Treasuries Reflect Doubt About Trump, Fiduciary CIO Says

He is the chief investment officer of Fiduciary Trust. And Peter, thanks for being with us. And I know that it's it's what happens. You're based in Boston, you come to New York, and you know it's like two ships crossing in the night. That's right. So thanks very much for being for being with us. Here's here's my question to you.

Does it make any ends that you can invest in a company that's still making money and is one of the leaders in its field Ford Motor Company and you're gonna get a five and a half percent dividend or do you want to lend your money to the US government for thirty years? Uh? And get. Well, you're you're picking two very different um securities to examine him, right, I mean, you've got I'm wondering if you could use it as an example for how we've gotten here, Like

how how is this possible? Well, let's look at the U S. Treasury yield, because I think that is more telling in its own way than the Ford example you gave right now. You know when you look at the SMB five hundred also, and that's up about seven percent or so a year to date. And then you've got the ten uere treasury, which really has stopped tracking the anticipated growth that we all thought was going to happen

post Trump's announcement of his victory. So I think what's happening is we're starting to look more carefully at the prospect for growth in treasuries, are reflecting that doubt that's gradually creeping into our market and forcing us to take a second look at the promises of the Trump policies and whether or not they will actually come to fruition. Peter, is this one of the most boring markets you've ever

dealt with? Always by far boring, I mean we've got if you look at the vix I guess you could say that that might be an indication of boredom, but uh, in contrary to that, I think that this is one of the most unprecedented markets in terms of what's happening. If you want to talk on a global perspective, all the uncertainty that we're living through right now, and on a domestic perspective, so many unanswered questions, totally without a doubt,

so many unanswered questions and unanswerable questions. Uh. You know, we hear a lot about a lack of conviction. We heard that Goldman saxes. Uh. David Solomon came out yesterday on Bloomberg Television was saying the reason why trading volumes and revenues were down so much at Coleman Sects relative to the expectations in the first quarter was simply just because of a lack of conviction. Do you feel like you have conviction? And if so, what is your boldest bet? Okay,

So here's the way we're thinking of this. Um, if you just use what I would call a building block approach to US equities, uh, and you assume earnings growth is going to be seven percent this year, which is fairly typical and then you add on another two percent for the dividend. That's nine percent growth for the year or nine percent total return. And as you know, so we're a third through the year, so we should actually be tracking about only three percent up, but instead the

SMP is tracking north of seven percent. So you've got what I would call this four percent UH premium, and what is baked into that premium a lot of hope that the Trump policies, in our opinion, will be UH materialized. And if that doesn't, I think that's a big concern, and you could be seeing a sell off of anywhere from say four to seven percent this year based on how these things play out. Peter Anderson, Um, what kind of yield would you have to be offered if the

Treasury Secretary Stephen Manuchin was selling hundred year bonds? Well, you know the other thing, when people are starting it's a little bit um challenging to present that to the general public pain because you've been involves the daunted bond math, right, and people tend to think that, well, a hundred year bond, you know, its duration or its interest sensitivity is that, you know, uh, four times as great as a twenty five year bond and UH for those that have done

the calculation, it doesn't turn out to be that way. So people would expect probably a much higher yield just subjectively than the math will probably prove out to be. So at the current rates, you would have to have.

Let me, just in practical terms, I think for people to be interested, for the retail or non professional investor to be interested, the yield that they have in mind would probably be not anywhere near what the yield the market yield would present, which I would think is below easily below five at this point if they were to issue it. Right now, let's talk about credit corporate credit.

We've heard from scottman Or from Guggenheim Partners yesterday at the Milk and conference, and he was saying that he's recommending his clients steer away from you as credit markets, particularly the riskier segments. What's your view. I have a long history and love hate relationship with hil bonds, and I am currently very supportive of them. I think, just in the same vein as you would think of a small cap US equity, they tend to be ring fence

in terms of their revenues. They're more dependent upon their domestic economy, which we haven't talked at all about how positive we are on the domestic stick economy. We think that that's very consistently strong, and so if you're a high yield borrower, you probably will be looking very good, unless you're an international high yield borrower, which lends more complexities to the calculation. But US domestic small cap companies that tend to be high yield issuers would look very

positive to us. So you're also positive on those same equities small small cap domestic companies, depending upon how their revenue segments are. Yes, because they tend to be smaller, they tend to be what I would call unitary focus on one or two product lines, simpler to analyze, would be somewhat insulated from the whole Brexit conundrum that we're we are looking at for the next two years. Much simpler strips away those unanswered questions and are much easier

to analyze from a fundamental mathemata spreadsheet perspective. What about emerging market steps? You know, uh, emerging markets, there is a place and everybody's portfolio for it. But let's not

go overboard. I mean we are going overboard, they really are and I think it's because of a relationship between you look at US and what's going on here, and you look at the developed markets, and for some reason, people are using a logic saying, well, there aren't as many unanswered questions in emerging markets right now, so therefore they look less risky. But as we know, that is not the right logic to use. I mean, emerging markets are the most risky uh. Second to say, frontier markets.

So while you want to have exposure, we're advocating UH anywhere from save three to five percent in a portfolio, not double that, which is what I've been reading recently. Well and has that changed to the three to five No, we tend to stay fairly constant with these UH with these asset locations, because we think moving or trimming or rebalancing more frequently than a year as a fool's errand because you need at least a years of data, and right now there is as you mentioned, you know, is

this the most boring market. No, I would say it's the most unstable market in terms of information. And until we get new clarity, fact based clarity, especially in the US, we just have to wait and see how these things are going to develop fact based clarity. We all are praying for that. Peter Anderson, chief investment officer and vice president at Fiduciary Trust in Boston, but he's in New York. We're in Boston. Makes sense of that. We can't at least.

Abramy was here with Pim Fox and we're broadcasting live from red Hat Summit. We're broadcasting from the Red Hat Summit and the Boston I'm Pim Fox Long Lisa brahm Witz. And you know, we understand what the word infrastructure means when we talk about bridges or roads or even airports. But technology infrastructure that exists withincorporations has also various lifespans and various histories. And here to understand help us understand how to knit these things together in a more efficient way,

is Joe Fitzgerald. He is the vice president Management Business Unit for Red Hat. Joe, thanks for for being here, um, and thanks for having us. Is that a reasonable? Uh? Analogy that I a picture that I painted? Yes, I

mean the world started off simple. Things were physical, you could touch them, you know, they sort of stayed where you left them, and then over time they become virtual right where you know, you can have many more virtual machines running on physical servers than there really are there. And then the world evolved sort of into different cloud architectures which are even more abstracted and virtual. So it's

getting very complicated. Well, Joe, you have a vision for automated enterprise and this UH is sort of represented in the answable technology by red Hat and I am. We were just talking offline about the idea that, for example, there are all these small automated parts of everyday items that we use and it's up to us to update our system or prevent you know, security threats and press okay and know what depress and what not to press.

But this is basically a way to do that for you and have some kind of UH intermediary to like remove anything that a human actually has to do. Yeah, So we have this vision of an automated enterprise, and the irony is at enterprises have dozens of automation tools. And if you think about automation and other areas, like your car, you have automation for cruise control or for

you know, different things that help the driver. Well, what we need to get to is the point where the thing can talk across these different silos of automation and be able to automate much higher level functions in a car. We've we've hit that with the cell driving car, which takes all these inputs, for example, and and coordinates them in a very sophisticated way. Enterprises don't have that yet. So what has been the main blockade? Why hasn't this

already been created? What's been the obstacle? So it's a couple of things. First of all, it's complexity. A lot of the automation tools are really programming languages or scripting languages, which means that you have to find really smart people who are effectively developers to go write automation. And I think one of the things we see an answerable finally there's a human readable automation language which sort of democratize

his automation. More people can do it, they can understand it, they can participate, So it really changes the whole dynamic. Can you give us an example of an industry that you see in the future that doesn't use this approach but will and will adopt it. Well, So it's interesting. So you know, we acquired Ansball about a year and a half ago, and so you know, red hats Global company. So I've traveled the world talking to customers UM in

many countries and in many different industries. The answerable sort of technology uptake is viral. It's across almost every industry now, from government agencies to financial services, healthcare, manufacturing. It's stunning how many industries have self selected that technology. And then the use cases range from traditional I've got to rule out some physical servers to I've got to put my Alexa application out so that I can you know, deploy my new services for financial services. So if I said

within the airlines, how would answer will be used? What would they be bringing together? So what they would be using answall for is things like devloped practices where they can move their applications much faster from development to production to get them online, to be able to deploy new environments so their developers can be instantly productive. UM to track and manage the process of getting effectively new business

services out. There is there a risk when we start automating the automation, when we start creating, you know, systems to sort of oversee the systems. I mean this is like the tech version of c d O squared. I mean, at what point if there's a if there's some kind of hits or some kind of problem glitch in in one of these areas will have become a catastrophe. Yeah, automation gone wrong can can do some very you know,

damaging things. But I think back to my science fiction roots. Yes, but one of the things I think that you know, helps eliminate that is simplicity. If you've got very complex programming that has you know, one line of programming that's wrong right, or something that wasn't considered, then that the automation can go crazy. When you have a simpler um

automation language where people can read it. Okay, well, so so is this simple language something like, uh, please take this system, put it with this system, make sure it's updated and safe. Thanks, I mean with yeah, yeah, So effectively, you can put a recipe or or um a simple way of defining a system, and if you run that same recipe or that same you know, automation a thousand times, you're gonna get exactly the same result a thousand times. So it makes it very predictable and reliable to be

able to generate those things. So if you're depointing new systems in the cloud or you're deploying a new you know again, bank or airline application or healthcare application. That thing is going to be the same every time. It's gonna be reliable, so you don't get those errors that people make or complexity you know causes. No. It's an interesting topic because it really does pull together the legacy systems,

the older systems that many companies still use. Can you in your travels, what was the oldest system you came into. Did you ever go to go to a company and think, wow, I can't believe they're even running this. There are people using automation tools that are fifteen plus years old, okay,

that you know deploy some of their their systems. They're afraid to touch it, right, And the companies that originally sold it to them have been acquired three times right, and you know, the original people aren't there um, but they don't want to change it because it's so fragile. So one of the challenges here is really getting to this newer age of automation. Any company that us an automate, it's not gonna be able to keep up with all the digital transformation that they have to do. It's just

not going to be possible. I unfortunately can relate having a really old thing being like, just don't touch it and it'll be okay. Joe Fitzgerald, thank you so much for joining us. Joe FitzGeralds as vice president of the Management Business Unit at red Hat, and we are here red Hat Summit in Boston talking about all things cloud and open source and the future of our world. Frankly, we want to take a moment to let you know

about something new from Bloomberg. Starting right now, you can use our io s app or our new Google Chrome extension to scan any news story on any website, instantly revealing relevant news and market data from Bloomberg and other sources related to the companies and people you're reading about. So no matter where you're reading the news, you can bring the power of Bloomberg's news and data with you.

It's pretty amazing. Download our I s app or search for the Bloomberg extension on the Chrome Store to try it out. Learn more at bloomberg dot com slash lens. We're broadcasting from the seventeen red Hat Summit in Boston, and UH I want to cast our attention now to Puerto Rico. UH, the Commonwealth of Puerto Rico is now going to face a series of bondholder lawsuits. In addition, Puerto Rico is also experiencing an outflow of people as well as a real missed opportunity when it comes to

a refinancing its debt. Here to tell us More's Michelle Caski of Bloomberg News. Michelle, thanks for being with us, give us an update on what has happened and maybe put it into the context of what it's like to be in Puerto Rico now well in in in response to your question what it's like to be in Puerto Rico, there's a lot of protests going on UM regarding some of the changes of spending cuts that the governors is proposing.

But what has happened with their lawsuits recently is a legal stay expired Monday night and last night, and that had safeguarded Puerto Rico from creditor lawsuits. That has lifted, so now UM investors are free to UM to sue the commonwealth. And what has happened is we have a suit from both UM and Back Financial Group, which ensures UM some of Puerto Rico's debt, and also a group

of hedge funds holding senior sales tax bombs. Well, Michelle, and this is just the opening salvo I mean, right, I mean the deadline for when puert Rico is somewhat immune from litigation expired at midnight. These lawsuits come today, we can only begin to imagine that this is really just the tip of the iceberg. Now, I would think

that there would be more suits coming. And also remember there there are already existing lawsuits that had have been filed, and so again with the STA being lifted, those lawsuits

can move forward. Maybe we might see some rulings in the next few weeks or so on those suits and um and of course UM one way that can one thing that Puerto rican can do to stop this is the Federal Control Board could pursue Title three, which is this provision in the Federal Promisa law, UM, that rescue law for Puerto Rico, that that that allows Puerto Rico to use a bankruptcy like process to force creditors to to take losses. Well, so why wouldn't they invoke Title three?

Why would they allow these lawsuits to continue in a variety of jurisdictions, right, I mean, this won't necessarily be a controlled kind of uh process of litigation without Title three. Correct, well it yes, and no, I mean why why they're not filing Title three so far is because, I mean it's a very serious step. There's no going back. It's the equivalent of filing bankruptcy. And and so Puerto Rico

really wants to UM consider that heavily before they do it. UM. It would also turn over more control, a bit more control over to the Federal Oversight Board. UM. So of course politicians on island UM would prefer that UM that they don't pursue Title three, although they may not, it may have to be the path that they need to go down to resolve this UM. But also in terms of you know, one one thing that helps out with these lawsuits is there's one judge, federal judge on the island.

His last name is Judge Bestosa, and he had so far as been overseeing many of these cases. So in some ways that helps corral all these different suits. Michelle, I understand that the recent demonstrations and strikes UH took place in front of what's the Sea Borne Airlines World Plaza building. This is where the Fiscal Control Board is

located us UH. There are also the Golden Mile area how bad does the violence have to get or the protests have to get before this becomes a real political issue as much as it is an economic and financial issue right now. Sure it's such a political issue. I mean it's UM this this has happened before on Puerto Rico. UM, the the residents really do take to the streets when UM the politicians announced that they're going to cut back on spending and cut back on programs that help people.

And we see it on the campuses down there as well. UM, some of the campuses get shut down and UM, but it has turned more violent and the governor has UM spoken out about this and and has urged people UM to protest responsibly. You know, what are some deadlines that we really should be focusing on because this has obviously been ongoing for a long time. The pressure is getting matched it up with this stay being lifted. We know that Puerto Rico did try to offer a deal to

bondholders and bondholders rejected it. Both parties seem to think that they're going to fare better in court. What deadlines coming up could force Puerto Rico's hand and force them to UH invoke Title three M. I would think UM as we see over the next few weeks, if we see UM a lot more lawsuits come in, a lot more lawsuits filed, that might really push the Federal Control

Board's hand. Also, if there's any adverse rulings UM where Puerto Rico is unable to UM skip bond payments or is unable to shuffle around money in different revenue streams, than that might force the Control Board to have to pursue Title three. Yeah, and it's also become a political

issue here in the US. We know that that was one of the issues with getting a budget crafted in Congress in the US, where people were some Republicans were saying that Democrats wanted to put in a Medicaid allocation for Puerto Rico, which ended up did getting included in the bill. Uh and and uh Republicans, some Republicans, including President Trump, didn't want that. So I'm sure this will be in the news going forward. And there is seventy

billion dollars of debt at stake. A lot of it is held on the island, but a lot of it is also held not only by Hedgeman's but also by mutual funds in the US that HOLDMUNI bond. So there is a great deal of import on a much broader scale than just this Commonwealth, but in and of itself, is is becoming human humanitarian issue as well. Thanks for listening to the Bloomberg p m 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 Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio k