Fiduciary's Andersen Assesses the Trump Speculation Premium

Thanks very much for being with us, Peter, all right, here's the scenario. SMP five hundred is up more than on a fifty two week basis. Forget this three month stuff. Let's just say rolling one year returns. Um, how do you extract some of your profits safely? Uh? Even as an institutional manager? How do you extract some profits safely?

And where do you redeploy? If you say, all right, there's no reason to uh think that you've become a genius, well, you know the best way to navigate through uncertain times them is to commit to sound principles. So I think what the heart of your question really is going forward with all the uncertainties that we have right now. What is the best way to stick to your principles if you have set them early in your investment horizon, and

do you make changes in midstream? And given that there are so many uncertainties and we're having so much difficulty, uh discerning facts from what I would call pure hopes, that this isn't really the time to make major changes given where we are what I would call in this you know, the phases of the Trump administration. You know, Peter, I think a lot of people would probably agree with you, which is the reason why we're not seeing a lot

of direction in stock or bond markets recently. Given that backdrop, are you stockpiling cash, You're preparing for better liquidity when there is some kind of uh reality or facts that come out that uh, that's for for people to actually, well, let me answer it this way. You know, what we try to do is we go back to basics and we say, look, there's a baseline right now. You always have to focus on what do you think the baseline is for say, US equities, and then you take an observation,

you say, where is the SMP right now? And you have to discern what is the difference between where your baseline is. So, for instance, most people would rationally say the SMP five D is going to return anywhere from say six to eight percent annual lives in a year. However, as Pam was saying, when you look at what the return is now the SMP five, you have to account for what is that giant gap between what you would

say your baseline is and what you're actually observing. And the large extent of that, in our opinion, is what we would call, you know, the Trump premium, the details of the future tax reform, infrastructure, all that, and you have to get a sense of is that a reasonable premium? And if it is, I would say you stay with your program. If you determine that the premium is you know, overvalued,

then maybe you take some chips off the table. But for our measurements right now, we think as long as you're diversified and you do have reasonable exposure in the SP I think you stay the course until you get more data. Before you get that data, tell us one level down industry groups and specific cases if you can,

so that we learn what exactly you're talking about. Yeah, okay, well, first off, let's just talk about how about even fixed income, investor grade fixed income that's been getting a bad rap recently because him most people think it's the equivalent of asking to put your hand into an open flame, right when the FED is an a rising interest rate environment? And why would we stay in an exposure to investment grade fixed income? And I think the answer overwhelmingly is

because it acts as ballot to the portfolio. So while you can have debates about our spreads, um you know, valued fairly, what will happen when rates rise? We still advocate staying in fixed income to a certain degree in case things don't go all the way everybody is expecting and you want to have something that will most likely

are outperform in a disappointing environment. Well, in fairness, just to give a sense of what the market, the investment grade corporate bond market has done, it has been an unprecedented quarter first quarter of investment grade bond sales in the US, and the debt has preserved its value, actually increasing by one point four uh in that first quarter even with all of those sales. So it seems like

a lot of people, Peter do agree with you. I want to just get your thoughts on a front page story on the Wall Street Journal this morning talking about a new posal at the FED to do two more rate hikes this year and then begin unwinding their balance sheet in a in a gradual process. My first impression was this would be incredibly disruptive, particularly it's the longer dated debt. What about what about you? What was your reaction? I think it is and you know, I think it's

a little bit premature. I was somewhat surprised that that was reported on given where we are right now, Lisa, it seems to me that, uh, even with the rate hike, when you see how the tenure has done, I think it is surprising to most people where it began and

where it ended in a rising rate environment. So to actually project that we're going to have two more hikes and then the unwinding, that's a lot of things have to go a certain way in order to hang your hat on that, and then to make investment decisions based on this, And you know, this chicken little mentality about bonds is not appropriate when you think about diversified portfolio. So let's assume there are even more multiple hikes. I would still argue that unless you're a pure speculator to

have a balanced portfolio. You still, you know, we're not always right, as we know, and you do have to have fixed income in case you are wrong. Well, and just to be clear, the direction of rates longer term rates has been down as the Federal Reserve raises interest rates in the shorter terms. So this has been sort

of the surprise going forward. Do you think that this will continue, That we're going to see a flattening yield curve, We're going to see this sort of lower growth expectation within the bond market despite all the hopes that we've seen reflected and stocks, well, let's just talk about and here's uh, let's separate the facts from the hope. So what we know for facts right now is that there have been two travel bands attempted and they've been forwarded.

The health care reform has not been successful, and now we're seeing the NAFTA. You know, the preliminary disclosure of that seems to be I would say most people would would agree that it's it's less, it's been blunted, it's not as aggressive as it has been. So you have to factor that into the sense of did we get ahead of ourselves in November and December, thinking that all this was going to be easily accepted and reflected in

the fixed income market is rising rates. I think now what people are saying is, now that we have some data points, let's project the success of tax reform infrastructure, and maybe we've gotten a little bit too optimistic, and in that case rates might actually slow down, given that the Trump administration hasn't been as successful as people that had originally fought back when he was elected. Peter Anderson,

thank you so much for joining us. A pleasure to hear what you have to say, Chief investment officer and vice president at Fiduciary Trust, coming to us from Boston. Definitely the conundrum of the time, which is who is right this sort of incredibly enthusiastic stock pickers or the

pretty parish, persistently barish fund investors. Well, Lisa Abrama's everybody wants to know how many times the Federal Reserve will raise interest rates, and since nobody knows, we try to find people let at least have some thoughts in that direction, and Holly List is one of them, Managing director of Futures and Commodities Group for b t I G, joining us from Chicago, Holly, thank you very much for being on with us as always. You've been recently quoted as

saying the f O m C is like a US. Uh, well, you said air for you know, air carrier, Um, what do you mean by that? And and maybe tell us who you're following in that convoy. I'm following myself and that in that statement. I just think that they're slow to move. They tend to make a decision and they stick with it. Now we've seen over the past couple of years they've raised once per year. They raised first in December, they raised again in December, ones they just

raised again mid March. Now that's not to say that they're only raising once per year, but I think they tend to move on a course of action, and they don't tend to change that decision rapidly or tend to stop that decision and reverse course. So I don't think that they're certainly moving to ease anytime soon. I don't

think we've moved into that direction. But I don't think that they're necessarily accelerating at this point either, And I don't think that they're going I don't think that the economic data has shown us that they necessarily need to raise four times per per year, although we have seen a couple of non voting FED members have said that they think that they're going to that they should be raising four times per year at each meeting this year,

which would imply most likely every other meeting, which is when we get a press conference out of FED share yelling. So I don't necessarily think that they go from one hike per year to four hikes per year, which would certainly be a change in direction out of that aircraft carrier. Yeah,

at that aircraft carrier, I love it high. You know, last week we heard from a lot of FED members, and one of the dominant themes was that there is a pretty heated discussion going on right now at the FED about shifting policy from rate hikes to curtailing the balance sheet and sort of not reinvesting all of the proceeds that they're earning from their holdings. There was a story in the Wall Street Journal today talking about how the FED is thinking about possibly starting that unwind later

this year. How disruptive do you think that would be? Well, I think if they don't give us any advanced notice, that would certainly be disruptive. But probably the least disruptive of it. Once they start giving us some advanced notice about how they're going to re be reducing their balance sheet would certainly be a reduction in I shouldn't say a reduction in, but certainly not reinvesting the proceeds. That would certainly just be a reduction in the balance sheet.

By letting those proceeds not be reinvested, it would just be a natural reduction. You'd be using the money they returning it to the treasury, just not be reinvesting it. It would just be a natural decline in their balance sheet. Use the money for something else or just returning it to the treasury, and and that would just reduce it. They'd give us some advanced notice and that we would all just know that the balance sheet is going away. I mean it started at a trillion, now you're up

to four and a half trillion. If they didn't give us advanced notice, that would certainly be a different story. And maybe if they also gave us some advanced warning about what portion of the balance sheet maybe they would let run off first. Maybe that would also give us a better inclination about where it would be. As you know, we all had that paper tantrum years ago under Bernaki, and that would certainly exactly and that was sort of, uh, not an advanced warning. And so we had that tantrum.

But if they gave us some advanced notice, that would be a little bit better for all of us to get used to that. And that would certainly be a type of hike that we wouldn't necessarily need them to raise rates as aggressively. And and so that could also be the type of tightening contraction that we wouldn't need additional rate hikes. So you know, at the end of last year, after the U. S Election, a lot of analysts were saying, look, we know we've been wrong about

the direction of interest rates. We know we've been wrong about treasury yields, but this time we really think something is different. Yields are going to rise materially given President Trump's plans for infrastructure spending and regulatory cuts. Now at this point do you hear from analysts and people you work with, Well, maybe it's it's the same scene. Maybe we're looking at the exact same picture as we were earlier last year. Uh, just some of the furniture has

moved around. Well, and it's interesting because we haven't heard that that rates have to rise. They are on a tightening cycle, and certainly some people have put line in the sand two point six percent that to the long term bear market we've seen basic the long term bull market we've seen since n that will be over and

we haven't seen that. And we've gotten as close to to sixty as you can just within the past month, and we've certainly turned around since then, so it doesn't necessarily have to be I mean, the markets are gonna test that resolve very frequently, and we've certainly been up at to sixty just within the last month, and now in ten years, we're back to the bottom end of that range that we've seen over the past four months,

just within the past couple of weeks. So just when you think it's gonna get bad, it sort of turns around. And I think that's what we're seeing the past couple of weeks and the data, Lisa, we haven't seen it be as strong as it could be, and so I think they're testing the resolve of the federal Reserve, they're testing the resolve of the markets, and even if you look in future space, we had a lot of investors

and traders be very short the treasury curve. They were short treasuries from two years on out to the ultra bonds, and now they've used those short positions fairly dramatically over the past few weeks, and I think that's telling you the marketplace does not see as significantly strong dad as

they did just a few weeks ago. Polly, as a managing director of futures and Commodities, can you tell us about gold, Well, you've certainly seen it move around a little bit, but it hasn't gotten as strong there were. There was just recently where people were talking about it hitting two thousand dollars and now we've backed off of that level. So I think if we're going today, yeah, and if you were going to see inflation, I think you would certainly see it higher than we've seen it recently,

and you haven't now the Fed. One of the Fed's favorite inflation numbers is that core year over year PC. It has been well below the two percent level that they'd like to see it. And I think if inflation was going to percolate almost where the FED would like to see it, closer to that two percent level, I think you would see old being moving higher, and we haven't. For me, I like to look at the techno goals and right now that twelve seventy one, now you're within

fifteen sixteen dollars of it. But until it gets above that twelve seventy one level technically, and for me, it would need to sustain above that level for at least a couple of weeks, then I just don't see the inflationary pressures percolating in the gold market. Polly Less, thank you so much for joining us. Holly Less is Managing director of Futures and Commodities at B T I G

in Chicago. Thanks again for joining us. We're gonna take a little bit into the numbers that we've been getting out of GM, Ford, Fiat Chrysler, disappointing sales across the board. UH car sales are plunging despite the fact that these automakers are discounting their vehicles more heavily. To a little bit more perspective on how significant these declines and these disappointments are. I want to bring in Kevin Tynan, senior Auto's analyst for Bloomberg Intelligence. Kevin, what stands out to

you about this about all reports? Yeah, well, I think. I think the auto consumer is probably exhausted. Um. I also think that c March is a funny month, and that if the weather and parts of the country is particularly bad in January February, March can be a strong month. I think we saw some bad weather at least here in the Northeast late in March, which probably will delay things into if there was more significant demand. Wa wa, Kevin,

Hold on a second, you're blaming the weather. I think that a lot of people have been expecting for a long time. We've seen cooling demand and the fact that people are tightening up their credit conditions, that they're this lending standards. No no, no no, not just let it happen, Kevin, let it happen. I'm just saying that some of what would have happened in March might just slip into April when we get uh tax rebates and tax returns are filed. Uh So, I I agree the consumers probably a little

bit exhausted here. I think incentives an inventory are running high. We'll probably use the next couple of months to bring

that down in line. But on the other hand, I think that the the downturn in demand will be good from if you look at the stocks of these companies and that it will be a little bit of a test, a little bit of a stress test to see the work that has been done, you know, the cost rationalization post two thousand nine, to see where these companies come in in terms of operating profit in a period of

less than spectacular demand that we've had recently. Well, looking at the stocks right now, Fiat Chrysler down four Look at General Motors the shares are down three and a half percent and Ford Motor down two and a half percent. Is that enough? Um? Probably not? But I think, like I said, when you see earnings, you know you're gonna be talking about a run rate on operating income. You know, for General Motors will be in the two billion dollars

of quarter range. You know. So, so is that warrant that kind of downturn or does it warrant something like you're seeing at Tesla five and a half on on twenty you know on on the news that they're going to hit a hundred thousand units globally in a year. You know, at this rate, so UM, I think there's some disconnecting the valuations there, obviously, But I think what it'll do for the General Motors and Ford and FI.

Crisis of the world is to show that they can still be profitable when demand is not just constantly ramping up and ramping up. Okay, Kevin, I'm before we moved to Tesla. I want I want to just keep going a little bit on the GM and the Ford and Chrysler. Yes, this could be a little bit of a stress test, but by all accounts, this dynamic could only get worse given the fact that a whole slew of leases are are set to come up, and that will basically flood

the market with supply. On the secondary market, decrease prices create bigger losses for some of the financing companies that are they have been fueling this auto purchasing boom that we've seen in recent years. I mean, how can this how can this be a stress test if potentially will only get worse from here. Well, yeah, you're gonna see a lot of off lease vehicles. When when you when you think about that though, if you think about the

registered vehicles in the US alone, we're million vehicles. There's gonna be five million coming off lease. So is the market big enough to absorb that? Yeah, it certainly is, and we're talking about a run rate of seventeen seventeen point five million vehicles. So the new vehicle market will certainly have to react in terms of pricing and or volume to UH slightly more robust in terms of units pre owned market, and I think it will. I don't think it's the end of the world in terms of

pricing for the industry. In fact, I would say that it's an opportunity for those dealer groups that are focused on the pre owned market. I think you're getting a lot of late mileage I'm sorry, late model, low mileage, high tech vehicles coming back off of lease, and it may just cause an adjustment in the new vehicle market, but I don't think in that, especially at retail, it's necessarily a bad thing that the gap between the two. Right, we look at the affordability gap and it's gotten way

out of control. New vehicles are averaging transactions of thirty five thou dollars, and with more used vehicles coming back, those prices will have to come down to to maintain that gap. That's a little bit more reasonable. Hey, Kevin, you mentioned a hundred thousand units at Tesla UH. Tesla stock is of five and a half percent. Just do the comparison, let's say Tesla versus one of the big three. So we got the perspective because the stock certainly isn't

telling you that today, right. So if you look at let's take a measures like market cap, where Kuzla is in the Ford range coming up on General Motors arguably, uh, you know, a couple of billion dollars away there. And if you were to look at Ford six million units globally and off the top of my head, somewhere in the range of eight billion in operating income last year, General Motors was ten on roughly nine plus million units.

So you're talking about a hundred thousand units with uh no profitability and cash burned comparable in terms of market cap with companies that are doing six to ten million units and six to ten billion in operating in globally. And I'm just perfect, that's perfect. You did it in exactly the right amount of time. To Kevin Tynan, senior autos analyst for Bloomberg Intelligence, I want to turn to a Senate Judiciary vote that may happen within the next

few hours. Senators are considering denomination of Neil Gorsage to be the new member of the U. S. Supreme Court. We're hearing things about nuclear option. We're thinking about is there going to be a filibuster. To give us a better sense of what we can expect to hear about. Kimberly Robinson joins us now. She's Supreme Court reporter for Bloomberg b n A and is currently in Arlington, Virginia. Kimberly,

I want to start with the nuclear option. We've heard a lot about Democrats that do not want Neil Gorsie to get confirmed. What is the nuclear option? Well, the nuclear option is really just a way to reinterpret Senate rules so uh that they can stop a filibuster and put it forth or vote on the candidate um with just a simple majority um, which currently Republicans have. Now, is it possible that they will be uh going through this exercise in front of the television and the public.

I mean, will this vote be carried live to the point where it's going to be some uh end, you know, down to the wire. Well, we actually have several votes that um will be televised. So today we're hearing on whether or not the committee will vote him out to the full floor. We expect that they will, so, given that Republicans have a majority on the committee and they

just need a simple majority to move him on. The votes that we've been talking about where these nuclear options might happen will come sometime later in the week, UM, probably on Thursday or Friday, and then we'll see about a final vote on his actual confirmation UM sometime likely on Friday. UM. So these will all these things we can all watch. Kimberly, what have we learned about how much support ealk course which has among Democrats. Well, it's

it's involving minute by minute. So just today, Uh, we saw from a handful of Democrats that Republicans are really trying to get on their side. Um. We saw one come out and say that she'll join the sylibuster um. So there hasn't been much support. Um. Only three individuals have come out saying that they or three Democrats have come out saying that they won't a filibuster the nominee. Um. Republicans will need to find five more and UM, it's

really going to come down to the wire. I think, alright, well, I guess I'll make for good for good drama. Is there any any thought to the repercussions if indeed the vote he is not confirmed. Well, there has been a lot of talk about whether or not Republicans can change

this rule because it has been such an important rule. Um. Music Senate is really known as a great deliberative body in part because they do things not by by a majority rule that they do in the House, but they need a number of minority votes as well to get past bilibusters. So this could really change things for judicial nominees versus Supreme Court um. And it could have the

potential to leak over to the legislative side too. Have you noticed a shift in rhetoric or tone after the health care bill that was proposed by the gop uh group was didn't come for a vote, right, Well, you know I did, and Um, we saw kind of some shakiness on whether or not Democrats were going to attempt the silibuster after the health care bills failed, it did seem like they were somewhat emboldened, and shortly after the committee here finished questioning gorstage, many of them came out

um and said that they were going to try and mount the silibuster, and it seems like they might be able to pull it off. What about on the Republican side, is there pretty much universal support for gors Yes, so this is something that is contrary to the healthcare bill. Here all Republicans support Gorsage and support uh getting him through without the filibuster. Are there other vacancies that have yet to be filled that you can tell us about? Well?

On the Supreme Court, No, this is the ninth seat. Um. However, we do expect that there there will be some soon. There are a number of Supreme Court justices who are in their upper seventies or eighties, so we had just made that they would retire soon. Um. So what happens this week with courses domination could have a big impact on on the kinds of nominees we see for those uh Supreme Court vacancies. What's the biggest argument that Democrats

have for not wanting him confirmed? Well, this morning we've been hearing a lot about how evasive uh the nominineal course, which was during the confirmation hearing, and uh so we heard UH Senator Lay say that he was being patronizing and excruciatingly um evasive in his answers, and he said that that really prevents senators from being able to determine his judicial philosophy and his cooler constitutional belief something that they think that they should be considering during this this

sharing time. Well, I want to thank you very much for being with us. Kimberly Robinson is our Supreme Court reporter for Bloomberg b n A, giving us detail about the ascent of Judiciary Committee to vote on Neil Gore, such as his nomination to the Supreme Court. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter

at Lisa Abramo. It's one before the podcast. You can always at catch us worldwide on Bloomberg Radio.