen thousand, seven hundred thirty nine.
• 0:44
  Speaker 1: SMP five founded down twenty points a loss of one percent,
• 0:46
  Speaker 1: trading at two thousand sixty one. Then NAZZAC is down
• 0:49
  Speaker 1: fifty six points one point two percent, trading at forty
• 0:52
  Speaker 1: seven sixty. West Texas Intermediate crude oil down a dollar
• 0:55
  Speaker 1: eight of barrel two point four two point four at
• 0:59
  Speaker 1: forty three seventy. Spot gold is down seven dollars fifty
• 1:02
  Speaker 1: cents out at thirty and a tenure treasury is up
• 1:06
  Speaker 1: seconds with the yield of one point seven nine. And
• 1:09
  Speaker 1: that's the Bloomberg Business Flash. He's taking stock with Kathleen
• 1:15
  Speaker 1: Hayes and Grim Fox on Bloomberg Radio, continuing a live
• 1:20
  Speaker 1: broadcast here in the City by the Bay where at
• 1:23
  Speaker 1: San Francisco's Bloomberg San Francisco Office. We had a nice
• 1:27
  Speaker 1: conversation today, in fact, a lovely conversation with the John Williams,
• 1:31
  Speaker 1: President of Federals or Bank of San Francisco, and two
• 1:33
  Speaker 1: of his top research economist, Mary Daily and John Fernald.
• 1:37
  Speaker 1: Now we want to bring in another San Francisco guest,
• 1:40
  Speaker 1: Michael Cogino. He's president of Pacific Heights Asset Management. He's
• 1:44
  Speaker 1: also a portfolio manager at Permanent Portfolio Funds. To take
• 1:49
  Speaker 1: a look at what John Williams said today and connect
• 1:52
  Speaker 1: the dots to do a stock market stocks of course
• 1:55
  Speaker 1: having a tough day today with concern about a slugger
• 2:00
  Speaker 1: pace of global growth. That maybe some uninspiring corporate earnings,
• 2:04
  Speaker 1: but when it comes to the global economy, John Williams
• 2:07
  Speaker 1: doesn't seem as concerned perhaps as a stock market. So welcome,
• 2:10
  Speaker 1: Thank you for joining me down here at our bureau.
• 2:12
  Speaker 1: Thanks for having me so we can get to the
• 2:14
  Speaker 1: more specifics of the stock market today. But John Williams,
• 2:19
  Speaker 1: labor market is still growing, Inflation is not at target,
• 2:23
  Speaker 1: but there are signs that it's moving in the right direction.
• 2:26
  Speaker 1: He can see the strains in the global economy, but
• 2:28
  Speaker 1: absence a big shock, he doesn't see it reverberating back
• 2:30
  Speaker 1: to the US. And he did say that the current
• 2:34
  Speaker 1: status quo, if I may paraphrase him, would be sufficient
• 2:37
  Speaker 1: for him to be on board with that rate hike
• 2:39
  Speaker 1: in June. What does that mean for the stock market, Well,
• 2:42
  Speaker 1: I mean, I think the stock market is in various
• 2:45
  Speaker 1: stages of pricing in zero, one or two rate increases
• 2:48
  Speaker 1: this year. So I'm not sure you know, we've come
• 2:50
  Speaker 1: a long way since the February lows. UM, we're down
• 2:53
  Speaker 1: about two percent off our highs in the SMP five
• 2:55
  Speaker 1: hundred based on today's trade, not a material amount, but
• 2:58
  Speaker 1: a little bit of a slow down from where we
• 3:00
  Speaker 1: were in March and April. So I think the markets
• 3:03
  Speaker 1: uh awaiting every word from the Fed and trying to
• 3:06
  Speaker 1: adjust and calibrate accordingly UM based on whether it's gonna
• 3:10
  Speaker 1: be zero one or two, and I would expect that
• 3:12
  Speaker 1: to continue going forward. Hey Michael, you know I was
• 3:14
  Speaker 1: looking at the permanent portfolio and you're to date it
• 3:18
  Speaker 1: this up more than eleven percent. How did you do that? Well?
• 3:24
  Speaker 1: We maintain a disciplined asset allocation approach all the time,
• 3:28
  Speaker 1: and so you know, we sit here and talk about
• 3:30
  Speaker 1: is the FED going to do this or that, or
• 3:31
  Speaker 1: you know, make predictions. Our whole thesis is that we
• 3:34
  Speaker 1: don't want to make predictions. We want to be spread
• 3:36
  Speaker 1: out among a bunch of different asset classes all the time.
• 3:39
  Speaker 1: Thereby we don't have to make predictions. And I think
• 3:41
  Speaker 1: that sort of strategy helped us well in the first
• 3:44
  Speaker 1: quarter and so far through May here because we were
• 3:46
  Speaker 1: in some assets like gold, like silver, like natural resource
• 3:50
  Speaker 1: stocks that nobody wanted to touch earlier in the year,
• 3:52
  Speaker 1: but we think are an integral part of economic growth
• 3:55
  Speaker 1: and wealth building, and so we had exposure um there
• 3:58
  Speaker 1: and took advantage of it so far. So I think
• 4:00
  Speaker 1: that explains quite a bit of it. The bond market
• 4:02
  Speaker 1: helped a little bit, and some of our growth stocks
• 4:05
  Speaker 1: again we're leverage twice Facebook. Facebook is a good example.
• 4:09
  Speaker 1: Some of the holdings in our transportation sector. Areas that
• 4:12
  Speaker 1: were beaten down towards the end of last year that
• 4:15
  Speaker 1: nobody really wanted to own were things that uh, we
• 4:18
  Speaker 1: owned and continue to own and and added to along
• 4:20
  Speaker 1: the way based on valuation, and they helped us so far. Okay,
• 4:24
  Speaker 1: So apply that metric to perhaps some overlooked and underloved
• 4:29
  Speaker 1: investments right now in the stock market, I'd apply the
• 4:32
  Speaker 1: philosophies to the same thing. We don't plan on changing
• 4:35
  Speaker 1: our approach, Who've been doing it for thirty four years.
• 4:37
  Speaker 1: But uh, I think in any situation when you have
• 4:40
  Speaker 1: big moves um in asset classes, there is gonna be
• 4:44
  Speaker 1: a consolidation, There is gonna be some sort of profit taking.
• 4:47
  Speaker 1: So you know, I think we should expect that in
• 4:49
  Speaker 1: some of the areas in the shorter term that have
• 4:51
  Speaker 1: run really well so far this year. But in the
• 4:54
  Speaker 1: longer term, we think there's an opportunity. I think we're
• 4:56
  Speaker 1: at the bottom of a commodity cycle, for example. And uh,
• 4:59
  Speaker 1: while some of the stocks energy industrial medals have come
• 5:02
  Speaker 1: a long way so far this year, there's still way
• 5:04
  Speaker 1: way off where they were, you know, several years ago,
• 5:07
  Speaker 1: and probably in their long term trends, and the world
• 5:09
  Speaker 1: still needs this stuff. So for it's an investor with
• 5:12
  Speaker 1: a strong stomach and you can afford to wait, and
• 5:14
  Speaker 1: you you don't mind the volatility. That's an area where
• 5:16
  Speaker 1: you go. UM. Certain other areas of the stock market
• 5:19
  Speaker 1: I think have been attractive. I mean, texts slowed down
• 5:21
  Speaker 1: a little bit. That may present some opportunities. Financial services,
• 5:24
  Speaker 1: depending on what the FED does, UM may present some opportunities.
• 5:28
  Speaker 1: We do like the transportation sector. We believe in global
• 5:31
  Speaker 1: growth as a longer term story. And yes it's hiccupping
• 5:34
  Speaker 1: right now, but we think, UM, you know, that area
• 5:36
  Speaker 1: has been beaten down, and again for long term investor,
• 5:39
  Speaker 1: that's sort of where you want to be. And we
• 5:40
  Speaker 1: do worry about UM the declining value of US currency
• 5:45
  Speaker 1: as well as the rest of the world's currencies, and
• 5:47
  Speaker 1: so hard assets like gold and silver attractive to us
• 5:50
  Speaker 1: on a long term basis on that front, regardless of
• 5:53
  Speaker 1: where the dollar trades, and these to be that stuff.
• 5:55
  Speaker 1: So we we continue to maintain a diversified approach, and
• 5:58
  Speaker 1: our view on the FED is probably Yuh, it could
• 6:00
  Speaker 1: be zero, could be one could be to UM. A
• 6:03
  Speaker 1: June and December move to US makes perfect sense. Then again,
• 6:06
  Speaker 1: based on their comments about global growth and them worrying
• 6:09
  Speaker 1: about that and the diversions between US rates and the
• 6:11
  Speaker 1: rest of the world. I could see them doing nothing
• 6:14
  Speaker 1: this year as well. Our view is we don't want
• 6:16
  Speaker 1: to try to predict it. Have you gotten many calls
• 6:19
  Speaker 1: from clients and customers asking for yield products because they
• 6:24
  Speaker 1: are frustrated by low yield environment? Definitely UM And in fact,
• 6:30
  Speaker 1: since we tend to invest in in sort of higher volatility,
• 6:34
  Speaker 1: higher growth oriented type equities which aren't necessary always high
• 6:38
  Speaker 1: dividend payers. Um. You know, we've had investors call up
• 6:41
  Speaker 1: and say, gee, you know, you ought to be investing
• 6:42
  Speaker 1: in more you know, consumers and utilities, and why are
• 6:45
  Speaker 1: you doing some of that stuff and and you know, Um,
• 6:48
  Speaker 1: while there are opportunities there, a lot of that stuff
• 6:50
  Speaker 1: was was well overbought. And while they are attractive yields,
• 6:54
  Speaker 1: we counsel people that you should never buy equities based
• 6:57
  Speaker 1: on yield alan stocks can be very, very volatile and
• 7:00
  Speaker 1: UM and so investors should be prepared for that. Similarly,
• 7:03
  Speaker 1: in the bond market, we tend to have for the
• 7:05
  Speaker 1: last few years here tended to be more on the
• 7:08
  Speaker 1: conservative side, higher quality balance sheets, lower to medium inter
• 7:13
  Speaker 1: intermediate duration UM. You know, our permanent portfolios duration I
• 7:16
  Speaker 1: think is less than five years in our bond holdings
• 7:18
  Speaker 1: right now, where it's treasuries or corporates UM and our
• 7:21
  Speaker 1: Swiss UM our bond funds similarly, we have a duration
• 7:25
  Speaker 1: of about five or six years I think UM. And
• 7:27
  Speaker 1: we're looking at mostly investment grade UM in both cases
• 7:31
  Speaker 1: and permanent it's all investment grade bonds, treasuries and high
• 7:34
  Speaker 1: grade corporates. In our versatile bond product we're investing in UH,
• 7:38
  Speaker 1: I think we're about three quarters sevent to two thirds
• 7:41
  Speaker 1: to three quarters investment grade UM. And we think given
• 7:44
  Speaker 1: the uncertain interest rates, given the divergence between the FED
• 7:48
  Speaker 1: and the rest of the world central bank, some conservatism
• 7:50
  Speaker 1: should be warranted with respect to bonds right now. So
• 7:55
  Speaker 1: what about the global outlook again? John Williams, presidents president
• 7:58
  Speaker 1: of San Francisco FED, seems uh not overly concerned. He
• 8:02
  Speaker 1: can understand that, yes, you have to see what what
• 8:04
  Speaker 1: the gyrations in the global economy, what the impact could
• 8:06
  Speaker 1: be on the US economy. But what about corporations? What
• 8:09
  Speaker 1: about companies with big corporations A lot of them might
• 8:13
  Speaker 1: be some of those blue chip dividend pain kind of
• 8:15
  Speaker 1: companies that a lot of people still favor. If there
• 8:19
  Speaker 1: is concerned about the global economy, what is the outlook
• 8:21
  Speaker 1: for them? And are there some again some undiscovered gems there. Well,
• 8:25
  Speaker 1: you know, we're in, depending on how you cut it,
• 8:27
  Speaker 1: the second third or fourth quarter of an earnings growth
• 8:30
  Speaker 1: decline on the SMP five UM. Some industries have felt
• 8:34
  Speaker 1: it more than others. You're not gonna be able to
• 8:35
  Speaker 1: grow dividends if you can't grow earnings, and you can't
• 8:38
  Speaker 1: grow earnings if you don't have top line growth, and
• 8:40
  Speaker 1: if you have the additional headwinds of a relatively strong
• 8:43
  Speaker 1: dollar visa v. Everybody else, that's going to prevent problems
• 8:46
  Speaker 1: as well. So the yields may not be as safe
• 8:49
  Speaker 1: as some people believe, especially if you have some sort
• 8:52
  Speaker 1: of an economic slowdown in the States UM and a
• 8:55
  Speaker 1: general recessionary situation. And let's be you know, let's be honest.
• 8:59
  Speaker 1: I mean, the US is growing at UH maybe two
• 9:01
  Speaker 1: percent annualized GDP at the best and UH and last
• 9:04
  Speaker 1: week's number on Q one was absolutely horrible. UM. Now
• 9:08
  Speaker 1: it may get upgraded, but we look like we're decelerating,
• 9:11
  Speaker 1: not accelerating, and Uh, I wouldn't predict that, but but
• 9:15
  Speaker 1: the data points have been mixed so far. And so yes,
• 9:18
  Speaker 1: the employment picture looks good. Yes, we've had some opticks
• 9:21
  Speaker 1: and inflation, but we haven't had enough to say we've
• 9:23
  Speaker 1: got sustainable inflation. UM. Global growth remains anemic and week
• 9:27
  Speaker 1: UM the China p m I number today was not strong.
• 9:31
  Speaker 1: So I think investors need to be cautious of all
• 9:33
  Speaker 1: of that UM and UH and keep that in mind
• 9:37
  Speaker 1: in terms of their risk profile at this point in time.
• 9:40
  Speaker 1: Michael Coo, what's the biggest mistake you've made in the
• 9:42
  Speaker 1: last twelve months investing money? The last twelve months? Actually, UM,
• 9:50
  Speaker 1: if you want to extend it out too long, I'd
• 9:52
  Speaker 1: say probably lighten up our gold in the spring of thirteen.
• 9:54
  Speaker 1: Maybe UM. More recently, I mean our last six and
• 9:58
  Speaker 1: nine months have been pretty good. UM. I would say, uh,
• 10:02
  Speaker 1: maybe not lightening up on some of our natural resource
• 10:05
  Speaker 1: stocks towards the end of last year UM quicker than
• 10:08
  Speaker 1: we did. UM. So I mean we experienced, you know,
• 10:12
  Speaker 1: the third quarter for US last year in permanent portfolio
• 10:15
  Speaker 1: was not a good one. We stabilized in Q four UM,
• 10:18
  Speaker 1: but that quarter took everybody by surprise, and I guess
• 10:21
  Speaker 1: us included the sell off and energy that drastically is
• 10:23
  Speaker 1: sell off and commodities UM. While we would have had
• 10:26
  Speaker 1: exposure there anyway, we might have lightened up and so UM.
• 10:29
  Speaker 1: Not being quick enough on that one may have hurt.
• 10:31
  Speaker 1: So what you can do differently now? Right now, we're
• 10:34
  Speaker 1: looking at a lot of different areas. I mean, am
• 10:36
  Speaker 1: I gonna do anything differently in terms of how we
• 10:37
  Speaker 1: manage it? No. We manage a diversified fund all the time.
• 10:41
  Speaker 1: Are we gonna change the way we look at equities, No,
• 10:43
  Speaker 1: definitely not. We're gonna look for opportunities that fit into
• 10:46
  Speaker 1: our our longer term profile of how we pick stocks.
• 10:49
  Speaker 1: Same with bonds, UM, and same with commodities and precious metals.
• 10:52
  Speaker 1: So we're gonna continue to be diligent. We're gonna invest
• 10:55
  Speaker 1: to produce the best return we can in the environment
• 10:57
  Speaker 1: we're given UM and and troll that we can control,
• 11:01
  Speaker 1: so to speak. Thank you very much. Michael Cogino. He
• 11:04
  Speaker 1: is the president of Pacific Heights Asset Management and portfolio
• 11:08
  Speaker 1: manager at Permanent Portfolio Funds. You're listening to Bloomberg Radio