Latest / Bloomberg Intelligence / BBH's Scott Clemons: Optimistic on Personal Consumption (Audio)

Transcript

BBH's Scott Clemons: Optimistic on Personal Consumption (Audio) · Bloomberg Intelligence

• 0:02
  Speaker 1: Global business news twenty four hours a day. If Bloomberg
• 0:06
  Speaker 1: dot com, the radio plus mobile app and on your radio.
• 0:09
  Speaker 1: This is a Broomberg Business Flash from Bloomberg World Handquarters.
• 0:13
  Speaker 1: I'm Charlie Pellett. Stock still remain law, but the SMP
• 0:17
  Speaker 1: five hundred index has trinned. It's lost right now. It
• 0:20
  Speaker 1: is down point one percent, have been down five tenths
• 0:23
  Speaker 1: of one percent. The SMP falling two points down. Industrials
• 0:26
  Speaker 1: down eighty five, a drop of five tenths of one percent,
• 0:30
  Speaker 1: NASA stank is up nine, a gain of two tenths
• 0:32
  Speaker 1: of one percent. Ten, you're up three thirty seconds with
• 0:35
  Speaker 1: the old of one point eight four percent, Gold of
• 0:37
  Speaker 1: a dollar fort heats twelve fifteen twenty on advanced there
• 0:40
  Speaker 1: of point one percent, and crude oil down eight tenths
• 0:43
  Speaker 1: of one percent, down forty cents now forty ninety two
• 0:46
  Speaker 1: for a barrel of West Texas in the media crude.
• 0:49
  Speaker 1: I'm Charlie Pellett. That's a Bloomberg Business Flash. Thank you
• 0:54
  Speaker 1: very much, Charlie Pellett at his time Now for the
• 0:56
  Speaker 1: et F Report. It has brought to you by Van
• 0:58
  Speaker 1: eck Vector's et F s. Expect more from your muni's
• 1:01
  Speaker 1: target tax exempting come by maturity and credit quality, all
• 1:05
  Speaker 1: with low cost e t F s. Visit vaneck dot
• 1:08
  Speaker 1: com slash Muni vanek access the opportunities. Let's go to
• 1:12
  Speaker 1: Catherine Cowdery for the e t F report. Some e
• 1:15
  Speaker 1: t F investors may be wishing they'd paid attention to
• 1:18
  Speaker 1: that old saying sell in May and go away. Bloomberg
• 1:22
  Speaker 1: Intelligence analyst Eric Beltun has focused on a few e
• 1:24
  Speaker 1: t F that have pulled back this month. The market
• 1:27
  Speaker 1: vector Steel e t F. You probably didn't even think
• 1:30
  Speaker 1: there was a steel et attracts companies that make steel.
• 1:32
  Speaker 1: It got sold off in May, but this is profit taking.
• 1:37
  Speaker 1: It was up this year up until then, so a
• 1:40
  Speaker 1: lot of people literally are selling in May. Valcuna says
• 1:44
  Speaker 1: investors are selling to lock in some profits. His other
• 1:47
  Speaker 1: examples include the I Shares MSCI Turkey e t F,
• 1:51
  Speaker 1: which again scent this year up until May and has
• 1:54
  Speaker 1: dropped ten percent this month. He also cites the van
• 1:57
  Speaker 1: x Vectors gold Miners e t F, which was up
• 2:00
  Speaker 1: sent until May one and has dropped eleven per cent
• 2:03
  Speaker 1: since then. That's your Bloomberg ETF report. I'm Katherine Calderie.
• 2:08
  Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
• 2:12
  Speaker 1: Hayes on Bloomberg Radio. Where is the stock market going
• 2:17
  Speaker 1: next as it waits for the big jobs report on Friday?
• 2:22
  Speaker 1: Is that waits for the feds next policy meeting in
• 2:25
  Speaker 1: the middle of June. A lot of global forces buttressing
• 2:29
  Speaker 1: stocks right now. Scott Clemmens joins us here in our
• 2:31
  Speaker 1: New York studio. He's Chief Investment Strategies for private wealth
• 2:35
  Speaker 1: Management at Brown Brothers Caraman here in New York City.
• 2:38
  Speaker 1: Welcome Scott, Thank you, Kathleen. Happy summer it's here, isn't it?
• 2:42
  Speaker 1: Big time? Big time? Well, you know, uh, this summer
• 2:46
  Speaker 1: may be heating up the weather on the East Coast.
• 2:48
  Speaker 1: But corporate earnings, you know, if you look at them broadly,
• 2:52
  Speaker 1: have not Certainly some companies performing well. This is one
• 2:55
  Speaker 1: of the big factors you're looking at as you look
• 2:57
  Speaker 1: in the second half of the year for the US
• 2:58
  Speaker 1: stock market. That's right. I think one of my job
• 3:01
  Speaker 1: descriptions is that I get paid to worry, and perhaps
• 3:03
  Speaker 1: the top of the worry list is the lack of
• 3:05
  Speaker 1: corporate earnings. To extend the metaphor, earnings are the fuel
• 3:08
  Speaker 1: and the tank, and the fuel tank is running sort
• 3:11
  Speaker 1: of thin. We've had six consecutive quarters now of a
• 3:14
  Speaker 1: year over year decline in corporate earnings for the S
• 3:16
  Speaker 1: and P. And that's that's that's worrisome. It's easy to
• 3:19
  Speaker 1: blame a certain amount of that on the energy sector.
• 3:21
  Speaker 1: It's also obvious to blame the energy sector, but it's
• 3:23
  Speaker 1: not entirely energy. It's a pretty widespread malaise and profitability
• 3:28
  Speaker 1: in corporate America. Having said that, let's look at some
• 3:31
  Speaker 1: individual sectors, perhaps either housing or automobiles. Is we're going
• 3:36
  Speaker 1: to get those new figures. Yeah, those are the Those
• 3:39
  Speaker 1: are the two big drivers of the personal consumption personal
• 3:42
  Speaker 1: income type numbers we've gotten, and they're two strong points
• 3:45
  Speaker 1: of the economy. Uh. And that's important because if you
• 3:48
  Speaker 1: think about it, housing is the primary driver of wealth
• 3:50
  Speaker 1: for most Americans. It's it's not a financial portfolio, despite
• 3:53
  Speaker 1: most of your listener base, it's really the roof over
• 3:55
  Speaker 1: people's heads. It's the primary store of wealth. And then
• 3:57
  Speaker 1: the job markets the primary source of income. So as
• 4:00
  Speaker 1: long as those two things are in decent shape, the
• 4:02
  Speaker 1: driver of personal income and personal consumption is in pretty
• 4:05
  Speaker 1: good shape. One of the things that I'm looking for
• 4:07
  Speaker 1: over the balance of this year is whether or not
• 4:09
  Speaker 1: we get an acceleration in wage growth. And we may
• 4:13
  Speaker 1: be beginning to see that average hourly learnings up two
• 4:15
  Speaker 1: and a half percent year over a year. That's not
• 4:17
  Speaker 1: a great big number, but it does represent a little
• 4:20
  Speaker 1: bit of an acceleration. That's important because that not only
• 4:22
  Speaker 1: drives the economy, but ultimately it trickles down into corporate
• 4:25
  Speaker 1: earnings as well. And of course we'll get that piece
• 4:28
  Speaker 1: of news on Friday in the in the jobs report.
• 4:32
  Speaker 1: Corporate earnings, the fact that even absent energy, they haven't
• 4:36
  Speaker 1: been that great. As the Fed to Reserve contemplates raising
• 4:40
  Speaker 1: the rate June July, waiting until September, we don't know
• 4:44
  Speaker 1: should they be looking at that. The consumer, even if
• 4:46
  Speaker 1: we get stronger wage growth, consumer is not roaring. It
• 4:49
  Speaker 1: just kind of plotting along to that. I'd be more
• 4:50
  Speaker 1: concerned about corporate earnings and corporate profits, you know. I
• 4:53
  Speaker 1: think if that's concerned about a lot of things, not
• 4:55
  Speaker 1: enough to hold them back from raising rates in either
• 4:57
  Speaker 1: June or July would be my bed. And it's sort
• 4:58
  Speaker 1: of a coin flipp as too, which the two it is.
• 5:01
  Speaker 1: I believe the FED is looking for reasons to raise
• 5:04
  Speaker 1: interest rates, because if they were simply dealt the hand
• 5:07
  Speaker 1: that they've got, which is an unemployment rate of five percent,
• 5:09
  Speaker 1: a reasonably good economy, it's not running away that it's
• 5:13
  Speaker 1: it's not strong, but compared to the rest of the world,
• 5:15
  Speaker 1: it's okay. And they asked themselves, is that consistent with
• 5:18
  Speaker 1: interest rates measured in basis points instead of percentage points? Yeah,
• 5:22
  Speaker 1: I think the Fed would very much like to raise
• 5:24
  Speaker 1: interest rates. They're not being held back by politics, that's
• 5:27
  Speaker 1: being an election year. Uh, They're not being prompted by inflation.
• 5:31
  Speaker 1: They're no real inflationary concerns. But I think they'd rather
• 5:34
  Speaker 1: move them sooner rather than later, simply that they can
• 5:37
  Speaker 1: reastore a little bit of a normality to interest rates,
• 5:40
  Speaker 1: knowing full well that at some point they're going to
• 5:43
  Speaker 1: want to cut interest rates again. They can't say that
• 5:46
  Speaker 1: that would lead to concern and maybe even panic in
• 5:48
  Speaker 1: the marketplace, But they right now don't have the ability
• 5:51
  Speaker 1: to lower interest rates in response to an economic downturn.
• 5:54
  Speaker 1: That tools not in the toolbox. They very much like
• 5:56
  Speaker 1: to put it back. Scott, what about investing in stocks?
• 6:00
  Speaker 1: Most of our client moneys and stocks. And it's simply
• 6:03
  Speaker 1: because the risk return trade off and fixed income, at
• 6:05
  Speaker 1: least traditional fixed income is simply not that appealing. So
• 6:08
  Speaker 1: we are finding within the market and and and to
• 6:11
  Speaker 1: go back to an earlier question, you ask those parts
• 6:13
  Speaker 1: of the market that that are reliant on consumers spending,
• 6:16
  Speaker 1: you find that mostly in the consumer discretionary even the
• 6:18
  Speaker 1: consumer nondiscretionary. Healthcare would be another our investors paying too
• 6:23
  Speaker 1: much though for these particular types of stuff. Because I
• 6:25
  Speaker 1: keep thinking at if you tell me that corporate earnings
• 6:27
  Speaker 1: are terrible, that a generalization to understanding, but in certain
• 6:30
  Speaker 1: sectors they're terrible. You want to buy something when they're
• 6:33
  Speaker 1: terrible because you want to make sure that someone else
• 6:36
  Speaker 1: buys it from you when they think it's great, exactly right,
• 6:39
  Speaker 1: exactly right, buy low and sell high. I seem to
• 6:41
  Speaker 1: call that being one of the investment UH guys to success.
• 6:45
  Speaker 1: It can help you keep solving. It's still it's still
• 6:47
  Speaker 1: very much the case. So it's a question of value
• 6:50
  Speaker 1: versus price. And although the overall market is reasonably fully
• 6:54
  Speaker 1: priced about twenty one times trailing earnings, that's not a forecast,
• 6:58
  Speaker 1: that's trailing earnings operating earnings. There are certainly UH sectors
• 7:02
  Speaker 1: and companies within the market that aren't trading at that
• 7:04
  Speaker 1: it's a very narrowly led market. Even though as we
• 7:06
  Speaker 1: sit here today, the SNP five hundred is within let's say,
• 7:09
  Speaker 1: a couple of percent of a new all time high,
• 7:12
  Speaker 1: most of the stocks in the market are not, So
• 7:14
  Speaker 1: there are opportunities. I just ran this data today. There's
• 7:16
  Speaker 1: something along the lines of a hundred and fifty stocks
• 7:19
  Speaker 1: within the SNP five hundred, So a hundred of the
• 7:23
  Speaker 1: names in the index are or more below they're fifty
• 7:26
  Speaker 1: two week high. So there are opportunities within the market,
• 7:29
  Speaker 1: although the overall index level wouldn't lead you necessarily that conclusion.
• 7:32
  Speaker 1: So give us some industries. I know you can't share
• 7:34
  Speaker 1: your individual company names that you're investing your clients many in,
• 7:38
  Speaker 1: but let's start with something that you know, technology and
• 7:43
  Speaker 1: within within technology, what part of technology you do or
• 7:46
  Speaker 1: don't like, because it's a pretty broad field. That's a
• 7:48
  Speaker 1: broad field, it's a very broad field. We draw a
• 7:50
  Speaker 1: distinction within technology between service providers and product providers, and
• 7:55
  Speaker 1: we love to own companies that sell essential products and
• 7:57
  Speaker 1: services that have repeat customers. That ends to be more
• 8:00
  Speaker 1: of a service type business model than a product type
• 8:04
  Speaker 1: business model, and particularly when that services relying on demand
• 8:07
  Speaker 1: from the consumer, and we're pretty optimistic about the strength
• 8:10
  Speaker 1: of personal consumption. We're finding opportunities in those areas. Mascott,
• 8:15
  Speaker 1: I understand you help manage it. Brown Brothers haremon about
• 8:17
  Speaker 1: twenty seven billion dollars of customer assets. What are some
• 8:22
  Speaker 1: of the questions that you are being asked by these customers? Well,
• 8:26
  Speaker 1: and some of them are the obvious questions. When is
• 8:28
  Speaker 1: the FED going to raise interest rates and by how much?
• 8:30
  Speaker 1: And that's really born out of a desire to earn
• 8:32
  Speaker 1: a reasonable rate of return out of traditional fixed income
• 8:36
  Speaker 1: conservative investors. And I think I would characterize most of
• 8:38
  Speaker 1: our clients as conservative investors with a lower case love
• 8:42
  Speaker 1: the idea of earning a reasonable rate of return on
• 8:44
  Speaker 1: stable patient capital. And that's what's a reasonable rate of return,
• 8:48
  Speaker 1: something measured in percentage points, not basis points. Um. I
• 8:51
  Speaker 1: was talking to a colleague uh last week about money
• 8:55
  Speaker 1: market yields, and we looked at a graph and and
• 8:58
  Speaker 1: and realized, much to our shock, that money markets back
• 9:01
  Speaker 1: in two thousand and seven not ancient history. You can
• 9:04
  Speaker 1: earn five five and a quarter percent on money markets.
• 9:06
  Speaker 1: And when you say that today you sound like granddad
• 9:09
  Speaker 1: talking about nickel coax down at the corner store. But
• 9:11
  Speaker 1: that that's an extraordinary example of how far we've come
• 9:14
  Speaker 1: to get five and a quarter percent today. And fixed
• 9:16
  Speaker 1: income you have to own non investment grade debt junk bonds.
• 9:19
  Speaker 1: So a little less than ten years you've gone from
• 9:21
  Speaker 1: money markets to junk to earn the same amount of return.
• 9:24
  Speaker 1: That's a pretty telling statement about how challenging it is
• 9:27
  Speaker 1: for investors today. Coogog overseas equity market. You started your
• 9:30
  Speaker 1: career as a portfolio manager looking at European stocks, at
• 9:34
  Speaker 1: Asian equities, So do you see buying opportunities in those
• 9:38
  Speaker 1: areas of the world selectively? And and and Kathleen, more
• 9:42
  Speaker 1: often than not in the shares of multinational companies that buy,
• 9:46
  Speaker 1: if you will, historical accident happen to be located in
• 9:50
  Speaker 1: a certain part of the world. But but really, who
• 9:52
  Speaker 1: do not respect any geographic borders when it comes to
• 9:54
  Speaker 1: pursuing clients and pursuing business growth? And and I believe
• 9:58
  Speaker 1: as an investor we should look through the geographic borders
• 10:01
  Speaker 1: as well and looking for opportunities. So there are fewer
• 10:04
  Speaker 1: and far between, and where we find them, it's more
• 10:05
  Speaker 1: in the multinational sector. Do you have any thoughts on
• 10:08
  Speaker 1: the US dollar right now? You know, I've got colleagues
• 10:11
  Speaker 1: who pay opportation and that mark chancel, you know, mar
• 10:14
  Speaker 1: in terms of what it means for corporate profits, because
• 10:16
  Speaker 1: I keep hearing this thing, well, you know the reason
• 10:18
  Speaker 1: that they're having trouble selling things overseas is, you know,
• 10:20
  Speaker 1: the dollars too expensive. I I generally, I think that's
• 10:25
  Speaker 1: more of an excuse than a reason. When you actually
• 10:27
  Speaker 1: open the hood and look below the hood of what
• 10:28
  Speaker 1: companies do. They're either operationally hedged or they're financially hedged.
• 10:33
  Speaker 1: So it's it's a handy reason for I'm gonna be
• 10:37
  Speaker 1: cynical now for a CFO to explain away a quarters miss,
• 10:41
  Speaker 1: but I think it's more excuse than it is a
• 10:42
  Speaker 1: reason more often than not. Thank you very much, much appreciated.
• 10:47
  Speaker 1: Scott Clements is the chief investment strategist Private wealth Management
• 10:51
  Speaker 1: for Brown Brothers Harriman, helping to manage nearly twenty seven
• 10:56
  Speaker 1: billion dollars of customer assets. You're listening to take king Stock,
• 11:00
  Speaker 1: I'm pim Fox my co host Kathleen Hayes, and we're
• 11:03
  Speaker 1: gonna take you through to the close of trading right
• 11:06
  Speaker 1: now on taking stock on Bloomberg Radio. H