Preparing For Negative Interest rates: Fiduciary CIO

US Steepener gold, US equities or we work? If you get a pre I p O. Luckily we're gonna have a manage gonna answer that question. That's Hans Olsen, chief investment officer a Fittisciary Trust with seventy eight million dollars in assets under management. So cross asked that that was your multiple choice question, which would you buy in ranking order? We work gold, we work pre IPO, A Steepener gold or US equities. Well, I'd have to do probably can

I get to pain by the way? Yeah? Okay, Well that says a lot in then they have seven billion dollars of assets under management. He has to buy everything out there. So so why like it's my way of trying to see, like, where is their actual value right now? Yeah? Yeah, it's hard to find a lot of value any place right now. And perhaps the areas that we find it mostly would be in places like uh Europe, even the UK,

which is really a non consensus trade for sure. But in the US, um you know, the earning scrowthon is there, the multiples are expanding. It's been pretty tough. We're overweight US equities for sure. We've tried to rotate more into the low volatility types of names as a way to do it responsibly. But but I have to say, Alex, the environment right now is is not great for people putting new money to work. We're speaking with Hans Olsen,

chief investment officer Fidishary Trust. Hans, just let's start maybe just with your economic outlook. I mean, the U S seems pretty solid, but we see some weird news. Alex and I we were talking about earlier out of Germany earlier today. So how do you view the kind of the U S economy? Yeah, so the US company. If we if I were to color code the US economy with green being growth, yellow warning you know, danger, and red recession I think we're probably going from green to

light green at the moment. So, whether it's the hard data the soft data, we see a collection of of surveys that all point to continued growth in the US slower than what it's been, but continuing to grow. Is your call on say U at UK equities and European equities, is that based on a Brexit thing? Or is that literally is that a value trade? Well, I think in the in the UK, both in the UK and Europe,

you put the politics aside for a moment. If you look at things like valuation and earnings growth, they're better, They're more compelling than they are here in the United States. It just happened to be wrapped in the difficult wrapper of the politics. You know, our core assumption is that

perhaps Brexit won't be anywhere near as bad as people think. Um, when you look at the statistics since the end of UM, since the since the vote back in two thousand sixteen, the one economy that has really defied expectations and the popular narrative has been the UK economy, both in terms of growth, inflation and the like. And uh, I'm not so sure about what we couldn't see that continue to

happen even post Brexit. There will be some hiccups for sure, but I'm not sure it will be as devastating as people are are are postulating. So as you think about your global portfolio, where are you kind of in the allocation? How much risk are you taking these days? Um with

the portfolio. Yeah, so that's a good question because it's really um an exercise in nuance increasingly UM So when the US equity market, as I've said, we've we've been rotating exposures, and where we have added exposure has been to more of the low volatility names, right, trying to stay away from any value biases. But but those companies with dividends uh and have less of an attachment to the overall market, so the data is lower to that of the market. On the credit side, you know, we

have for some time been shorter in duration. We're lengthening out the duration because I think there is a real possible ability that in the next part of the cycle, amazingly enough, the US we'll see negative interest rates. And the other thing that we've been doing is we've been pivoting up into higher quality credits to in an attempt to get some sort of carry um, So it's kind of a belt and suspenders type of exercise. So what I would say to that is that you're not alone.

And what I mean by that is that low volatility stocks have now inherently become more volatile because there's so much ment now money into it for the reasons that you said. You can make the same argument for going up the safety curve when it comes to an investment grade, and many argue that we're way overbought when it comes to the long end. So how do you deal with that? What do you say? Yeah, yeah, I think it all depends upon what your benchmark duration is, right. So we're

we're not going out thirty years or twenty years. We're really trying to stay right on the benchmark, and for us that's probably going to be around four years five years, UM, whereas we were two to three years before. So we've we've lengked the note. And you're right, there's a lot of money in movement. Money is trying to find a home. Especially we're back to the Tina principle right where there

is no alternative equities. Um. So it's it's not a perfect trade, but I think it's a trade and certainly over the the the adject that we've seen over the last week or so, those low ball names that we've invested and have held up quite well relatively, you know, they've they've outperformed by about three hundred basis points, which is not bad in an environment like that. So, Hans, what do you what do you expect to hear out

of Jackson Hole at the end of this week. A lot of market participants think it's a very very important time for Chairman Pal to articulate kind of how he views the FED over the next you know, several quarters. Yeah, yeah, I think I think the tell is going to be Actually what there was a white paper that the I m F released and it reads something like a guide

to deeply negative interest rates to fight Recession. It's it's sort of it's eighty five page white paper that is the that lays out the fund the foundations and the fundamentals about how to position the concept of negative interest rates. I think, particularly in the United States, and you're already seeing some of the FED governors talk about it um that it's not so unusual and that zero bound is

really just a number. I think we'll start to see more of that conversation tumble out of Jackson hole without a doubt, and we're sort of setting ourselves up for the next cycle for I think higher probability of negative interest rates, which when you think about the US in the US, when you think about it in the reserve currency, never never, but but a reserve like currency, the Swiss franc they have negative interest rates. The entire German sovereign

curve is below zero um. And you know, we have what sixteen seventeen trillion dollars worth of negative yielding debt of both the sovereign and corporate variety in Europe. But does that bring up M M T. And I say that because I've been talking about this black Bock paper all morning and probably boring Paul at this point, which

is basically they talked about just that helicopter money. You're going to have to have coordinated monetary and physical policy in order to get stuff done in the next recession. I mean, is that basically what you think we're headed for? To sailing and observations there. Number one, I think we've come to the limits of monetary policy, and that's why I think we're hearing about you know, the ideas of

another tax cut being floated this morning. And the other thing is that, uh, you know, when we're running trillion dollar plus uh deficits, which is what we're doing, especially at this point in the cycle, when we're talking about more tax cuts and we are talking about negative interest rates even considering them, that is actually you know, modern monetary theory, perhaps dressed up a little bit differently, but

that's effectively it. So I think we're kind of there in many respects, and that's a really uncomfortable um um thought to ponder. Interesting. Hans Aulsen, thank you so much for joining us. Hans is chief investment officer for Fiduciary Trust, joining us here on our Bloomberg Interactive Broker Studio. Let's turn our attention now to gold that come out of

the commodity is up about year to date. So is that just a move by investors for a safe haven asthmet asset, is there's something else driving the commodity to get those answers? We welcome Joe Cavatoni, Managing Director of the World Gold Council US joints us here in our Bloomberg Interact the Broker Studio. So Joe, thanks so much for being here give us a sense of what is driving gold here. So far, it's great to be here.

What's driving gold in two thousand eighteen into nineteen has been pretty much risk and uncertainty, market risk and uncertainty, a client or an investors inability to understand where really the direction of the markets is going to go, and hearing regular and ongoing updates of large systemic issues that

give them caution and concern. If it is talks about implementation of potential tariffs, if there's concerns around negotiations with China, whether there's a hard or soft exit, and Brexit, all of these factors are all playing in now. Added as of laid has been an increased concern, particularly in the US market, over negative real rates or is that even feasible or possible, so the rate moves, the dovish stance of the FED all factoring in gold as an asset

is a global asset. So while we're seeing big risk factors that are taking place in developed markets around the world, maybe even the emerging markets, you're also seeing a shift as well globally around the dollarization and monetary policy that's leading central banks to be buyers so we're seeing investors taking risk positions that are careful, and we're also seeing central banks shifting their monetary policy to address it. So I was coming gold back in the olden days two

nine for a few years. So I was part of all that conversation of what we see gold hit two thousand and if I have thought we'd hit negative rates UH in many many countries and that we could see it in the US, I would expect it easy goal to be what does it tell you that we're not? What does it tell us that we're not? What I think we need to understand is that the demand cycle for gold is driven and importantly needs to be understood

and driven by strategic factors. So what I think we need to be careful and cautious of is momentum and short term opportunity costs move the price fast and actually in large percentage amounts. On a given day. We're almost down one percent today. Let's not get caught up in that. What I'd say is going back to your two thousand nine timeline, and actually goal goes even further back some five thousand years. I was talking about what I think is important for people to understand is that in this

wave of demand increasing that we're seeing. This looks to be investors taking a strategic position, overweight in their commodity bucket and positioning for longer term systemic issues. So the financial risk the longer term, it's going to be a slow, methodical, continual increase in demand. Potentially, so will we get I'm not entirely sure, but what we're seeing today are signals telling us that gold as a relevant asset is going

to continue to remain very high. Our conversations, again with institutional investors in particular, are about how much gold should I have in my portfolio, not this question of do I have a need for it in my portfolio. It's being found more and more prevalent in the conversations with institutional investors. What are the e t f s doing with gold and how are they impacting the gold market?

The e t f s are proving to be exactly what we know them to be, an exceptional vehicle for investors to make a decision to invest in the precious metal itself. They can own the gold through the exchange traded fund, not only in the US market, which we all know a lot about. But what we're seeing are you K investors, German investors in particular, driving enormous amounts

of demand. So a year to date, about nine percent of net new assets have flown into e T s. With price appreciation, that pool is up to nearly one thirty billion in overall holdings in e TF. So we're seeing investors saying I need to make a strategic decision. I want to own gold as a commodity or as a precious metal or in a particular investment bucket, divorcing themselves from concerning whether it's a commodity or it's not,

simply saying it's a core allocation of my portfolio. So the e T s are enabling people to get it done. Volumes are transparent, which is helpful and actually significant. So if you need to buy, as an institution large percentages of gold over a course of a day, you're going

to be able to get it done. Now, one last point that I'll make is that in the US, while we know that there are institutional flows that are going into the exchange traded funds, don't overlook the amount of retail investment that goes into these et s as well. If you're looking at the big wires or you're looking at the large platforms in the US. They all have available on them some mechanism to exchange traded funds to get access to gold, and there's plenty of choices today too.

What happens if the dollar doesn't depreciate. I think that you need to understand that the dollar is one only one factor. Remember, gold as a global asset is impacted by demand in China and India, which makes up nearly It's driven by European geo political risk or or or economic concerns in those markets. So it's an important factor, but it's not the only factor to take into consideration. So the dollar has been kind of flatlining, right, But

where are we going with gold? We're seeing a noticeable appreciation in the price. Why because the other factors are kicking in again, stepping away from tactical short term concerning issues which are important to understand, but understanding that financial market and the risks that come along with that will be driving long term. So just real, real quick, Joe, you mentioned central bank buying. Just give us a sense of how that works, what and just how it plays out. Basically,

they're buying the bullion outright in the bullying market. They go into the OTC markets or the dealer market in the European arena, for example, and ultimately they're they're continuing I think it's now a nineteen year trend that we've seen in terms of increased the levels of of gold being added to the portfolio for monetary policy. So they're buying the real stuff. They're buying the real stuff. Absolutely.

Joe Cavitoni, thanks so much for joining us. Joe's a Managing director for the World Council uh US talking to us all things about go get it, getting us updated on gold and it's a nice chart for the year looking at that. Boy in. One part of the economy that remains very strong is the consumer um and let's how the consumer is doing, particularly millennials and the younger demos in terms of buying homes and getting mortgages and all that fun stuff. With that, we welcome Vishaal gark.

He is a founder and CEO Better dot Com. He joins us here in our Bloomberg Interactive Broker studio. Rochelle, thanks so much for joining us. I wonder if you could just give us just a brief description of what Better dot Com is what are you guys doing. Uh, thanks so much Paul and Lisa for having me better.

Dot com is revolutionizing access to homeownership UH for millennials, and we're doing it by making the entire process better, faster, cheaper, so you can get a better mortgage and by doing that, you can get a better house. Uh. You can save up to three thousand dollars or more on a typical three thousand dollar house uh in just upfront fees because we don't charge any commissions and we don't charge any origination fees. And on top of that, UH, you can

save some money on your rate. So an average consumer will save as much as a year on a three dollar mortgage of compared to your tradition mortgage banks or mortgage brokers. Because we take the commissions out of the process, we've automated a huge chunk of the process. We made everything much, much, much of it better. How do you make money? Uh? We make money mostly by uh packaging the loans and having investors who uh we have thirty two investors on our platform with about seven billion dollars

of demand. A lot of the largest financial institutions in the country who actually want to have mortgages that are not originated by a commission loan officer or mortgage broker, because those typically tend to perform much much better, and so they pay us a premium for their mortgages and

that's how we pay the bills. UM. You know, today we just announced that we raise a hundred and sixty million dollars from some great investors American Express City Bank, Ally Bank UH, the Health Plan of Ontario Pinebroke investors, and a lot of that. You know, when it comes down to is all of those banks and major investors are investing in us UH for the reason that I started the me five years ago. So five years ago,

my wife was pregnant with our second child. We were shopping for houses just people do, UH, and it was just a really tough process to get a mortgage. My wife worked at a big bank and even there, it took our sixty days to get a mortgage approval, and we lost the house that we were going to buy to an all cash buyer who actually even paid less than we did. And UH, I thought that was fundamentally unfair.

Like branch visits, facts machines going at Kinko's, and like literally UH sending my Social Security number and all these documents over on security email had cost us the home that we want to buy. So it's like, we're gonna make this better. Seventy of Americans need a mortgage to buy a home. And how is this thing that everywhere everyone uses? How is this industry that's fifteen trillion dollars in size exists as if the Internet was never invented.

Do millenns buy homes? They do? Their home ownership rate is half of that of traditional UH generations before, like the baby movers and like so on average, you know of that those earlier generations were able to buy a home. Right now millennials about thirty five percent of them own a home, So there's this massive demand for them coming people like that. Do you think a lot of it

has to do with challenges with student loans? Um They have a ton of student loans, so instead of spending the first fifteen years of their working lives saving up money to get a down payment to buy a home, they're paying off the loans for college. But there are all these products that are out there that your traditional mortgage broker doesn't know. Products by Fannie made that enable first time home buyers to put as little as three

percent down to buy a home. And over half of our customer base, particularly for those buying a home, is millennials, and the average is thirty eight. And a lot of them are just they they want, they're they're getting, they're having kids, they're putting down roots. Um, they want to have a play room that they can actually paint the way the color they want. And so we see a lot of millennials entering. They're actually the largest group of home buyers this year. So as we've seen rates fall,

what kind of activity have you noticed? We have seen demand go through the roof. Our business is up over from the year before. We're on track to do over five billion of mortgages this year and almost fifteen billion or so next year. And it's an amazing time to buy because rates being as low as they are, lower than they've ever been in the past, means lower rates, higher affordability. Higher affordability means you can buy a better

house for the same amount of money. Remember, a lot of people are renting, but when you're renting, you're just paying your landlords mortgage. Exactly. Homeownership. Homeownership that's kind of been it's the issue about the millennials kind of being underrepresented in home ownership, but the potentially upside there for the housing market. Shall garg founder and CEO Better dot Com joining us here in our Bloomberg Interactive Broker studio, thank you so much better rhetor coming out of the

White House about trade. Let's see where the action is with small Stock returned to Bloomberg Stocks editor Dave Wilson, Dave, what are you looking at this morning? Well, I'm looking at smaller companies doing a bit better than larger ones, at least for the moment. The Russell two thousand index up one point three percent. In the S and P

five hundreds up one point two percent. Now one of the Russell's biggest games belongs to Empire Resorts, whose ticker is n Y and why the casino owner has climbed fifteen percent after its Malaysian majority owner offered to buy the shares it doesn't already hold. Uh Saws ticker s O n O is at a twelve and half percent. The maker of audio equipment was raised that Raymond James

to the firm's top ratings. Strong By and tanker stocks are higher after dry Ships chairman and CEO Georgia Economu, agreed to buy the shares of his company that he doesn't already own. Nordic American Tankers ticker and A T has risen eight percent, and t K Tankers ticker t n K has advanced six and a half percent. Now A one of the Russell's steepest drops belongs to Revlon ticker r e V. The cosmetics maker has fallen about four and a half percent after gaining more than fifteen

percent on Thursday and Friday. The earlier advance followed our report that Revlon hired Goldman Sachs to look at strategic alternatives. Bloomber Stocks editor Davals and thank you so much. Well, the tech companies are back down in Washington. This time they're they're testifying in support of a Trump administration effort to potentially punish France for enacting a three percent tax

on global tech companies. To get the latest, we welcome Laura Davison laaras Congressional tax reporter for Bloomberg News, joining us on the phone from Washington, d C. Laura, thanks so much for joining us. So again, we got the big tech companies in front of Washington, but a little

bit different tack today. What are they trying to get across? Yeah, so they're really concerned about this, Uh, this tax that France, France has passed that would target largely large US companies Google, Amazon, Facebook, um, and and so the Trump administration has said, yes, we are concerned about this. And you really see a kind of for the first time, h tech companies and the Trump administration really being in lockstep on an issue. Um

what could happen from this? Uh? The administration is looking at some sort of retaliatory and measure against France to sort of set a precedent of look, don't go after our tech companies to raise revenue for your country. Uh. Tech companies concerned that they could be taxed not only from France, but that other countries could follow suit Spain, New Zealand for example, and they could be suddenly hit from for little taxes from from countries all over the world.

And so I'm calling tech versus Tannin's because one of the things is wine that Trump has threatened to tax of all wine coming from France and Europe. But in all reality, like, what could we actually do to retaliate? So there's a couple of different things. One would be tariffs, and it could be on French wine or or other sorts of French products. Know, the percent tariff on wine would be uh, you know, that would be a goold measure, but there's lots of you know, either smaller tariffs are

targeting a broad base of French exports. The other thing is there is a section in the tax code that actually would allow the US government to basically double the tax on French citizens and French companies operating in the US. So there's a several different things that are legal within the scope of the possible that that the U s could do to try to get friends France to back down from this. So, Laura, how important or how much of a financial risk or is this tax to some

of these big tech companies. So we haven't heard any sort of specific numbers yet they're saying will cost millions to comply. A representative from Amazon said that their profit margins are usually less than three percent, so this three percent tax from France would wipe out some of their

profit margins on those transactions. So it's at least kind of on a an anecdotally, it would be both expensive to to be able to track all this to comply with the tax as well as it could wipe out um to profits, profitability, or result in higher prices for consumers. So play this out for me. So tech goes to the d C. They're like, we hate this, this is bad. Everyone in the US is like, totally, we don't want France attack at taxes. This is terrible. Then what happens.

So what the US is trying to do is to get France to back away from this tax and focus more on this big global conversation that's happening with a hundred thirty companies led by you know, G seven, G twenty to come up with some way to tax Uh. Basically issue is that companies no longer you know, makings and earned profits in one country. With the digital economy, things cross borders all the time and it's really hard to to say which come which country can tax which profits.

So they're trying to have this big multilateral discussion UM to come up with some rules that everyone in the world basically can agree on. That's what the US wants, and that's what they're trying to urge France and others who want to go off on their own to do. So, Laura, what just give us a sense a little bit of backstory here. What was France really thinking here with this tax?

Was it simply a money grab for them? Well personally that and and there's a lot of anger in Europe at American at American tech companies who they feel are aren't paying taxes, that they are using um tax savants

to to avoid paying what they should be owe. And they said, look, you know, if if the you know, the U. S. Government isn't gonna address this, if there isn't some sort of global consensus, we just want to move quickly and make sure that we're uh, you know, getting a portion, you know, and being a first mover on this, they're able to grab a bigger piece of the pie than they would have if they you know, did this in coordination with all the other countries. So

what's the counter to that? I mean, that sounds somewhat reasonable. It does, though, mean then the then the answer is, uh, you know, especially for France where US is a close ally, you know, what are the negotiations like if you know there are extremes tariffs, you know, how long can they can they withstand those? Or you know, if if every other country has agreed to this other set of principles, you know, could that be something that that France uh

signs onto. This is really uh France kind of took a bold step kind of, I think, with the other countries, assuming that they would be willing to movee back down on this if there was a larger consensus on something that would be agreeable. Laura Davison, thank you so much for joining us. Lars Congressional tax reporter for Bloomberg News, joining us on the phone from Washington, d C. Thanks

for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. M Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Bramoy. It's I'm on Twitter at Lisa Bramoy. It's one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.