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

defining after recorded a third straight on profitable quarter. Meanwhile, Fiser shares are gaining after it raised its outlook. We check the markets every fifteen minutes throughout the trading day. Down Industrial averages down one hundred fifty two points seven eight percent. Is trading at seventeen thousand, seven hundred thirty nine. SMP five founded down twenty points a loss of one percent,

trading at two thousand sixty one. Then NAZZAC is down fifty six points one point two percent, trading at forty seven sixty. West Texas Intermediate crude oil down a dollar eight of barrel two point four two point four at forty three seventy. Spot gold is down seven dollars fifty cents out at thirty and a tenure treasury is up seconds with the yield of one point seven nine. And

that's the Bloomberg Business Flash. He's taking stock with Kathleen Hayes and Grim Fox on Bloomberg Radio, continuing a live broadcast here in the City by the Bay where at San Francisco's Bloomberg San Francisco Office. We had a nice conversation today, in fact, a lovely conversation with the John Williams, President of Federals or Bank of San Francisco, and two of his top research economist, Mary Daily and John Fernald. Now we want to bring in another San Francisco guest,

Michael Cogino. He's president of Pacific Heights Asset Management. He's also a portfolio manager at Permanent Portfolio Funds. To take a look at what John Williams said today and connect the dots to do a stock market stocks of course having a tough day today with concern about a slugger pace of global growth. That maybe some uninspiring corporate earnings, but when it comes to the global economy, John Williams

doesn't seem as concerned perhaps as a stock market. So welcome, Thank you for joining me down here at our bureau. Thanks for having me so we can get to the more specifics of the stock market today. But John Williams, labor market is still growing, Inflation is not at target, but there are signs that it's moving in the right direction. He can see the strains in the global economy, but absence a big shock, he doesn't see it reverberating back

to the US. And he did say that the current status quo, if I may paraphrase him, would be sufficient for him to be on board with that rate hike in June. What does that mean for the stock market, Well, I mean, I think the stock market is in various stages of pricing in zero, one or two rate increases this year. So I'm not sure you know, we've come

a long way since the February lows. UM, we're down about two percent off our highs in the SMP five hundred based on today's trade, not a material amount, but a little bit of a slow down from where we were in March and April. So I think the markets uh awaiting every word from the Fed and trying to adjust and calibrate accordingly UM based on whether it's gonna be zero one or two, and I would expect that

to continue going forward. Hey Michael, you know I was looking at the permanent portfolio and you're to date it this up more than eleven percent. How did you do that? Well? We maintain a disciplined asset allocation approach all the time, and so you know, we sit here and talk about is the FED going to do this or that, or you know, make predictions. Our whole thesis is that we don't want to make predictions. We want to be spread out among a bunch of different asset classes all the time.

Thereby we don't have to make predictions. And I think that sort of strategy helped us well in the first quarter and so far through May here because we were in some assets like gold, like silver, like natural resource stocks that nobody wanted to touch earlier in the year, but we think are an integral part of economic growth and wealth building, and so we had exposure um there and took advantage of it so far. So I think

that explains quite a bit of it. The bond market helped a little bit, and some of our growth stocks again we're leverage twice Facebook. Facebook is a good example. Some of the holdings in our transportation sector. Areas that were beaten down towards the end of last year that nobody really wanted to own were things that uh, we owned and continue to own and and added to along

the way based on valuation, and they helped us so far. Okay, So apply that metric to perhaps some overlooked and underloved investments right now in the stock market, I'd apply the philosophies to the same thing. We don't plan on changing our approach, Who've been doing it for thirty four years. But uh, I think in any situation when you have big moves um in asset classes, there is gonna be a consolidation, There is gonna be some sort of profit taking.

So you know, I think we should expect that in some of the areas in the shorter term that have run really well so far this year. But in the longer term, we think there's an opportunity. I think we're at the bottom of a commodity cycle, for example. And uh, while some of the stocks energy industrial medals have come a long way so far this year, there's still way way off where they were, you know, several years ago, and probably in their long term trends, and the world

still needs this stuff. So for it's an investor with a strong stomach and you can afford to wait, and you you don't mind the volatility. That's an area where you go. UM. Certain other areas of the stock market I think have been attractive. I mean, texts slowed down a little bit. That may present some opportunities. Financial services, depending on what the FED does, UM may present some opportunities. We do like the transportation sector. We believe in global

growth as a longer term story. And yes it's hiccupping right now, but we think, UM, you know, that area has been beaten down, and again for long term investor, that's sort of where you want to be. And we do worry about UM the declining value of US currency as well as the rest of the world's currencies, and so hard assets like gold and silver attractive to us on a long term basis on that front, regardless of where the dollar trades, and these to be that stuff.

So we we continue to maintain a diversified approach, and our view on the FED is probably Yuh, it could be zero, could be one could be to UM. A June and December move to US makes perfect sense. Then again, based on their comments about global growth and them worrying about that and the diversions between US rates and the rest of the world. I could see them doing nothing this year as well. Our view is we don't want

to try to predict it. Have you gotten many calls from clients and customers asking for yield products because they are frustrated by low yield environment? Definitely UM And in fact, since we tend to invest in in sort of higher volatility, higher growth oriented type equities which aren't necessary always high

dividend payers. Um. You know, we've had investors call up and say, gee, you know, you ought to be investing in more you know, consumers and utilities, and why are you doing some of that stuff and and you know, Um, while there are opportunities there, a lot of that stuff was was well overbought. And while they are attractive yields, we counsel people that you should never buy equities based on yield alan stocks can be very, very volatile and

UM and so investors should be prepared for that. Similarly, in the bond market, we tend to have for the last few years here tended to be more on the conservative side, higher quality balance sheets, lower to medium inter intermediate duration UM. You know, our permanent portfolios duration I think is less than five years in our bond holdings right now, where it's treasuries or corporates UM and our Swiss UM our bond funds similarly, we have a duration

of about five or six years I think UM. And we're looking at mostly investment grade UM in both cases and permanent it's all investment grade bonds, treasuries and high grade corporates. In our versatile bond product we're investing in UH, I think we're about three quarters sevent to two thirds to three quarters investment grade UM. And we think given the uncertain interest rates, given the divergence between the FED and the rest of the world central bank, some conservatism

should be warranted with respect to bonds right now. So what about the global outlook again? John Williams, presidents president of San Francisco FED, seems uh not overly concerned. He can understand that, yes, you have to see what what the gyrations in the global economy, what the impact could be on the US economy. But what about corporations? What about companies with big corporations A lot of them might be some of those blue chip dividend pain kind of

companies that a lot of people still favor. If there is concerned about the global economy, what is the outlook for them? And are there some again some undiscovered gems there. Well, you know, we're in, depending on how you cut it, the second third or fourth quarter of an earnings growth decline on the SMP five UM. Some industries have felt

it more than others. You're not gonna be able to grow dividends if you can't grow earnings, and you can't grow earnings if you don't have top line growth, and if you have the additional headwinds of a relatively strong dollar visa v. Everybody else, that's going to prevent problems as well. So the yields may not be as safe as some people believe, especially if you have some sort of an economic slowdown in the States UM and a general recessionary situation. And let's be you know, let's be honest.

I mean, the US is growing at UH maybe two percent annualized GDP at the best and UH and last week's number on Q one was absolutely horrible. UM. Now it may get upgraded, but we look like we're decelerating, not accelerating, and Uh, I wouldn't predict that, but but the data points have been mixed so far. And so yes, the employment picture looks good. Yes, we've had some opticks and inflation, but we haven't had enough to say we've

got sustainable inflation. UM. Global growth remains anemic and week UM the China p m I number today was not strong. So I think investors need to be cautious of all of that UM and UH and keep that in mind in terms of their risk profile at this point in time. Michael Coo, what's the biggest mistake you've made in the last twelve months investing money? The last twelve months? Actually, UM, if you want to extend it out too long, I'd say probably lighten up our gold in the spring of thirteen.

Maybe UM. More recently, I mean our last six and nine months have been pretty good. UM. I would say, uh, maybe not lightening up on some of our natural resource stocks towards the end of last year UM quicker than we did. UM. So I mean we experienced, you know, the third quarter for US last year in permanent portfolio was not a good one. We stabilized in Q four UM, but that quarter took everybody by surprise, and I guess us included the sell off and energy that drastically is

sell off and commodities UM. While we would have had exposure there anyway, we might have lightened up and so UM. Not being quick enough on that one may have hurt. So what you can do differently now? Right now, we're looking at a lot of different areas. I mean, am I gonna do anything differently in terms of how we manage it? No. We manage a diversified fund all the time. Are we gonna change the way we look at equities, No,

definitely not. We're gonna look for opportunities that fit into our our longer term profile of how we pick stocks. Same with bonds, UM, and same with commodities and precious metals. So we're gonna continue to be diligent. We're gonna invest to produce the best return we can in the environment we're given UM and and troll that we can control, so to speak. Thank you very much. Michael Cogino. He is the president of Pacific Heights Asset Management and portfolio

manager at Permanent Portfolio Funds. You're listening to Bloomberg Radio