Michael Cuggino on Facebook: So Many Avenues to Monetize(Audio)

e t f SMP five hundred index lower. The Dow is higher little changed, up eight points now at eighteen thousand, four hundred eighty one. Nass Stack up thirty two points fifty one forty two, a gain there of six tents of one percent. Ten You're up fifteen thirty seconds with the yield of one point five percent. Gold now advancing eighteen twenty the ounce to thirteen thirty nine, a gain there of one point four percent. And crude oil Texas

Intermediate now below forty two dollars of barrel. It is down ninety nine cents to drop there of two point three percent. Brent crude down three point one percent. I'm Charlie Pellett and that's a bloom Bread business flash. This is jaking stock with Bim Box and Kathleen Hayes on Bloomberg Radio. His Permanent Portfolio fund is up more than

thirteen and a half percent so far this year. Michael Cogino is the president and the portfolio manager of the Permanent Portfolio family of funds, helping to manage approximately three billion dollars in customer assets. He joins us from San Francisco. Michael Congino, thank you very much for being with us. I'm great. So tell me about your performance in the context of Facebook. I noticed that that is a major holding of yours, in addition to some treasuries and also

some Swiss bonds. Yeah, Facebook's has been a contributor performance. And basically our assets strategy and Permanent Portfolio is diversification. We invest in a variety of non correlated different asset classes in one mutual fund. It's designed to reduce overall portfolio volatility, provide to be you know, lower bated as stock and bonds, and and also a lower volatility product

and so um. You know, we invest not only in US and non US stocks and bonds, but also commodities, precious metals, real estate stocks, UM and Swiss currency and Swiss government bonds as you mentioned, so pretty diversified. It's designed to UM seek to preserve purchasing power and grow capital over the long term, be a a grower, a preserver and a maintainer of investors capital at a rate

that exceeds inflation. So, Michael, what you just described as a portfolio that on you can see on the one end, Facebook, very little sensitivity if anything, to global central bank moves unless it creates a huge you know, roaring global economy or a huge recession. The other end, the Realist eight bonds, things that are very sensitive. So I just can't get you away with at least one question on the Fed

today at this point. Do you just say we're babar we were saying April or May, waiting to see if and when the FED races race this year and and focus on the fundamentals of the companies where you're invested, or do you think that there's something in this thing, this message today that changes that. Well, you know, a quick comment on Facebook, if they keep growing at the rate they're doing, building cash, maybe they'll become relevant to

central banks as a funding source. But all joking aside, Um, I think the uh, the we are sort of where we were a few months ago. I think Brexit is behind us. Um, the scary jobs number a couple of months back appeared to be a one off. Um, And so you've got stronger employment, you've got modern economic growth. I mean the FED statement that changes from the previous month were a lot more I think comforting in terms of economic growth. So clearly they're seeing signs that economic

growth is picking up. And whether that's sustainable or not is another issue because we've we've seen this movie before. But at the moment um, they clearly see an enhanced economic picture versus what they saw a month or two ago. Or maybe they saw it and they had too many questions with respect to labor and Brexit, which are now behind them. So I think again, you know, they may want to see more. That's probably why they didn't do

anything in July. Here there's been now speculation that they might do something around the Jackson whole time period of September. Maybe maybe not. Um, it's getting close to the election at that point, but you could still see it happening Um, I think December remains the most likely scenario. It still gives them a few months to see if there are any European issues, um, you know, the European banks or another question that could impact central banks, as well as

the potential stimulus in Japan. So there's still global concerns. And remember they did say cost the money, labor in the United States, and global activity of things they're thinking about. So I wouldn't say we're off to the races with rate increases, but I would say the k for rate increases has been enhanced by today's statement. Michael, can you

tell us anything that you've been selling or buying? Well, we're again we're always diversified, so um, you know, we're looking in in the equity market, we're looking for areas that haven't participated to the same degree as the overall market. We've tended to stay away from the consumers, the more safety stocks, the yield alternative type stocks. We think they're overpriced, um.

But as a general rule, we're also looking at more volatile, more more data levered stocks, more stocks that are you know, levered economic growth and investment activity. And so that's always the area we're looking. But there are, you know, tech financials I think makes sense. Energy and commodities are still a very beaten down sector for the long term, given that you know, global global growth is slow as dollar

has been strong. UM to me, we're in an exacerbated or an enhanced sort of low and a typical commodity cycle, which means over the long term, it's an interesting area to look at on the bond side because there's such uncertainy with interest rates. We've tended to be higher quality UM and lower to lower intermediate duration, so we're looking

at probably four to five year duration. Our treasury is probably a little bit less than that in our Swiss UM and sticking with investment grade corporates in a variety of industries and treasuries. You know, Michael Um, I had a really terrible call on Apple in the market today because I told my producer, yes, today have this show. We got to fed tomorrow. We don't have to way too much about Apple. You're earning surroud us gonna be old news. And then of course come in today, right

and Apple helps fuel a rally, not a big rally. Nevertheless, what is what is your take on Apple? Now? You know we had the high level downgrade to a cell this week. It's it's kind of a lone wolf call. Still, but what about Apple the company itself and what it means for the market commands all kinds of attention. Surely they had a good number. I think it was based on lower expectations UM, but still a beat to beat. So given credit UM, I think it's a great company.

I think they're in the middle of a product trans adian situation. UM. And as with Apple, as has been the case for a long time, the question and valuation. If you look at it as a consumer company that

deserves a premium valuation, many people do. UM, it's cheap right now, and it pays a pretty good dividend UM, and if it continues to trade around these levels, it may be a good long term by If you view it more as a hardware company, a device maker, and they are starting to get quite a bit of competition from that front, UM, then it's trading at more reasonable

valuations compared to sort of its peers. I still think that you know, they've got a tremendous amount of intellectual capital there and uh, and I wouldn't bet against them, but I think the competition's got more heated for them in the last few years, and that's going to be an interesting story to launch. So UM, I don't know how much it really drove the market today. I think probably people were more focused on the fed UM but but it certainly did help corporate earnings. UM. You know,

at least the corporate earnings picture today. Michael Contino that see, you get someone to call you and is fretting about the cash that they have in their account. They're too afraid to buy equities and they can't stand the low returns that they would get on bonds. Is it too late for them to do either? Um? You know, I tell them, maybe invest in my fund. But then again I'm biased. UM, I think absolutely. I think in any market situation there is always opportunity, even in over valued sectors.

And certainly I think you can make a case that bonds and stocks are are overvalued on some metrics. So UM, But given that, I think that you can find, you know, the corporate market is especially the shorter term corporate market.

Investment grades have provided us a lot of opportunity. We run a flexible bond fund called Versable Bond Fund UM, and we're managing that again at a lower core you know, lower duration and higher quality standpoint um of it, as I think invest a great debt and the duration is probably four to six year or something like that, and we're you know, we're at the moment we're up nine percent of that fund. So not not to make predictions,

but there are opportunities there um. On the stock side, I think there are definitely sectors and I pointed out a few of them that that have not performed to the degree of the overall market. I think financial sold off quite a bit because the FED appeared to be on hold an interest rates. I think there's a lot of potential long term value there. US balance sheets are strong. Once rates do start going up, I think you're gonna get the benefit of spreads um. And so we've we've

been playing around in that area. I do think commodities and energy, fossil fuels and energy are not going anywhere. The world needs that stuff to grow, and yes it's in a down period of a cycle, but we expect that to change when global economic activity picks up. And an interesting anecdote to that, Freeport mcmaran is one company that we own and recently they were going to be selling assets to build up their balance sheet and and

et cetera. UM, and they recently came out and said that rather than sell assets, are going to issue more equity. Now it's still a very cheap stock, but to me that was a confidence indicator that over the long term they may see that they're they're better to maybe hold onto some of those assets versus to sell them to bring down debt and maybe just issue equity, which in the short term is dilutive, no question, but in the long term could be a benefit of the capital structure.

So there's always opportunity. Quick statement, get about twenty seconds on Facebook, it's prospects. We we love it as a long term growth story. I mean, it's not cheap in our view. Uh, you know, they have so many avenues um to monetize that they're still just becoming aware of. And and some of them, like Messenger, they haven't even started and they just I think that's the one they just grew to a billion users um. But the core business appears to be very strong. It's there to be

taking market share. We expect good things. We always expect good things from you. Michael Pagino, Thanks so much for joining us. Today from San Francisco. He's president of Permanent Portfolio family of funds. I'm Kathine Hayes along with Pim Fox. This is Bloomberg. Yeah,