Homebuilders Still Favorite Cyclical Sector Pick In 2018: Kudla

and he still favors the home builders. Let's find out what David Coudla has in mind when he's the founder and the chief executive officer and chief investment strategist for Mainstay Capital Management, helping to manage more than two billion dollars of assets. He can be followed on Twitter at David Underscore Kudla. That's k U d l A. All right,

David Underscore. Let what's your thesis on home builders. Well, we still believe that there is the long term secular story, there's the cyclical story, and we're running through the event driven story that's driven up um some of the sales and home building here recently and with some of the suppliers home d polos that are facilitating the you know, the rebuild and so forth from the hurricanes. But if we look at where we are in the cycle and

where we continue to set new records. You know, we had a tenure high in September on new home sales, continue to grow in October and November. We've got new housing starts for single family homes at an expansion high, existing home sales at an expansion high, the housing market

index as an expansion high. Really, the home builders are firing on all eight cylinders, and we think that continues as we move into because we think we have a continuing a robust build cycle, economy that's doing well, and with tax reform economy that could even be doing a little bit better. All right. Having said that, if you've got an investment that has returned six a year to date, wouldn't you take some of that off the table and

just wait in pim. This is you're always asking me this one because no one ever tells you went to sell. And I understand that you make your money when you actually buy the investment, just like you make your money in a house when you buy the house, although you don't think that way when you do sell. Mm hmm, Well, we see that, you know, When we look at where we are in the cycle, we're about just about through mid range the home builders, UH from peak to trough

or maybe halfway through that expansion. And we're coming off a significant low from the Great Recession. So we see that there further to go as long as we still have a good economy. UH, there's pen up demand for new homes. We have UM the current supplies only three point four months of inventory, which you know it is still a strong seller's market. So we we want to

continue to stay with this sector. Okay, So that if you're invested in the I shares construction, I believe it's the home construction E t F I t B. That's the calculation I was doing increase so far this year for for I t B Okay home builders that gets a gold start. Tell me about investment opportunities in places

like Europe and Japan and emerging markets. Well, when we look at where we are in our cycle here in the US, UH, the economy doing what we think we'll do well until next year two and a half to three percent growth. We have very strong earnings, but we're at when we UH look at a a ratio that

we use more and more in this industry. To KEPE ratio sickly cyclically adjusted price to earnings ratio UH, we'd about thirty one, which is about a sixteen year high versus when we look at emerging markets and Europe and some of the other areas of the world, we're at fifteen to twenty, so they're more attractively priced. But even more importantly, we're seeing UH robust growth in those areas now GDP improving economic data, improving earnings improving UH and

unemployment coming down. You know a data point that just came out November, US exports were up ten point three that's the fastest pace in six years. And what that speaks to is what is going on around the rest of the world. We talk about synchronized global growth. That's compared to two years ago when our exports were down

ten percent. So that's what's happening in emerging markets, in these developed markets, and how well those economies are moving along now and what they will translate into in terms of opportunities in their stock markets. Is it possible that some of that export strength could be the result of an eight percent decline in the value of the US dollar against the g ten partners. Absolutely, absolutely, that's part of it. Will that continue? Uh, I think that we

continue with some dollar weakness. We don't see the dollar strengthening significantly against the dollar index against the Euro. We think we continue with dollar weakness. Okay, dollar weakness. I want to ask about one particular investment idea, the Colombia India small cap e t F. What is it that draws you to it? Uh? It is that we like emerging markets and that we like the opportunity of small cap companies in emerging markets. UH, the in India being

one of those. And there's any specific reason. I mean, you know you like it. I understand that other as you wouldn't buy it, But I mean, is there some fundamental reason why this particular one or why you like small caps in India? That it's the transformation the economy what uh Prime Minister Modi has been doing there and transforming the economy. They're going through literally transformational change, and

we've seen that translate into opportunity deregulation. Opportunity specifically in small companies is evidenced by the rise we've had in that e t F during our holding period. In certain over the past year, the arc web x point O e t F. It is uh, well a conglomeration of of tech companies. You've got Tesla, Netflix as well as

Twitter and Bitcoin Investment Trust. Still like this. We do, in fact that when we look at the technology space, because you often hear people say they like technology across the board. But we've seen a peak in in chip sales, We've seen uh, some areas that aren't doing as well in technology. But when we look at e commerce in the Internet, that is an area where there's a second or growth story that continues, uh, not only domestically but abroad.

And we think that's the real opportunity in the reason that we like specifically that E t F A r k W. Well, the shares of A r k W they're up nearly eighty eight percent uh this year. All right, David, here's your chance to fall on your sword. Was the one mistake you regret in investing over the last twelve months? Oh,

that's easy. I wish I would have loaded up on bitcoin twelve months ago, really, or or ethereum or light coin or Ripple or the list goes on and and obviously that's an easy one in hindsight, but certainly there there was you know, in terms of an outsize gain,

tremendous opportunity there. But um, if we bring it back to just the markets in general, uh, probably that we didn't uh significantly overweight large cap growth even more in terms of our portfolios from a tactical standpoint, because large cap growth dominated in We've got to leave it there. Thanks very much and happy New Year to David Kudla, Chief executive chief investment strategists at Mainstay Capital. A new question is what did you watch on Facebook last night?

Shira Oviday is our Bloomberg Gadfly columnists. She covers technology and can be followed on Twitter at Shira Oviday s H I R A O V I D E S. Yeah. I tried to get through all the details because it's kind of tough, you know when you just say it. But maybe Facebook is going to take care of that because everyone can be the star of their own TV show with Facebook can't take yes and no. So Mark Mark Zuckerberg, sorry, the Facebook CEO, has said for a few years now that he believes web video is the

future of Facebook and the Internet in general. And you can see that right if you look in your Facebook feed. Now, odds are there'll be a lot of web videos and there, whether you like it or not. And so a few months ago Facebook um basically change strategy a little bit, or added a strategy to its web video initiative. It started this new tab that's called Watch that is basically trying to be more of a TV like destination where it has longer form videos, things that are more like

the kinds of shows you see on cable television. And Facebook hopes you go there, you hang out, you chat with your friends about Hey, it wasn't this a really cool video about some surfing program. And they're trying to build both community and grab more of our time. All right, they're trying to grab more of your time. They've got someone who's trying to well coller you, right, is a Fiji Simo. Who is Fiji Semo and maybe just describe what her challenges, right, So Fiji Simos profiled in our

sort of gadfly Year in Review pieces. She is the vice president of product at Facebook. She's been there about eight years and she's responsible for some of the most high profile and issues at the company. She was hired at first to sort of help them expand their ads on smartphones, which is basically the most important innovation at Facebook in the last decade. And now she's responsible basically for all video in Facebook, including this new watch tab.

And look, it's a big bet for Facebook that they're trying to become a little bit more like TV, get more of our attention, get more of advertisers money, And it's not going to be an easy thing to do. And she's kind of at the center of all this. But Facebook has tried this previously, right, with a different strategy. Right. So, if you listened to people like Mark Zuckerberg last year, the only thing they talked about was live video that they wanted people like you and me, pim uh, celebrities

like the chef Gordon Ramsey, news organizations like CNN. They wanted everybody to broadcast videos live on Facebook. The famous example being there was a you know this mom, but Chewbacca mom she was called, who put on this kind of toy Facebook sorry toy Chewbacca Star Wars mask and basically posted a video of herself live, cackling hysterically as she wore this ridiculous mask, and it was this viral hit.

And those were the kinds of things that Facebook couldn't shut up about last year, and this year nobody talks about live really. I mean I'm exaggerating slightly, but it does seem like, I don't know it can control it. Well.

I think that is part of the issue. So in addition to things like Chewbacca Mom making the headlines last year for Facebook live video, the other things were people broadcasting live videos of violent acts, including this guy in Cleveland who murdered people and basically broadcast live his confession on Facebook. And these were the kinds of things that alarmed people, certainly outside of Facebook, that you've created this live video platform that gives people an incentive to broadcast

the worst of humanity and get attention for it. Um And maybe they found that they couldn't control something like

live video. Based on your reporting and speaking with your sources, do you believe that Facebook understands the responsibility that they would take on if indeed they could be held libel for these kinds of things being broadcast on their net are I think there has been a slow awakening inside of Facebook the last year or so, just understanding how powerful their platform is to shape what people think, what people read or don't read, the views that get sent

out into the world. Um, I think Facebook initially didn't understand the ramifications of what they were doing and maybe didn't think about the potential downsides of things like Facebook Live in advance. And I think that's starting to change slowly and reluctantly. But there's also no easy solution for Facebook. What does it do? Does it ban certain kinds of posts? I don't know that we want Facebook being a sensor either,

So they're really in a tough spot. But yes, they are recognizing that they have responsibility for this powerful platform that they created. Yeah, you're not allowed to shout fire in a crowded theater, right, I mean, there's got to be some kind of incentive or some kind of punishment if you do those kinds. And look right now, Facebook, and and this goes for Google and others too. They're mostly self policing. They're creating the rules of the road

on their own Internet services. And the question is and changing them and when they want changing them at whim, when it feels like it needs when they feel like they need to absolutely, And the question is, will regulators in the US or Brussels or other countries around the world start to demand um start to basically impose more order from the top on these companies, and they certainly

don't want that to happen. I would say, also, never mind governments, what about advertisers, because isn't that really the only way that Facebook makes money is selling ads. Y of Facebook's revenue sorry, comes from advertisements. So it is definitely true that advertisers collectively are a powerful voice on Facebook.

And you've seen them both on Facebook and places YouTube basically revolt when it's become clear that those platforms have made bad decisions that you know, put their commercials next to terrorist videos and things like that. Um And and that does spur change at these companies because it affects them in their wallet. Yeah, well that would that would certainly get their attention. And Facebook has also run up against these kinds of issues when it comes to politicians

political campaigns. They even send out people to teach those political operatives how to best use this platform to their own game. Yeah. And I think our colleagues at Bloomberg News have written some great stories in the last few months about Facebook's role in helping political campaigns, including in places like the Philippines, UM where maybe we don't want the government of the Philippines being smart about how to use Facebook to manipulate the electorate or to harass critics

of the administration. Right, So, look, all these tech company is Twitter, Google, Facebook, They do help political campaigns and political leaders, um, understand how best to use their platforms, and that goes for journalists to write. Facebook has a large organization that helps journalists figure out how to disseminate

their stories on Facebook and other places. Um. But yeah, there's a big difference between helping journalists circulates stories and helping candidates figure out how to tailor their messages and helping dictators in places like the Philippines. Indeed, thanks very much, Shira over Day, Thank you very much our Bloomberg Gadfly calumnist all things Technology. You can follow Shira on Twitter at Shira over Day and Happy New Year too. Always

a pleasure. Small business is in the United States. They make up nearly ninety nine percent of US employer firms of net new private sector jobs nearly fifty percent of private sector employment. However you look at it, small business is important and crucial to the health of the U S economy. Karen Mills is a Senior Fellow at the Harvard Business School and former Small Business Administrator Small Business Administration for the SBA for under President Barack Obama from

two thousand nine to two thousand thirteen. Karen Mills, thank you very much joining us from Boston. You can be followed on Twitter at Karen G. Mills. I am happy New year to you too. Let's talk about a small business and the tax overhaul plan. I wonder if maybe just start with one aspect of it that is related to the A C A Affordable Care Act, and this is the individual UH mandate. Is there anything in the bill that would change the way small businesses have to

UM offer or provide for the health insurance of their employees. Well, I'm glad you started with the tax bill, but overall, so now that I'm a faculty member, I did end of year grading on the Trump administration and UM. The total report card is three season a D. But one of the seasons for taxes UM, the health care pieces, you know, was sort of tagged on there for political reasons.

And it's really too bad because it turns out that about four million people in the Obama Care UM markets are small business owners who are buying individual coverage, and we don't know what's going to happen, UM, because we don't really understand the impact of the mandate taking away the mandate on pricing. But in the last two years there was a JP Morgan study that came out this year that said it has gone up very little for small business owners who are buying on the individual marketplace,

So it is possible that that will go away. Very few small businesses, I think, will um choose not to buy coverage when they had before because their their employees are going to ask for it. And we're in tight labor markets now, and if employees aren't getting health care coverage, they're going to switch to a place that gives it

to them. So I'm not sure that uh, this was worth doing and what it accomplished, Okay, And I don't want to get into too much about the mandate for individual health care, but a lot of it I know had to do with the cost, the premium cost and then the high deductible. So they had some cases in which people looked at how much it was going to cost them to get health and show earns and they said, you know what, if my deductible is going to be

five thousand. Why am I going to buy health insurance for something that I don't believe that I'm necessarily going to use. I really just want a catastrophic care. Is that? I mean, that's at least the other side of the argument correct. Well, as long as you know, it's up to an individual what they're gonna buy. But if they don't buy any health insurance, that puts them and their employer at risk. Because an employer a small business like a family, and if one of your employees get sick.

I had small business owners tell me they went out of pocket themselves to help them. So employers want to provide health insurance because if somebody gets sick and they're not covered, it's everybody else that pays. So I think what has happened is that people actually have gotten used to Obamacare. You saw in a very short enrollment period we had nine million people sign up, more than anybody expected. So I think what's going to happen is that we've

got a solution. I think people are still going to use it. All right, let's focus now on another aspect of the tax over how you mentioned family businesses, and I'm wondering if the increase in the ceiling for estate taxes will have a positive effect for for those kinds of uh financial you know, organizations. I mean, if you're running a small business or have a business that has a high level of assets that are going to be valued upon death. Will won't this be beneficial? You know?

I think it actually will be beneficial. I'm all for family businesses. I think that this is an important part of you know, the American heritage, and that people UM have said that they want to be able to pay the tax once not twice. And the state tax is UM is pretty tough tax. So I think this is going to um be helpful to small businesses. Another piece, by the way, that's helped fill is the accelerated depreciation UM.

It's an unusual sort of technical bit, but we did it twice during the Obama administration, and we found that actually did encourage people to buy a truck, you know, to buy some equipment, and that creates more jobs. Right, do you get to write it off much more, much more quickly? Just a quick question to you, if you could redo any of the grades that you gave you said the three season a d anything you could do to increase the great average gives well D is for dealmaker.

Trump has not proved to be a good deal maker. And there's so many deals on the table here in regulation reform, UH, in infrastructure, in giving tax breaks for training or having employers pay for college. He really missed a big opportunity, UM to do bipartisan deals and bring this big business to the table, to do things that fundamentally helped our economy. One of the season is for UM the economy as a whole. Nothing here structurally changed.

What's going to happen going forward? So when you predict for how are we going to have an economy that really grows without some structural change, well maybe the grade will improve. In from Karen Mills, Senior Fellow, Harvard Business School, thanks for being with us. We know that millions of people are going to be gathering in a Times Square in New York City for the ball drop to US Shore in the new year, and also are all around the world. People will be gathering in groups to share

the festivities. One thing that they will have in common in addition to looking to is security, and by some estimates, the physical security industry globally could end up being a two hundred billion dollar market. Here to tell us a little bit more about the security and the industry itself is Lou Palumbo. He is the director of Elite Intelligence and Protection. Lou, Happy New Year to you. You're going

to be in Times Square. I understand, yes, this is about my consecutive year I've I've had the pleasure of supporting various clients in Time Square for the News Eve celebration. Okay, So over the course of your career, I'm sure you've seen some big changes to security. What are some of

the ones that you can highlight for us? Well, clearly after nine eleven and on the heels of these UM, I would say, rather commonplace incidents throughout the world and now our country, we've seen seen an increased presence of law enforcement, especially in the form of practical units. Post nine eleven, they began to implement what we call high pointment and observers, which are snipers. I'm not divulging anything that the Police Commissioner O'Neill hasn't already spoken to UM.

We've seen the perimeters pushed out, choke points hardened, UM, increase of overall deployment for this for this event, UH taking control of the subways, shutting down garages, and proximity of times square welding the caps for the streaked guests is to escape from corn ed. We've done everything, removal of garbage pails, post office boxes, everything you could possibly imagine that could represent some form of a delivery system for a device or even an individual. So we've seen

consistently post nine eleven, a continuous hardening of target. Now, this hardening of targets, it comes with a cost, right absolutely, you know, and I know people ask me all the time about that. You know, what's the budge it like?

And my response to them is the budget is rather fluid because based on an event or or an episode the week before or even the evening of could change the entire approach of a law enforcement agency, not just locally but through our federal agencies and the intelligence community. And what I say to people is, how do you

monitorize the value of someone's life? You can't. And the thing I do want to say, which I think people should be mindful of, whatever the amounts of money that are being allocated in budget to secure these events, whether it's Sat Patty's, they parade, the Halloween festivity on October thirty one in Lower Manhattan uh St Patrick's Thanksgiving Time Square. The police department seems to have a formula that they've been able to put into place that we have not

had an incident. So I know that there's a lot of money involved, as we know just listening to when President Trump comes into Trump Tower, they estimated a million dollars a day. It's hard to give a definitive number, but whatever of that number is, it seems to be the right number because they seem to have the deployment down. They seem to have the perimeter properly constructed, and I don't mean just from north to south and east to west,

even vertically. They have this down pretty much pat and there's no other police department in the world that has the ability to do something like in New Year's Eve deployment because of the thirty seven thousand sworn officers they have in the city lou We understand and and UH of course are grateful for all of their efforts, and not only in New York, but around the country and around the world. You have law enforcement officials working and

during these times to secure the environments. Is what do you say though, if someone comes back and says, look, these threats that you are guarding against, they are they may be threats against specific areas. In other words, as horrible as a potential attack might be, it is not going to cause the country to come to a complete stop. Even we found that even with nine eleven that the

country rebuilt itself and went on. Is there a point at which you would say, gee, we want the news media, let's say, to offer less publicity to the people that perpetrate these things, because it's not a physical attack that's going to cripple the economy, but it it becomes a

psychological attack. Yes, that's correct. And one of the mechanisms that prevents the psychological attack from overcoming the citizens of this concert country or the residents of the state and city of New York is the reassurance that law enforcement is going to provide a safe and as safe in an environment as they possibly can. So I go back and say this again. You know, you know, I I live by this philosophy error on the side of caution, and that's a lot of what law enforcement does as well.

And I repeat to you again, whatever they have implemented as far as planning and methodology, it's working. So I don't know if there's a criticism, if that's what I'm sensing that can be made, or a question. No, no, it was. It wasn't a criticism of of their efforts. It was what can the non law enforcement officials or even just regular people give you that tensecon What can regular people do in order to support all of your efforts. Basically, the first thing is if you see things that are

out of the ordinary, report at number one. Number two. Try to develop this concept what we call situational awareness. If you see individuals that are acting out of sync in your environment, or packages are left or begs, please report them immediately to a local law enforcement agency. In addition, I would recommend that everybody abandoned the practice of sticking earbuds in their ears, which is kind of commonly done. It's how we unestize ourselves to a lot of points.

Good point, Lou Palumbo, thank you very much, and happy New Year two, Director of Elite Intelligence and Protection about Security on coming up New Year's Eve celebrations. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever. Podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramoits one before the podcast, you can always catch us worldwide on Bloomberg Radio