Wealthy Investing, Market Outlook

Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.

Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.

Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast.

Let's bring in our next guest. My question is for you, Molly, do the rich invest differently than Schmoe's like me?

Well, you have to define the rich as our next guest is going to, because there are the mere mortal millionaires, and then there are billionaires, and then there's a nice group in between called the cent to millionaires. A lot more about them.

Barbara Goodstein is the CEO at R three sixty, catering to the investment needs of high net worth individuals. Thanks for stopping buying the studio. What does R three sixty do?

First of all, it's a community for ultra high net worth wealth creators and their fan families who are trying to navigate the challenges of having these very large family enterprises. And so we bring this community together and people meet and talk about opportunities and challenges.

Why do they need to come together, Because when I become an ultra high net worth industry center, I don't want to talk to anybody.

Well, you would be surprised you actually would want to talk to people because, first of all, that level of wealth can be isolating, but even more importantly, people are getting ideas from each other. We have some of the most successful people in the country and they're sharing ideas on macro global trends with each other, and then they're all benefiting from hearing those different ideas.

So tell us about who some of these quote cent to millionaires are, and those are people that have at least one hundred million dollars in wealth, that's right.

So one of the people that we have in our network is one of the largest hedge fund managers in the country, and he has been very vocal educating our group about the benefits of investing in bitcoin. And had I listened to him, I would have tripled my money. He told us that three things are going to happen. That bitcoin is going to be marked to market, and it was in January that ETFs were going to come

These are people who inherited their wealth or they actually made the money with hard work and starting a business.

So it's actually both.

We have a lot of wealth creators. We also have some people who have inherited the wealth and now they're extending the business that they inherited through the next generation.

So we have both and these are so a lot of this is what they're talking about with each other.

You said, like macro ideas.

I don't think though that these people really want to share where their money's being invested though, right, Like does that all? Well?

They actually are happy to share with each other. And that's the fascinating part about this community. Everybody sharing lots of information, personal information as well as investment information. And so again we've got another member who has written six books on theoretical physics and he's got a PhD in quantum computing.

And I think I know who this is, and.

He's been advising everybody to invest in quantum computing, that there's going to be an enormous rise there. Russia and China are creating something called hack proof quantum computing, and so we're now looking at investing in South Korea. Telecom has built an alternative to that.

Okay, So as an individual investor myself, what can I learn from them?

So I think you could learn about again macro global economic trends, things that are coming. So we are very focused on the defense area. We think that there's going to be an enormous increase in defense spending across the world, and we've already seen it. Poland just bought a thousand tanks from South Korea. That's more than Germany, France, and the UK combined, and that is small compared to what's

What happens, Barbara, if your net worth changes so substantially that either you've been now minted as a billionaire or maybe you're less fortunate and fall into the low single digits of just millionaire status, can you still be in this club?

So We actually have a lot of billionaires in the club. So the average networth is four hundred million dollars. The minimum requirement is one hundred million dollars, so we have a number of billionaires. And the priority in this group is to find people that share the same values. These are people who want to go from prosperity to purpose. They're going from having built extraordinary lives to building extraordinary legacies.

You're talking about philanthropic endeavors.

Yes, many of these people are uniquely philanthropic. We have people that one couple is building the largest foundation to support cochleate ear implants in their states. We have another person who's the largest employer of people with disabilities in her state. So tremendous philanthropy. And one of the requirements is that people have the same values that they're not coming there to use each other. They're coming there to build this community and share with each other.

Barbara, I wish we had more time. Barbara Goudstein, the CEO at R three sixty catering to the investment needs of high net worth individuals. Thanks for stumming by the studio.

You're listening to the Team Ken's live program Bloomberg Markets weekdays at ten am easding on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on to that and wherever you get your podcast.

Well, traders seem to be grappling with the timing of right cuts, Mollie even how many, And that's making for I'm gett a guess, a pretty bumpy road ahead for it's.

A real toss up this year. Who the heck knows.

James Denvert is chief investment officer at main Street Research, and it looks like he's in a loft in San Francisco somewhere. Do I have that right, James?

That's a cool look office?

All right, Do you have any Do you have any clarity for investors on the path forward? What's in the driver's seat?

Yeah?

I think the investors should stop fretting about the FED.

Very refreshing to hear you say that as somebody who is my job it is to hang onto every word the FED says, so covering the economy and the FED. So I appreciate your perspective there for us, James, But this is really interesting, this AI led super cycle. I mean, take us through that and how like people are really going to get, you know, behind the idea that AI seems to be what you're saying, here will be the primary market driver.

Rather than the FED.

That's a kind of revolutionary idea.

Well, it seems revolutionary because in the last two years that's all we hear about. But if you think about the longer term, I've been doing this for thirty five years, the FED is usually not the focus of the conversation all the time. It really is more about corporate profits or how what's the health of the economy. And that's why we think we're going to sort of move towards that, you know, the AI sort of supercycle that we envision.

I think it's really going to go across all sectors.

I mean, at the JP Morgan Healthcare conference last week, I am in San Francisco right now, even though I'm based in Manhattan, but last week the buzzword across the healthcare companies was AI. And I think investors should recognize AI is going to be crossing lots of different sectors and it's going to make these companies much more productive.

Okay, we're going to hold you to that, believe.

Well, yeah, I'll be back in ten years.

Having lived through the dot com bubble, Yeah, there was a lot of flotsam and jetsam, uh, but eventually, yeah, it was a revolutionary the Internet for all of us. When does AI really start to jail in terms of productivity and in terms of sales for the companies that are doing AI? I guess, you know, in Nvidia one of the obvious choices there.

Yeah, and I would like to say that today's a microcost of what I view over the next three to five years. You know, you see this big nastac move on Taiwan Semi's numbers, and you know, how long does it take for AI to really show up in the earnings and the profitability and productivity. It's a very good question. Now some places it's already showing up, and we've seen that in the earnings reports of the early adapters in technology.

So you know, the stock market's not going to.

Wait for the earnings to get a creative because of AI. It's going to discount that before it happens. So I think investors should be really careful here about being too bearish, too fed centric, and just be like, okay, wait a minute, if this is real, if this is going to lead to productivity growth, higher margins, and in corporate profits, you want to kind of buy dips here. And even those dips might be shallow, as a recent one has been.

You gave the doll for kit. What about the Nasdaq one hundred, Well, I.

Think that's really where you as an investor.

You can't ignore the magnificent seven in the Nasdaq one hundred.

It's very important. I know people think, oh gosh, it's said nosed.

Leaves just had like ten seconds left there leaed leaves.

But these stocks are cheap relative through their growth, and video has gotten lower pe as the earnings.

Have gone up this year.

All right, that's I'm going to say. That's the San Francisco.

View, the San Francisco loft view.

That is James Stammerd, Chief investment officer at main Street Research, joining us from San Francisco.

You're listening to the tape. Catch our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Jo Say Alexa play Bloomberg eleven thirty.

Well, a FED pivot seems to be underway, but the timing that's under question right now, how does this change your investment strategy? Let's put that question to our next guest this morning, Karen Murphy, chief investment officer with Castra Investment Management. Good to see you again. So this back and forth, you know, March now maybe June two cuts, six cuts. Who knows, I can't keep track? What does it do to your investment strategy?

We're all having a little trouble keeping track. You know.

The market has been all over the place on this one. You know, in December, as the Fed started to get more dubvish futures, markets started to price in five to six cuts for next year. You know, anybody who's been a FED watcher for a long time had to be a little suspicious about that prediction. And then, of course, more recently we've had jobs data come in a little bit more bullish, Retail spending today looked a little bit better.

And I think in.

General what we're going to see is fewer cuts and later in the year than what the market had been predicting in December.

You think that the momentum then is going to continue into later this year as well. Is that essentially the read through.

On that we do.

I mean, in general, we think that there's a fair amount of momentum in the economy and in the markets in general, so it's still a pretty good environment for investors.

Probably not a repeat of what we saw twenty twenty.

Three, but we are starting to see underlying momentum within the manufacturing sector, right that's been really beaten up last year. It seems to me maybe stabilizing, So that's potential tailwind heading into next year. And then of course, if you look at areas in the market outside you know, the mag seven, the ones that really drove returns last year, there are a lot of pretty interesting opportunities.

So we think that there are some nice.

You know, sort of tailwinds heading into the rest of twenty twenty four.

Okay, so are you extending that outlook into smaller mid caps?

Yeah, I mean that's an easy place to kind of look. You can look elsewhere in the SMP, even outside those core group of names that have done remarkably well. But like small caps are a really great example in that if you look at the Russell two thousand versus S and P five hundred, we're really extreme levels of underperformance, extreme levels of lower evaluations relative to large caps.

So you know, we have really really negative.

Sentiment that's built into these small cap names. And even if you do have headwinds for there, you know how much is too much? How much pessimism is too much? And so we think over the medium term those small caps can actually offer some really nice re terms.

Is there like a magnificent seven in the Russell two thousand? I'm sure?

Yeah, who's out there that I don't know?

Like that?

He's not yet? Who knows?

Who knows? They haven't announced themselves yet. Maybe you're crafts making business or whatever you're doing because you're so hand each John was just telling us that I'm not I really Anyways, we're going to ask Ka this smart question. So so Caar tell us that call in small caps? Would you say that's your highest conviction view for this year?

So, I mean, we see opportunities in a number of different places, and that's sort of what I like about twenty twenty four and how it's setting up. Certainly, small caps look attractive, mid caps look attractive. Outside the US, you have similar issues right where non US versus US has had remarkable underperformance, remarkable low valuations. They're also you have the buffer of higher dividend yields, and then in

I think I put this question to every guest that we say, but in a disinflationary environment or a deflationary environment, what does that do to earnings especially company sales?

Yeah, so certainly as we start to see inflation levels come down, deflation is always a little bit of a dangerous monster. But let's assume we're in disinflation, those rates are coming down, it should slow top line. But what also typically happens is that valuations then do better, right, because you have more certainty about what those earnings levels are going to be further out. So even if earnings levels sort of come down a little bit, valuations then have more room to go on the upside.

So we're only really just starting to knock on the door of earning season. Just had the big US Banks report in the past week, any know, big calls you know for this quarter in terms of themes to look out for, and you know, just generally where the momentum is heading into the new year.

Yeah.

So, you know, roun about the third quarter of last year, we started to see corporate earnings really bottom. So number one, in general, we want to make sure that those earnings are continuing to lift off of the bottom. I think another thing that we'll be looking for is being able to hear companies talk specifically help clear out some of the noise and the economic data that we've had. You know,

You know. That kind of reminds me of a lot of what Michelle Bowman at the FES been saying of like just you know, being a bit cautious about the hard data and what the revisions might show. You think that's maybe something investors are also a bit wary of if this data is really maybe not as strong as it's been made out to be.

I think investors should always be a little weary, particularly around this time of the year. And then we also have this issue that's been pretty consistent over the last couple of years about fewer and fewer people and businesses participating in these surveys.

So just by.

That alone, the quality of the data that we get today is lower than what it might have been a couple of years ago.

Well, she's harping on the revisions.

Now the response rates there, that's something that's been really poor with jolts in particular, which you know, that's what that one We really look at a ton for those job openings, and that one's already a bit difficult to interpret because it's reported with a month lag, so a lot of yeah, I mean, yeah, it's really more been the labor ones, though they're right. Care you think response rates.

Cons confidence as well?

Yeah, so consumer confidence, and again we've seen some weird responses in general.

Some surveys are telling us that consumers remain very low in terms of confidence.

Other ones are looking okay, but then if you look at the response rates within each of those are much lower than what they used to be, so it's hard to know how much stake to put in those. So it's consistent across a lot of different economic data.

Before you go, can you give us name individual names, I don't if you do that, or just sectors or I don't know, let's do energy in general sectors.

Yeah, Well, we actually think over the medium term energy is actually fairly interesting. You know, the underlying commodities have kind of have their own cycle, but if we look at investment levels in those companies, they've been remarkably low, which often presages a pretty good kind of medium term return environment. Valuation levels are half of what their historic levels are. So again, over a couple of year period, we think you can find a lot of interesting opportunities there.

I was hoping you might say some names and we would hear with the magnificent seven Russell are.

Yes, yes, we'll all right.

Karen, thanks a lot, appreciate it. Arah Murphy, good to see again, Chief investment officer with Castra Investment Management.

You're listening to the tape, can't our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.

We'll Mascaviz as CEO and portfolio manager at Heartland Advisors. So what is what is your method for valuing stocks? Let's start there, because I think I know what your answer is.

Well, thanks for the opportunity to be here.

Our process is our ten principles of value invested, and we utilize it to keep our exposures and check. There's a lot of uncertain in the marketplace today, the election, geopolitical, hardsoft, no.

Landing, et cetera.

So we want to be mindful of where we're exposed, overweight, underweight, given the uncertainties out there, then use our process, our ten principles of value to keep those at check.

So you know something that John's been wanting to ask a lot of our guests here is who is the Magnificent seven. I'm just saying I think if John wants to know, then someone else does do you were a man of the people. So if anyways, the question for you then will what is the magnificent seven of the Russell two thousand. We'd all love to know.

Well, that's a great question. I'm not sure that there is a mag seven within the rust of two thousand. It's a benchmark that's populated with a significant chunk of companies that are unprofitable. I think that creates lots of opportunities that said, too, for active investors to pick off those businesses that are high quality that are getting caught up in the near term uncertainty and create value through for our client's longer term.

Okay, let's get more into the differentiation between the smaller caps, the mids and the mega camps at this and the advantages to investors at this point.

Well, I think that's the make has had some big ex ecues.

We have some wonderful companies within it, but there's also wonderful companies in MidCap and small cap places. You know, we're optimistic on JBI Hunt they report later today. It's in the industrial space. It's a leader in the intermodal offering. Their scale and their relationship with Berlin General, and it is second to none, and we see this as a classic self help opportunity or catalyty.

And I see their trucks on the road on the turnpike. They're a shipper or what are they do again?

They provide that container on the back of that tractor. They're the leader in that space. They have a long term agreement with Berlinton Northernd that container that goes on a rail. The cost advantages of intermodal relative truckloader are very significant. The broader space has been challenged because of

So would you say you're pretty bullish on that sector more broadly or it's really just this name and if so, where maybe some other areas you're looking at too well.

I think it's important for investors, back to that earlier commentary of understanding your exposures. Everyone wants to talk about what they're overweight, what the opportunity is. It's equally important all maybe even more so, to understand that downside. Are you comfortable with those underweights?

JB.

Hunt falls within industrials. We actually have an active underweight there that's unique for us. We've historically added value there, but right now that universe in terms of the risk reward of the broader big cap industrial space is not super compelling. We do find opportunities Bill or if I think there's an opportunity in JA behind another active underweight we have has been with financials. That's a big component of both the big cap and small cap. Russell Indsy's our benchmarks.

If you will.

One name that we're excited about, it's down today and report is Northern Trust. That's a duration catalyst. Expectations we believe are very low and we think we don't know what the Fed's going to do, we don't know where the economy is going to go, but all likeli that we're probably going to see some cret deteriorate here in the cores at Northern Trust should be a relative winner within the financial space that also have a significant degree

It's safe to say these are more domestically oriented stocks because they are smaller cap as such, does that mean they're immune from some of the concerns that we see with the larger cap stocks, whether it be geopolitical or I don't know whatever.

I think the reality is we're an intertwined world of every business in some shape or form is going to be impacted from higher commodity prices. Obviously, which was an occurrence associated with the Rusher who came conflict. Now we're having challenges with the container rates, with the issues that

Tell us then about maybe the risk from election perspectives, That certainly got to be a domestic one on your mind.

That's a great question.

If I think, if you sticking with the two names that we talked about, if Trump wins, I suspect that would be good for Hunt. I think we'll continue to see this reshoring trend. He was obviously big on tariffs, discussing trade, You're going to continue to see businesses invest back at here in the United States.

That should be good for HUNT.

I don't know this for certain, but I think his victory would probably lift CEO confidence, high net worth confidence because there'd be thinking that there'd be less regulation coming out of the Beltway.

That should be good for Northern Trust.

If Biden gets re elected, I'm not sure what the headwinds would be for JAB in the near term. Northern Trust being a financial suspect that there'd be continued regulatory screwtiny across the broader financial space, although I don't think Northern Trust would be you know, under the microscope.

All right, where do you see your benchmarks? Time to put you on the spot. Year end. I mean, everybody's told us what they think about the S and P five hundred five thousand. This year benchmark is what the Russell?

Yeah, the Russell two thousand value for our small cat products and the Russell MidCap value for our MidCat product.

We don't have a long.

Term target for either of those, but we're going to continue to focus on taking what the market gives us. A good example of this, you know, we're talking about the FED a little bit here too. If you rewind the clock back to August of twenty twenty two, hol had a very aggressive, intense presentation in Jackson Hold early cyclical stocks sold off into the vault. We pounced on that opportunity in our shareholders of benefit. I suspect whether the FED raises, folds or cuts rates, there's going to

All Right, Thanks, well, nice to talk to you. A great discussion. Will Nascovitzi's the CEO portfolio manager at Heartline Heartlam, the advisors making the case for MIA and smaller cap stocks.

Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three, and I'm fall Sweeney.

I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio