Too Much Worry About Emerging Markets: Van Eck's Fine

when it comes to emerging markets. On the one hand, you have an increasingly doubbish federal reserve potentially weaker dollar. On the flip side, you have trade wards that arguably may end up slowing certain economies, particularly those tied to China more than developed markets. Here to sort of pass through where the opportunities are here. As Eric Fine, portfolio manager focus on a marketing emerging markets fixed income at van Eck Global, he joins us here in our Bloomberg

Interactive Broker studios. So where are we in terms of this dynamic? Is the sort of bull case for EM stronger right now or or the bear case? Um well, I as a you know twenty five plus your EM person um for twenty five years, I've been asked what do I think about emerging market sponds, and for years I've said I don't know, and I feel more and more comfortable. I think it depends country by country. However,

that wasn't your question. Your question was broadly speaking, and so my answer would be if quote unquote emerging markets to you means um um a lot of exposure uh to names like Mexico or Turkey, um, or it means significant exposure to quote unquote E m f X, then then UM, I would be more cautious. Um. Right now the countries we are concerned about happen to be big ones UM, Mexico in particular, Turkey, ongoing, Russia is tricky because it's the fundamentals are fine. It's more about sanctions

risk um. Um So, Uh I think you could. I think you could make a mixed case um and uh so I would say, but I would I would say the biggest concerns we have are that, uh, countries like Turkey there's too much trapped exposure. Essentially, countries like Mexico there's too much comfort with its ratings and we think it's a d rating story. Claberg is mixed. Um. You're saying that Mexico, you think it's going to default, No D rating, D rating, D rating, Oh no, no, no no

default D rating. Um. I I would say that there's there's a non trivial chance in a country like Turkey that's in the midst of a bounce payments crisis right now. Um, but no Mexico's D rating. So if you if you're going to be very very married to the existing um amount of debt that's out there essentially um, then um um. Then I'd be cautious, and I'd be biased towards dollars, towards dollar denominated debt, because the more profound thing that's

happened is that the FED has gotten activated. That seems to me the big wheel turning um and uh. And it gets to what you think happens. Let's say, let's say that the Fed's reaction is discounting um a slowdown in the economy. Well, most people with my experience that believe in the so called dollar smile, which is um um in in uh in extreme good time times, in

extreme bad times, the dollar can do. It does really well and uh and and in a recession you've had through all this dollar dead issuece essentially a big shorten the dollar, we're going to a recession. The traditional behavior is what we've seen, let's say, out of Turkey, when they when they're worried about access to finance or a nowntern, they buy dollars right and then if the policy reaction is bad, they the authorities uh step in and try

to muck around with that. So, Eric, is there an argument to me to be made that investors should avoid or underweight emerging markets broadly until the China situation is resolved. There's just too much uh, you know, tape risk. Absolutely not. That's my one of my strongest is in general, people are way too worried about emerging markets. UM as you

get paid. Let's just look at corporum corporates. You get paid a higher spread for the same rating as a US corporate, and that e M corporate has to work harder to get that same ratings. You're basically you're in a sense getting that lower leverage lower you know, not that even those of those sorts of variables um uh, typical US pension funds have about three allocated to e M debt. If you look at the boring old efficient

frontier and I'm not a fan of looking backwards. But the last fourteen years, and you look at the different elements of fixed income you're supposed to have depending on your risk tolerance of your bonds in e M debt, and we're living in a post quee era where the storytelling works with it. What are we talking about these days, last ten fifteen years, sustainable level of debt, independent central banking,

getting paid for political risk. Those are all three. Those are three things that EM has an answer for us. So broadly speaking, I think this is e MS continues to quit itself. My my concern is that as we go through a trickier period, the names that are vulnerable happen to be names that are household names, big names in our portfolio. You know what we do is we

avoid them. Um. But one of the big phenomena, the other phenomen has happened in the last ten years, is that there has been increasing exposure to names because they're part of an index, not because investors are choosing to to to invest. And so I worry about Oh, I don't like it, therefore I'm underweight behavior as opposed to I don't like it and I don't own it behavior. Well, so I'm wondering where do you find value. You said dollars nominated bonds. Of which nations I'd say, some great

UH names out there are Brazil, UM and Ukraine. Brazil is a big name, so that's why I mentioned it's a big important one. UM Brazil has essentially one core problem. It's fiscal in particular pension reform. Other than that, it's an okay shape. Reserves are high well, certainly relative to imports. Um. The economy is coming out of one of the deepest recessions about a hundred years. They're going through number of

implementing a number of structural reforms. If and the central bank is independent, inflation and inflation expectations are low and anchored. If the economy grows, there's plenty of capacity, so you won't see it past through the inflation immediately or you know, and of structural reform. So so I think that's a very very positive story, assuming they get pension reform through, which is you know, a daily weekly soap opera. But

that is one of the great stories there. I think pet Bra is a is a good way to um UM get exposure. By the point of good corpus. I'd also say Ukraine north of six over spreads. UM was on an IMF program. It's likely re inter and IMF

program very popular. UM It's does have some issues, mainly short term debt liabilities, but most of them are to the US and can be handled through sponsorship from you or or association with the I'm of Eric Fine, thank you so much toward a force through emerging markets investing. I guess the takeaways don't be scared away from emerging markets given the trade tensions. Eric Fine, portfolio manager for Emerging Markets Fixed Income Strategy at ben Global, joining us

UH in our Bloomberg Interactive Broker Studio. Let us turn our sights to the one and only Mark Bennioff, who has been a force unto himself when it has come to consolidation. Salesforce dot Com now buying Tableau, a software company h for a fifteen point three billion dollars in an all stock deal. Sales Salesforce shares are down today more than four percent. Tableau shares, however, UH surging more

than thirty percent. Luckily, we have Una Grana Software and I T Services analyst for Bloomberg Intelligence here with us in our Interactive Broker Studios to help us understand why markets are perceiving this as a good deal currently for for Tableau and perhaps not so much for Salesforce. Well, it's all stock deal, so you would expect Salesforce to

go down a little bit. But you know, frankly, Salesforce has done such a good job about a quieting companies over the past few years, adding it to the portfolio of already present companies it has. They bought a company called mules Soft last year, and this particular deal actually, you know, really complements the business of those guys, all right, So why is Salesforce doing this deal? This is really a big trade for them. Why are they doing this deal?

So one of the biggest themes in enterprise software today is and you know, artificial intelligence, getting more analytics out of your existing customer base, getting more insights. So for that, you really need to you know, pull out data that you have internally on your you know systems as well as married to social media other kind of data systems. But then at the end of the day, after you gain insights of it, you need to visualize those particularly

in dashboards and beautiful graphs. And this is what tableou does better than anybody else out there, can you just zoom out a little bit and just give us a sense of how much this deal is just yet confirmation of Mark benning off strategy and frankly his his sort of instinct and trusting his internal instinct to just go with the deal when he sees it and moving quickly.

Moves very quickly, definitely, And you know we have seen over the years, whether it was demand where um or Force dot com, which is part of their platform as a service at that time. I mean, all of these things eventually adds very well to their exist in core customer base, which is, you know, the people who buy their sales cloud or their customer service cloud. All of

this you know, ties very well into that. So it is you know, as you said, it is something that market backing off just better than you know, almost everybody out there at this point. Boy, I'm looking at the Salesforce stock price chart five years on the Bloomberg terminal here. That is a good story. I mean, wow, so he and the market clear, He's obviously earned the markets support, um,

but the stock is down today. You know, I think this is gonna be deluded to earnings initially, I mean, did he overpay here potentially, it's so it is expensive. Sixteen times sales is probably one of the largest. I mean, I would say higher valuations that we have come across. But again he's paying with stock, so that you take that into account as well. It's not cash um And you know, I think SIP bought a company called Qualtricks just a few months ago. They actually paid more than this.

So current valuation in software is so high that if you really need to get some deal done, you need to take out you know, cash on at a much higher multiple. So right now, who does this hurt them most? In terms of Salesforce dot com competitors, They are trying to be as aggressive so that Microsoft doesn't you know, really become bigger in this space. So that's one second.

I think Article needs to step up their game a little bit because their stock has not done as well as Salesforce has over the last three to five years, and they may not have that mouth currency to use their stock to buy that. So they you know, they've been buying back stock aggressively. They really need to think back and say, do I need to get more cloud deals to to to grow over the next few years

or not? Alright, So my favorite question when we talk about deals, is this going to set off more deal flows so my banker friends can get paid. It has been for a while software deals has been so hot. That's just I mean, I I won't be surprised over the next few months if you see more deals in those space. So what what So in a software space is this? Is it all about the cloud here? I mean, I guess we saw Google just uh last week with

two an a half billion dollar acquisition. Is is cloud still the area where these tech companies are uh, you know, investing money, making deals, putting capital to work. Cloud is one Customer insights is another one. So Google, you know, buying look at It is the same exact thing as as Salesforce buying Tableau in terms of visualization of that data.

So you are trying to figure out a lot of these enterprises, legacy enterprises, companies like Pepsi, Coca Cola, they have so much of data on their own systems they really need to extract it, get value out of it, and then go back to that same customer and sell more products to them. And that's where a lot of these things are coming through. Is you know, your ability to extract that data, clean it up in just then analyze it and then finally show social you know, dashboards

along with it. Anaag ran I, thank you so much. Anaa Ran as a senior analysts for software and I T Services for Bloomberg Intelligence here in our Bloomberg and Reactor Broker studio. Well trade tensions appear to be abating somewhat today on news of the Mexico deal. Of course, China is still to be determined, but looking at the action today, market certainly liking the reduced attentions with Mexico. To get a sense of where to go next, we

welcome Brad McMillan. Brad is chief Investment Officer of Commonwealth Financial Network, about a hundred sixty one billion dollars under management. He joins us on the phone from Waltham, mess Uh, Brad, thanks so much for joining us. Do you think that this storm is passing financial markets as we speak? I do, Paul, and I'll tell you why. There's been a tremendous amount of bad news. There have been some real shock Certainly the Mexico tariff adjudgment you know, certainly qualifies as a shock.

But nonetheless markets have been resilient and they bounced back strongly. I think there's a lot of strength there. Okay, So at this point, given the fact that we didn't see that much of a pullback, at this fact of not getting a China US trade deal, where are the opportunities. I think the opportunities are in growth sectors. I would

probably stay away from internationally exposed equities. You know, certainly there's still risk there when you look at the United States, there's a lot of fear about consumers spending, There's a lot of fear about how fast the economy is going to grow. In fact, we're seeing wage growth holding steady at over three percent. We're seeing job growth despite the last despite the disappointing number the other day, you know, hold at strong levels, and we're seeing confidence high. I

think the consumer has been oversold, so Brad. One of the areas that has u tends to lead the market both up and down, as we saw in the fourth quarter, is big tech. And I think maybe what's changed a little bit in the analysis is and the big technology stocks that have driven the market has been maybe there's a new regulatory risk fact that it needs to be waited for these names as US regulators start taking a look at big tech. How do you factor that in.

I think right now the assumption has been that growth is infinite, no one will ever touch them. But remember tech has weathered this before. We went through a phase where there was no taxes on the internet and if we impose taxes, it was going to destroy everything, and of course it didn't. Tech has a wonderful ability to kind of negotiate around government restrictions. Microsoft another good example. It was going to be broken up, it was going

to be taken down. Now it's worth over a trillion dollars. Companies can respond to these things. I think it's a real concern, but you have to factor in company's ability to stay ahead of the regulators, which thus far they've

got a good record. So Brett, I'm struck by the optimistic tone that you're taking in this idea that growth stocks of more room to run the consumer has been over sold, impairing that with the idea that traders are currently pricing in two and a half rate cuts by the end of this year, basically indicating a slowing in the economy and a capitulation by the Federal Reserve that their policies are just too tight at this point. How do you reconcile these two sort of fact features of

the market right now. Well, first of all, they call me or here at the office, So I'm not a natural optimist, okay, but when you look at what's going on, when you look at we've never had a recession with job growth as strong as it is, We've never had a recession with consumer confidence where it is puto business confidence and even the yolkerb Yes, it's recently inverted, but typically that gives us at least twelve months, so we've got at least a couple of quarters ahead of us.

And I think right now all of the bad news is kind of pushed expectations down undoing. Yes, there's a storm coming, but I don't think it's showing up any time soon. But I think the FED actually gets that they're being cautious, they're being responsible, but I don't see

anybody pushing the panic button just yet. So but I think, um, if we if I were just to summarize kind of the guests that we've heard that people on this show over the last several weeks, in terms of gauging a recession call, it seems to be the most people are thinking about something in timing mid is that something that is consistent with your thinking. I think that's the best bet. Right now, we've seen the EO curve invert. If that takes us out twelve months, that would be right in

the middle of the sweet spot. If we see consumer confidence decay, that would also put us in the same spot. And there are other things that say that's the place. So the real question is not are we going to have a recession? We are at some point, but will it be in And I think that's reasonable. Okay, So we're speaking with Brad McMillan, chief investment officer at Commonwealth Financial Network overseeing a hundred and sixty one billion dollars.

You talk with a lot of advisors, Brad, a lot of investors, and I'm just wondering, you know, if you tell them this, what happens If they say to you, okay, there might be a couple quarters left. When do I get out ahead of a recession? Sort of when is

the sort of escape hatch open. Well. One of the good ways to look at it is, and I actually wrote a book about this, is it can make sense to de risk when the market moves into moves below it's two day moving average that historically is indicated a time to worry, and in fact, right now we were just below the two day moving average. So you could argue you should be worried. But when you look at the other fundamentals, we don't see sustained pullbacks without a recession.

So I'm going to look at a recession. I'm going to see where consumer confidence is. I'm going to be mostly looking at a recession. So, Brad, one of the things you know that's been powering obviously powers the US economy and is um is the consumer, and we've seen generally a very strong consumer. We did have that surprisingly weak jobs data on Friday. What is your view of the consumer. I think the consumer still feels good. I think the what's interesting when you look at that weak

jobs report. First of all, we've had week jobs reports before and they've rebounded. We seem to be in nineteen at a lower level of growth given that we've had two week reports, but it's still a healthy level on average. Second of all, you've seen wage growth hold up. There was some talk about how wage growth pulled back, but in fact, for the average working person, the production workers.

Wage growth is held up much better. So for most people, they're spending ability is being enhanced because they're making more money. There's more people working, and in fact, with lower interest rates, they're going to be more able to buy things like cars and houses. That can only be helpful. So in the meantime, we do have this trade battle that seems to be reaching in the background. The U. S And China seemed to be hardening their lines depending on the day,

and I'm just wondering how you factor this into your assessment. Well, there are two things going on here. First is a direct damage and even there, when you look at it, it's about thirty billion dollars right now in a twenty trillion dollar economy. It's meaningful, but it's certainly not going to break the bank. The indirect effects are going to be the most meaningful, and there you're starting to see

reduced confidence. It will start to see more impact on consumers pocketbooks over the next couple of months if tariffs go up. So it's a headwind, but it's a headwind that's only gonna raw I slowly, and it's it's not going to be an earthquake. It's going to be a slow, slow slope to slow the economy down a little bit. So, bro, let's take if we get a bad headline, I mean a bad headline out of China, because I think the

expectations are, oh, some deal will get done. But if we get some bad news out of China, what do you think the risk of the you the market is. I honestly don't think China drives much of the market. When you get Chinese headlines, you go back and you compare the you compare how the US market does. We're still a very closed economy relatively speaking, only about an

eighth of our economy is exposed outside the US. Now there's more exposure to earnings, corporate earnings, but at the same time, much of that damage has already been done and you've seen diminishing effects as we get more and more headlines. So right now, I think the market's expectations are pretty well. I think there's more chance to beat it than underwhelment. Just real quick indexes or stock selection. What's your preference right now? Right now, I think it's

still that indexes, you have individual stocks. Um, there's certainly some opportunities out there, but for the average investor, of the index remains the way to go. Brad mcbellan, chief investment officer at coming to WET the Financial Network overseeing a hundred and sixty one billion dollars. Well, I've been told that this Sunday is Father's Day, So in case anyone out there is thinking about a gift, UM, I have enough. Um, I don't know, socks, ties, I've I

think I've got all that kind of stuff. So what do you want? I'm just saying, well, I'll tell you what I think our next guest, I'll have some cool ideas. Joseph Aboud, chief creative director for Men's Warehouse. He joins us in our Bloomberg eleven three oh studios. Joseph, thanks so much for joining us. It's really great to have you year. So, first of all, we were just talking off air. You know the question I had is our millennials are younger generations? Are they dressing up? Yeah, that's

the most encouraging news. As we were just talking about to see the young guy getting dressed up again. Maybe his dad lived through that casual experience and so now he's finding his own space and he's doing custom suits and it's a very big part of our business. So the suit isn't dead, it's just morphed. They're wearing it differently. Maybe the trousers a little shorter, the silhouettes are a little leaner, but guys are getting dressed. So that's that's

really terrific. So what's the age group? Because I remember back in the say six months ago, when we were talking about yoga, were coming back and wondering how jim ware was going to sort of infiltrate the male species. And I'm just wondering, you know, is that is that over? Because lul Lemon seems to be doing just fine. Well, they're doing great. I think that's a lifestyle thing, but I think that's just one piece of a guy's wardrobe. Every guy is going to find a moment when he

needs to get dressed up. Younger or more staff published. And so that young guy is graduating college and looking to set himself for his future, is looking I need two or three suits for a wedding, a funeral, a job interview. So it's just that they're doing it their own way. And it's very difficult to buy suits online. You really need to go in and touch, feel and get fitted. So having a retail locations is crucial to get the guy to understand how it suits. And everybody

type is different, let's be sure about that. So just it is Father's Day. So what what would you suggest would be like a really good, thoughtful, cool, fun gift. Yeah, I mean they're all different. Well here's the thing. What a great and we found this that guys are getting custom suits as gifts the experience. It's not actually purchased, but it's a great gift. But if you want something more affordable, linen is a great fabric for spring summer. So the linen shirt is always a great piece of

white linen shirt. It's fresh. Anything that's more personal to the dad. Maybe some dads are more dressed up. Some day ads are a little more casual. So it really depends on the direction you want to take. Where in the United States that you're actually seeing younger people dressing up more. Yeah, I think if you look at the cities, I mean obviously just looking at the building that we're in today, seeing all the young guys. There are a lot of guys in shirts and trousers, but there are

a lot of guys and jackets and trousers. Some will tie, some without But we find that throughout, including that the dashing man next to me, of course, and it's great dressed in a short and tie. But you know, there is something wonderful. But when a guy gets dressed, he feels different. I always say, a guy feels like James Bond. You know, you put on a great suit or a great texedough there's something really special about that. It's now guys are wearing suits because they want to, not because

they have to. And that's the distinction. It's not a uniform anymore. Joseph. I think one of the great things about your brand and your company over the years that just a good Brandon line of clothing is it's actually manufactured here in the United States. Can you tell us about that? Yeah, yeah, no, that's I think of all of the things, of all my accomplishments are factory in

New Bedford, Massachusetts. We have eight hundred people there and we produce about three hundred thousand high quality tailored garments a year using Zenia fabric, lor Piano Fabric, all the high end Italian fabric. So uh and it's grown. The first season I launched in we made two thousand suits there and now we're up to about three hundred and forty thousand units, so it's it's it's a great place.

I think most people don't know that. But it's not just about being made in America's being made well in America. That's important. So you're part of tailored brands, and I know that they did just appoint a new chief executive officer within the past few months, Janish Lothi, and his background is more in the casual wear, and I'm wondering how that sort of meshed with your understanding of kind

of the future. How is that kind of going forward? Well, I think Denish is Uh is highly intelligent, energized CEO. We love having him. I think he's learned about what we do in tailoring. He can fit a suit now, so he really immerses himself in the experience. And when we talk about casual and dressing, I think there's a myth to some degree. As a woman, you probably know

that women have one wardrobe. Men have two wardrobes. They haven't learned to integrate their wardrobes, and so when we talk about casual, you can put a casual piece in with a suit. So we're trying to teach men about lifestyle dressing, and that does include suits, dressy clothing, but it also includes sports wear. So I don't think there's a one way or another to dress. I think it should be all available to man, such as you mentioned earlier,

online shopping and how that's you know, there's challenges. They are certainly in fine clothing. You talked about the importance of actually touching and feeling it. Uh. You guys have a new story you opened recently right your for your collection. Yes, it's our it's our flagship store or black label collection on forty ninth and Madison. And what I really wanted to do is bring back the experience of the great specialty store, great product, one of a kind pieces, service,

style and information. And that's always been my goal is to be able to help men because so often you walk into a store, you can't get the proper help, you can't get the right fit. So service is a huge part of the experience for guys. I love that. When it comes to the experience for women, people talk about manicures and and uh and getting your hair done in bloods. But with with respect to a male store, it's just simply the service. Is there anything else any

other high touch elements of being served in a store. Yeah, you know, the the whole experience for guys. You know, lifestyle for guys. We talk about the barbershop, we talk about the bar those things that are important but really for guys. And it's interesting how men shop. They're there, they're laser focused. They want to know about the fabric, they want to know about the fit, and it's so important to give them that information. You know, here's a

fabric that is from Italy or from the UK. And also what you want to do is make sure that you can tell them about the experience and having them enjoy it. Make it a process for the guy and his wife or girlfriend or mom whatever. Jessepha Food, thank you so much for being with us. Thank you guys for having me again. Jesseph's food designer and chief creative director of Men's Warehouse. 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. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter at Lisa Abram wits one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.