Intesa Sanpaolo Is a Solid and Undervalued Bank, Herro Says

Let's talk a bit about the Trump Trade. We had a lot of conversations yesterday in which guests said, whither the Trump Trade? It's over done and gone? Uh you you you indicated that decide what does the Trump trade? Men?

Because some extent it still exist at the least to the last note you wrote back at April, what's your sense of worth things stand that the role that Washington's playing here in the markets, in the economy right now, well, David, if I had told you that he would be able to get no meaningful legislation passed, and he'd go through chiefs of staff and he'd go through communications directors, you'd say, wow, the market will have real trouble going up. But obviously

that's not been the case. I think what's really gonna matter as we go into the fall is what happens with tax relief or tax reform, at least especially on the corporate side for the market. And so I think the market remains hopeful and Minuchin coming to the fore saying this is what's going to happen. We finally have a plan. I think that's part of the reason the futures are up this morning. So I'm optimistic that the rally has legs to continue. Steven Manuchan saying he has

a plan. There was that a joint statement for members of the Congress and the White House, just over a page long. Do we have enough information here? You disappointed on what we've seen thus far? And as an investor, would you like to see more meat on the bone? Right? Well, it's kind of a double edged sword because the more information they give, the more they're gonna upset certain constituencies.

So I think there's a purposeful vagueness to what they're putting out now, and of course the devil will be in the details as you get down to to September. So I suspect we're gonna start seeing headlines about corporate tax relief, and at least at the beginning, that will spur the market. The real question is will they be able to push things through committees in both the House in the Center. How do you see the interplay between

the turmoil? I think we can call it that if you have you have the communications structories on the job for five or six days and at least uh and the markets are we seeing it reflect what's happening in Washington at all? Or do you get a sensor that the market is becoming more near to what's happening. Well, maybe one of the good news is for the market for with the Scaramuci stuff, has it happened during earning

seasons and their earnings have been relatively benign. We've we've started seeing either UH, solid makes or even some nice beats from tech companies like Facebook. So I think that's really what the markets focused on, rather than the relative short tenure of Scarls. Were this in a good time to speak to him? Futures again, Uh, just lost my here there they are futures dred three up hundred three. We didn't print twenty two thousand on the futures market

this morning. Just check that, Chris, I want to talk about us of cash. The theory is, I mean, thank you Mr Winberg of Golden sax Fame Fame. Trees don't grow to the sky. But the basic idea is there's got to be a point where you don't buy back shares because they're just too rich. Are we there? I think we? I mean, obviously, Tom, it's a case by case basis, but but I think we are kind of there for the folks that are typically in growth companies that have been buying back stock. So uh, I would

stop now. Having said that, it's the part of the ethos of certain companies that they buy back to three the shares each year, and I think that's a mistake. I think Warren Buffett put it pretty well. You'll you'll take a look, you'll do the numbers, and if your stock is a good investment, you'll buy it, and if it's not, you want so where's diving and growth? And I just looked at the stock. I'm not gonna mention folks. It's not a name. A lot of people know. It's

a great American success story. They're up eighteen percent per year off the Lehman Low Bottoms of oh nine, they've got huge dividend growth. Do you just keep doing dividend growth? I mean, it's Mario Gabelly one on one. Yeah, I think you do. One of the probably v major question we ask we're analyzing companies is what is the company going to do with the cash that they produce? And it's not the same for each company. Is no right answer.

If you're a growing company, have great markets that are growing, you reinvest in your own business. But if you're not a growing company, you give that back to shareholders and buy backs. And you know the noise of media, you have discovery scripts, which is you know, we're all trying to sort that out right now. I believe it's twenty of advertising revenue and cable TV something uh like that. Are you seeing constructive m and a creating value or

is it the beginning of an exuberance. No, I think it's even what it's it's it's even later than the beginning of an exuberance. I think we're kind of in

the middle innings of exuberance were in late cycle. So you're starting to see deals that make sense for the bankers, for um, for the executives that are getting compensated on share appreciation things like that, but don't necessarily mean that you're going to see higher earnings as a result with the combined companies, and and and so they're betting on a lot of things going right in order for these

deals to to really justify themselves. What does that deal, that Discovery Scripts deal tell you about that part of the market, the economy, and in particularly your vicom They didn't win that deal. Um, what it is I think is a desperation not to be left behind. Because clearly in the content side of things, there are winners and losers, and so far, at least Discovery has been, you know,

on the losing side of the ledger. And you have companies like Time Warner with HBO, of course Disney with ESPN. Stuff stuff that delivers content that people who are really want and of course the test there are they willing to pay more for it? And for HBO and ESPN the answers yes, and for the Discovery Channel maybe not.

So they're desperately trying to get big enough, and I think the endgame there is to get a critical mass of that then they can be acquired and they can be taken out without just Languishing and Viacoma were shareholders. They're simply because it's too cheap. They have some good content, we think it's worth considerably more. It sells for less than one tempt the market cap of Disney, for example, so we just think that's too low. How old are you about desperation as a motivating fact here in the

TMT space in others? How problematic is that to be motivated by concern or worry that maybe you're going to be left? But you know, it's funny being a value guy. We have the luxury of really looking at industries that are our old fashioned industry. TMT is tough media right now. It's obviously it looks nothing like it looked even five years ago. So you have to be so dynamic there. You can't settle for the status quo like you could if you were an iron or company or something like that.

So you know, if if you're not it's the shark. If you're not moving, you're dying in the media business. And so that's that's a tough way to go. I want to go back to what we talked about before. You said on television you're an eighteen. That's very sequis can you say that a focused portfolio. I remember the uproar over the Fidelity fifty fund years ago uh Mercenel and the crew up in Boston. Fifty was I was outrageous focusing concentration. So here are you running virtually a

hedge fund with eighteen stocks? Have you what's the downside? What's the ugliness? We push back? I mean when I think hedge fund, I think faster money, and and in our holding periods are really three or four years, so we go narrow and deep. Tom. So we're buying Apple at eleven times because nobody was buying the iPhone six and a half or seven complete failure, right, and so we know over the three years there's gonna be a

good product cycle and things like that. We're we're buying Wells Fargo during the credit card debacle because they have a deep management team. They have a biggest mortgage franchise in the United States, and that will come back again over three years in a quarter or two who knows so, And we feel that's better than taking a ride in a mark It. That's certainly uh more expensive than very quickly you're all pull I had from steel from Christopher Whalen,

which is always a constructive thing. Is there something about preferreds here? Do you want to go to convertibles or preferred and pick up a bigger dividend? You know you don't. I don't think some time, I I think you can do things like buying We've been buying Verizon lately because everybody is so down on them because they've done the

unlimited data. So the stock is dropping the mid fifties to the low forties a week or two ago, and then point eight percent yield at four point and and two weeks ago, when it was in the low forties, the yield was in the mid five So I'd rather own that with the prospect of if things were turned to normal, they don't have to be gangbusters. You'll get ten percent appreciation on the stock and the five percent we'll come back and do some investment theory here with

Christopher Gersanti. Always important to do that, uh as as well Chris Krossani with us. And that's a well timed thing. I'm assuming you don't own under armor. You do not on no retail at all. Actually, well, within that, what do you do when you screw up? What do you do? You know? You've got a four year plan on the stock. How do you figure out you made a mistake and what do you do? How do you that's a great question.

That's actually the hardest thing that we do is when do we give up because we don't have an automatic it's down five percent or tempercent kick it out. In fact, often when it's down five or temper cent, that's our opportunity to really load up on a on a position. So so the tough thing is we have a thesis going in and whether it's an analyst that works for me or it's me, we write it down and that's

the thesis we have to stick with. So if they reports something different, um, there's a tendency for folks to come in and say, well, it's still gonna work even though our original thesis didn't work out. And that's when the yellow lights go off and we sell the stock. David grow Yes, I'm going to pounce on that and give some wisdom. Write it down. There's no substitute. This goes back to Gene Perroni, who was a wonderful technician.

Off of his father's historic work. Eugene Peruni said the same, you gotta write it you gotta plot the chart with a pencil. There's just something about writing it down which clarifies thoughts right right. And on our analysts meeting, everybody's required to have a memo, even though with the electronic communications it's so easy to send emails and but we have to have something in writing, and it's got to have numbers in it, and it can't be conceptual. It's

got to be data driven. Um. And so that's something we can return to when things are going going awry, as they always do in a three or four years suggesting the digital world, David, write it down as it lost as a cursive but they don't have to write all day. Could go all day on a lack of cursive in schools. Chris, a few minutes ago you mentioned, well as far ago you said you bought a lot during that first scandal. We had another one this week

and involving these sort of fake insurance schemes. How do you how do you react to that? Is that another opportunity to to buy How confident in the leadership to push back a little? I don't think this this one that they really were buying insurance for folks at car Loans, which they're allowed to do. They just I think they just screwed up, and and I don't think anyone's more

embarrassed about it than they are. And they're gonna spend a bunch of money, but it'll be behind them, I think, relatively quickly, because I don't think there was kind of fraud. I think it was just a bad systems management issue. Are you worried about a recession? At this point of stepping back and looking at the economy broadly, there any indications to you that things are about to turn No.

I'm always scared to say no, no, But I have to say the indicators that we look at, you know, a weekly job claims, which is kind of the most coincident indicator um our average hourly earning and things like that. There's no yellow lights flashing terribly brightly um And so the other thing I would say is, obviously it would be too late when they're all flashing brightly. And I do think we're obviously this this recovery is long in the tooth. But we went down so far in oh

eight oh nine. So I'm one of the guys who thinks it should take longer to come back, because because we went down so far, so I'm not troubled by the length of the of the recovery. What's the biggest misunderstanding about value investing when you talk to people about it? You know, I think the big mistakes value investors make, even good ones, are to be too dogmatic. I mean, there's an old saying by Oscar Wild which I love, which is I'm I'm not young enough to know everything.

And and the longer you go in this business you realize that you have to be adaptable to make money. So when folks say, oh, well tech is too expensive, there's going to be a huge crash, maybe, but maybe that crash doesn't come for two or three years. And meanwhile, buying companies that look expensive, leg Oracle, which is at the higher end of its range, which is but still only eighteen times next year's number. So stuff like that. There are compromises I think you make in this kind

of environment that I don't apologize for. Chris, Thank you, very valuable. Christomers scienty always valuable, but particularly here. The future is a four closing in on SMP. Wow, the vix ten point three zero, that's a good time to speak to Chris Chrissante His research is definitive in its detail on where we're going. What's great about Chuck Gabriel is he doesn't hide away from the sausage making of

what cometh in Washington. Of course, David Grew, you know it's busy, Charles Gabriel, Capital Partners joining US Center Phone Linel, David, why don't you bring in handsome Chuck Gabriel. He knows everything there's to know about the path from budget reform and budget passing to tax reform and tax reform passing. Chuck, Chuck, let me start by asking you what members of the House have left behind here. There was a vote on

a budget before they before they left town. Where do things stand when it comes to the budget in particularly, what are they gonna face when they get back? I guess on September the fifth. I mean, they've got a healthy vacation here. Yeah, it's the ambient air quality improves mightily down in Washington around now. The Senate will be here at least another week, but they that is the

must do business. Even though they didn't pass the budget for in most of two thousand seventeen, so they do have to pass the budget for the fiscal years the twelve months. It begins October one, and they've passed a budget resolution in the House Budget Committee, but it has not yet gone to the floor, and there's evidence that it's uh, it faces a very high hurdles on the House floor, so it might not pass on the House floor, and the House budget would be indigestible in the Senate. So,

you know, just not to belabor it day. We're starting a messy process that's going to all be pushed to the end of the month, at which point we might have a little bit of a of a little skirmish or government a little suspense about a government shutdown this time with the dead ceiling attached and all you know, with Wall Street really mostly focused on the tax cuts. UH, this whole story really has to play through before they can pass a budget resolution that both the House and

the Senate can accept. Probably a shell budget resolution will allow them to move a tax bill through the Senate, and that probably won't come through October November. So, you know, not backing this all into what you'll be talking about all day to day. You know, we've got a new chief of staff, uh, and the Legislative Director is pivoting right off the excitement that you're having a reboot of the White House is already sort of exhorting the Congress

to begin marking up tax reform in September October. And that's just a laughable idea. So that's that's where we are down here. We had a Senator Jeff Flake here, the junior senator from Arizona, on the show yesterday, and he said that if he's going to be a realist, healthcare is now solidly behind the Senate. They've got to move on to two other things. That seems to run counter that opinion. Seems to run counter to what we're hearing from from the White House, both through official and

nonofficial channels. Three statements and tweets. Uh, do you think that it's dead for the time being, Yeah, you know, you know, Channel Princess Bride. It's mostly dead, you know. And there there's the problem is that you still have an imploding set of private insurance exchanges that are going to have to make some very key decisions also in September.

I mean basically, you keep drawing lines towards you know, a sort of concentric circles that point to you know, Ghostbusters type clouds over the Ansonia Building, you know in Washington, you know, in September, UM and UM. So they can't just walk away from it. They can walk away from

making it, you know, their their their sole pursuit. Uh. And they can try to move on to a fiscal eighteen budge of resolution to move tax reform, but you know they're going to have to deal with things like the contribution sharing reimbursements, you know, to bail out the insurers. They'll probably have to do that in an appropriations bill

later this year. And if they do move to tax reform in a fiscal eighteen budget resolution, they can keep a place keeper in there to allow for you know, for health reform to be attached to you know that that bus whenever. So they aren't yet really fully done, but for the most part, you can drive a stake

in the idea of skinny repeal. Wanted to drag it back A chuck to your expertise, which is the sequence of all this our our budget discussions and tax reform in tandem, or is the horse before the cart with the budget reform. They we've had discussions and you know, initial hearings and uh. Now a mark up and passage of a House Budget resolution in the in the House

Budget Committee, Tom. But you know, meanwhile, you know, at the same time, of course, they have had the rollout of the Early Better Way Ryan tax Bill, and now you know sort of principles from the tax of the Big Six, so to speak. So you know, they're they're

they're on separate big tops. They're running simultaneous. But again, the one thing that is as a given every year, like death and taxes, is September thirty and having to fund the government after after at the beginning of the fiscal year that's coming, and this time we have a debt ceiling extension to attach to it, and we have to get through that before we can lock in a new budget resolution and just called eighteen budget resolution that will allow them to move tax reform through the Senate.

With that's what's ahead of Let me ask you, Scoop Jackson, question, I guess is the definitive fiscal conservative who's going to

pay for all this? Well, it'll be interesting if they you know, I think there are many who would love to just do tax relief, but there are a lot of barriers to that based on you know, this ongoing sort of dialectic we've had in Washington about deficits and budgets, and Republicans made such a big deal obviously, and it helped them to retake the House in in two thousand ten and the cent in you know, with the Tea

Party movement. So you know, there was a lot of pressure on President Obama to put uh, you know, um sort of provisions in place to guard against deficits, and so he signed a bill in two thousand and ten that really guards against what we call statutory pago. It actually will force a sequester on things like Medicare if you add to deficits within a five or a ten year window. It's something that's really geeky, almost totally forgotten

in Washington. But there as a result of this, the reality is, well, you know, all the most analysts talk about is adding to deafits outside of a ten year window. There is this really sort of unseen, sort of nasty embedded problem there that really does take the notion of

tax relief largely off the table. And if you're not talking tax relief, you're talking about having to broaden the base and you know, deal with things like eliminating or haircutting the state and local tax deduction, making people take their I ra A uh four own K contributions on an after tax roth the basis, you know, instead of

a pre tax basis. We call that for authentication. A lot of these ideas to raise revenues in order to broaden the base and lower rates really are quite roiling for a number of major constituencies like the you know, the mortgage interest deduction might not be directly at risk, but if they double the standard deduction, that could hurt the realtors and the builders as well. So we're gonna you know, we're gonna go through a really kind of very worrisome September October. When we find do get to

tax reform. It's not going to be all, you know, all joys you are. I'm completely depressed. Yeah, maybe, Tom, maybe the good news would be, you know, if we if really are provoked by Kim Jong un and the Koreans, that would unite us and then we'd see the real strength of the Trump cabinet with McMaster and Madison and

now General Kelly. I'm just trying to get the Red Sox to win six of the something, Chuck, help me understand this This OpEd that ran in the wall Street Journal a little earlier this week, centering on the issue of scoring and tax reform of force has been this big debate over the CBO, and we've had a number of folks in the administration questioned the value of the efficacy of the Congressional Budget Office. What was the argument

being made in the Wall Street Journal? Explain that to us if you wouldn't, Yeah, if you know the you know, obviously the CBO has generated a lot of of antagonism, particularly among Republicans, in the way it's scored these these healthcare reform plans. So it's a antagonism towards the CBO,

particularly among Republicans, is at all time high. And you know, the CBO and the Joint Committee on Taxation have been the officials score key person, if you will, with regard to how, um, you know, the depths of tax reductions are are scored or analyzed. And if you're talking about revenue neutral tax reform, it's very important about how they

score it. And so you know, you have efforts on about two or three fronts to try to two compel the parliamentarian in the Senate uh to to for instance, to allow dynamic scoring to have more positive economic feedback you know, if you will, from the early years of broadening the tax base, generating more productivity. Uh. And and as a results, sort of assuming that, you know, tax reform will pay for itself over a longer period. So

there's this effort towards dynamic scoring. There's efforts, uh, you know, towards maybe extending the budget window to fifteen or twenty years that you can get more bang for the buck in the first ten. But the newest idea was from the Journal. It's not a brand new idea, but it's just basically that instead of using CBO Joint Committee on Taxation warring that Republicans should just take a score from the Department of the of the Treasury or o MB.

And of course OMB is projecting two point six percent growth with the Trump budget instead of one growth under the uh you know, under the CBO. And if you're assuming bigger growth, you get you know, even bigger sort of feedback loop, if you will, and as a result, it would you know, tax you can have a bigger measure of tax relief that would pay for itself over the budget window. That's what this is about. Check, Thank you so much. Check Gabriel with Capital Awful partners with

the sausage. I love you know. It's great, David Girl. That we have a mix of people on watching it. Some are really hyper focused on policy, like Chuck long lengthy notes, uh, sort of wank wank one oh one. And then a guy like Stan Collinder who's got the whole political thing worked out. Greg Villier publishes this morning and it's not that it's gloomy, it's just realistic about time. It's August one. What are you within the politics, David Girl, that you do better than me? What is August first

signal to you? You know, the start of vacation for a lot of these lawmakers. As Chuck was saying, Sene, it's going to stay in session for a little while, longer than than usual. But you know, as we listen to the president today, I think it's important to keep some realism at the front of our mind. Here you have legislators who are leaving town and uh, I think there's been a lot of disappointed with what the White House has produced thus far when it comes to tax reform.

Is Chuck mentioned there was this one page statement of principles from White House officials and Republican members of Congress. Not a whole lot longer than the first set of principles that we got. Of course, this one says the border adjusted taxes firmly off the table. Interestingly, I talked with Tim Phillips, who's the president of Americans Are Prosperity. That's a Koch Brothers backed group, big conservative group that's

also pushing for tax re form. He said he was happy, uh not to have a huge amount of detail here, that helps with the negotiations going forward. Interesting to talk to him, in part because Americans Are Prosperity was not as all in on health care as you as you might have thought. This is something they've wanted to have happened for a while, this debate over TAXI for him. So, uh, you know, I think we're gonna take a little pause here over the month of August September is check mentioned.

I think the focus is going to be on issues of the budget, the dead ceiling. Uh, and then we'll see if this full court press can extend through that into into October when maybe it can be picked up once again. Yeah. I just we're here. The way I look at August first is and you know, David, you look out at the trees changing color. We're not there yet.

The summer is still going full tilt. But in three or four weeks, which is like tomorrow for Washington, believe you, and is both Valier and Gabriel mentioned this budget discussion isn't a normal discussion now, Chuck, sorry, Greg value A calling that a train wreck looming train wreck. Yeah, and you know, forget about the surprises that we could see

in the drama coming out of the White House. And that I just what I would suggest folks within US covering economics, finance, investment, that this thiss cold ballet isn't the normal discussion that you have when you launch into August. I rarely do this. I'm looking at the futures to get the downy two Dow future. Is this morning amy one in our ute? Neither I or David Harrowd ever thought we would get in the twenty thousand was like really and here we are knocking on Dow. Uh and

that door? David, wonderful to have you back with us. Is it a comfortable time to be an international equities because you see the Dow just race race race ever higher. Well, the fact that the Dow race scene is probably give giving all the spill over effect to global equities equities everywhere, but clearly one of the reasons why these markets are increasing is because the profit growth is going up faster than I think people expected probably six nine months a

year ago. And what we're finally starting to see happen in Europe is all the various economic maladies and political maladies seem to be more in the rear view mirror. And and where we're starting to see a better growth rates out of Europe, greater than two percent growth, falling unemployment, lower loan losses. You're finally starting to see a little spark in the European economy. And when you combine that with low valuations, is that it gives people a bit

of to be enthusiastic about European stocks in particular. To give you an idea of folks. If I look at the CAC forty when it ken Prue, it's a late great Prud's favorite um French indusicries CACK forty up sixteen in euros, up twenty based in US dollars. I mean, that's David, where you're getting almost a play on it,

aren't you? You're getting a currency play as well. Yeah, there was a time not too long ago, you know, a few months ago before the year bounced a little bit, that you were really buying not only cheap stocks, but you're buying cheap currencies. And another way this manifested itself. If you look at what an international index has done in the last five years, substantially substantially underperforming SMP five hundred, why because of the dollar strength. Now, finally, what's happened

in the last three or four months. The dollar rally is kind of stalled a little bit, and this has added propulsion to the returns of international equities. So you finally see today what's happened in the last five years. Recently is starting to turn a little bit as the dollar is in fact weakened against the euro in particular. Remember it was only a year or so ago when people were predicting the ero was going to go to a dollar, you know, one to one even below, you know,

and here we are at one sixteen. Yeah. Well, I mean BNP Perry bout just the dominant French bank, and I know that's something you've talked about for years. They pay a much more ample dividend. Let me compare and contrast folks, JP Morrigan uh dividan. JP Morgan's yield is two point two and BNP Perry about four point one,

so you get twice the yield. Can you model in an Anglo American dividend growth for from the basis of where they're both starting, you should see better earnings growth from B and P than JP Morgan going forward down the last year, it was different because the US economy, the recovery was a little bit stronger and a little bit earlier. Now we're just starting to see the European economy recover to acceptable levels. And B and in particular is also exposed to Italy with a small explosion in

the United State eates. But more importantly than that dividing yield of almost four and a half percent is you know how it's just trading it just over ten times earnings UM and you know just above you know book values, so actually below total book book just around tangible book values, so you know you are seeing very very good valuation. It's something that should be able to grow earnings at

least mid single digits. Let me ask you if I could, David just the degree to which personality matters when we talk about these these big banks. So we had HSBC reporting yesterday saying it's going to buy back up to two billion dollars in shares, and so much of the focus was on the outgoing ahead of that bank. On Stewart Gulliver, I wonder when you when you look at a bank, when you assess whether or not to invest in the bank, the degree to what you're you're thinking

about who's running it. Well, that's important because who's running the bank establishes the culture of the bank. And I think in order for banks to make money, this is one business where you want them to be somewhat risk averse. And there's two or three things they have to really be focused on. One is make sure you have good credit standards and lending standards. Two is make sure you're able to control costs, which means putting the right people in the right jobs and spending money on I team

the right places, so lending costs. And then you have to think about product development and be able to offer your clients what they want. And if you're a good management team, and if you focus on those three things, probably in that order, by the way, you're gonna make money over time. Banks are, as we know, a little warrant on the economy. As economies expand, credit expands and the economies are healthy of lower credit losses, etcetera. So

these are conduits of the economy. You want someone stirring the ship who could really focus on those three factors a good credit underwriting, low cost, and good product development. I'll get you to react to the Lady Strings report from Intessas and Palla that was out there this morning. I know you've been an investor in that bank as well. Looks like that profit fell a little bit here, but came in above analysts expectations. What's your what's your read

on how that that bank is doing? Yeah, this is a very very solid European bank, and for years it was punished because it was a bank in Italy. And everyone thought four or five years ago that perhaps perhaps Italy was even gonna default on their debt. Remember the whole pig thing. I mean, we kind of forget these things.

But four or five years ago I remember standing up at a conference listening to someone from PIMCO saying that Portugal is gonna default, Italy is gonna default, maybe Spain and could possibly be friends, and I thought, this is just really a bunch of bunk. But you know, and

and it never happened. But there was a police in the markets, and as a result, these bank stocks were priced as such you could get them for fifty five sixty cents on the dollar book value per share, and in testas Paul, even though being one of the better run in European banks, was caught up being in that whole windstorm, and it really became a great buying opportunity. And I still think it is substantially undervalued. Now the stock is tripled or quadrupled from those days, but it's

still trading extremely evaluation. I mean, look at it's dividend yield, Tom, if you want if you want a good dividend stock, I mean this, this company yields seven percent and we believe it is a very safe yield. David yield huge To come back with Mr Harrow, he needs to look at the h the Chicago Tribune this morning and notice that the Cubs are two and a half games in front of his Milwaukee Brewers brewers as well. Maybe you'll

come back after he digests that information. Wh is David Harrow with Harris associates and with just really sporting performance in the international area. I can honestly say, folks, and there's there's years where David has an off year, maybe you know, one year out of five, when year out of eight, I'll let him tell us. But when you look at the Bloomberg screen, I can honestly say, there's nobody running major money with the nine scond percentile UH

performance across many many areas. Why does so many active managers David Harrold underperform Is that they're over diversified. Is that there are squared is so close to a benchmark? Is it because they don't root for the Milwaukee Brewers? What is it? Most of them are not packer fans of those underperforming, and they criticize Aaron Rodgers and this

leads to the defeat no and all seriousness. I think one of the keys to investment success is sticking to your investment philosophy and style, even though in certain periods of time, as you mentioned, it may be out of favor. And what you can't do is like clients and conser bolts and whoever talk you out of a sound If you have a sound philosophy, which is the foundation of an investment process is a philosophy, and he had Harris Associates were value investors, and we define values low price

in high quality, and you stick to that. You know. Our belief is that a company is valuable because the cash it generates, and so just because stocks are going up in price doesn't mean they're more valuable. And what happens to professional investors is they get fixated by price movement and they let price movement dictate their decision making. They don't have the courage to tell people that, well, okay, we're not buying it because it's not doesn't fit our

invest investment style. Same thing on the way down. When share prices fall, often professional investors lose their nerve, and despite the fact that it would be acceptable and the right thing to do from an economic perspective to keep buying the stock, they actually sell the stock because they don't want to have to explain to the others, to their clients, to consultants why they're holding losers. And I think that's what really separates successful investment management from unsuccessful

is the ability to stick to your knitting. First, you know, the knitting has to be good, and then you have to stick to it. Uh, And I think that second part is what a lot of managers have problems with. They just don't want to go through the exercise of explaining why you own something that's fallen. And I, personally, I think this is what we get paid to do. This is why we get an investment management fee, is to explain ourselves. And a good case for us was

a few years ago with Glencore. I mean the first twenty minutes to thirty minutes of every meeting, of every interview, of every call was why do you own Glencore Now? Instead of just punting it because you don't want to answer the question five times a day, you just keep answering it. This is what you get paid to do, is to answer that question. Let me put a question to you. David the Tom put to Chris Krossant at the top of the show. He asked, Chris, when you

decide to get out of an investment? And I look at your investment Honda Motors, for instance. He stuck with that one for a while and openly, UH got rid of that that position. How do you decide to do it? How do you decide when when enough is enough? By the way, That is a very very good question, because in the particular case of Honda, it wasn't because our measurement of intrinsic value coincided with price. And that's usually when we sell a stock. That is a victory when

price reaches our measurement of intrinsic value. But there's another reason why we might sell a stock if we believe we were wrong, if we believe that we were not in fact investing with a value creative management team. And to us, value creation is what causes price and value to converge, and if there's no slope on that value per share curve, then you're wrong and you have to get out. And in our we believe our assessments of Honda,

we made a mistake. Um, we were having a great deal of difficulty of getting answers out of management, and in fact the chairman left, they didn't replace the chairman, the president wouldn't meet with us. We thought nuts that okay, just because of time, David, that's such an important statement. I want to get to it. Have you seen the change in Japanese management's plural to more Anglo American dialogue with shareholders? I haven't seen it. I would love to

say yes, but Tom, you are right. If it's small, it's that is a huge problem in Japan. They just do not want to run the companies for the owners. There's so many other constituencies. The boards, the suppliers, the employees. These are all important constituencies. Don't get me wrong. The major companies are the major constituents supposed to be. We the shareholder instituencies. Culture. I mean, it's all honest. Okay, David, thanks so much. Come back when the Brewers are in

first place. Because it ain't happened Chicago resurge in Chicago clubs, research ent swarting David Harrow with Harris Associates. Check out his track record. You know, I'm a fan, but he's been on fire for eighteen months, two years. To say it's it's so important, David Gura, how um you can you can catch up quickly with International when they finally move a brief into always too brief conversation with Yakum Fell's of Pimco. Yakum, How new normal are we right now?

I mean we've got Alan Greenspan telling Bloomberg that that he would call for secular stagnation, the idea of inflation dynamics, growth dynamics. What's the stories you see it. Are we in a time of recovering economic growth or not? Well, Tom, I think we are in a time of recovery for global growth, definitely, But I also think we're still very much in the new normal and the new neutral that you know, we've been talking about for years here at PIMCO.

So the new normal and the new neutral is really about low potential output growth, and I see no signs that trend growth is picking up. What we are seeing as a global cyclical recovery, but not a recovery in productivity growth or underlying trend growth. We're definitely still in the new normal new neutral with respect to low inflation. Central banks are still struggling to get inflation back to target um and that all translates into a very low

neutral or equilibrium interest rate. And I think that's fully reflected both in the bond market but also in the stock market, because stocks wouldn't be up here if interest rates were not down there. Yacham Fells are correspondent on the front lines of the Cold currency war that's that's taking place here. You file a dispatch here from those from those front lines. Yeahcum give us a sense of

of who's winning with we have this weekly dollar. Well, clearly the Trump administration is winning that cold currency war. You know, it's a it's a cold currency war, not a hot one, because it's fought with words and with

covert actions. And I think markets FX markets clearly listened to the verbal intervention that we got from President Trump, from Treasury Secretary Minuchin, from Peter Navarro, trumpstraight advisor h late last year and early this year, when the dollar was ten percent higher than it is now, they were pushing back. They were saying the strong dollar is killing us. They were accusing Europe and China of manipulating their currencies.

Markets clear listened to that. The dollar has declined because there was an implicit and sometimes even an explicit threat of protectionist action. So so what we've seen this year is China has stabilized its currency against the dollar. The euro is the euro is stronger, the end is stronger, and there is very little pushback from your both Europe and Japan to their currency strength, even though it threatens to perpetuate very low inflation. So I think Trump is winning.

At that time, there was criticism of that cacophony of voices. We had the Reuben Strung dollar policy, and then you had, as you mentioned, many members of this administration commenting on the strength or weakness of the dollar. Do you do you see this as happenstance that they've won by by anything more than just good luck here in light of

what was was playing out earlier on in the administration's tenure. Yeah, I think I think it's a mix, uh, David, So, I think what happened was, first of all, the verbal intervention left some impression because again there was the fear of protectionist action, So you don't push back against your currency appreciating because you hope that this will prevent protectionist

action from the US. And then the other important part of the dollar weakness we've seen this year is clearly the deflation of the Trump trade, because while Trump is winning the cold currency war, he hasn't managed to push many other the se ancients through. We haven't seen any progress on taxes, for example. Yeah, in the time we got left, I'm gonna go back to a Matthew Tracy Yarkham Fell's piece in May that was exquisite and it

was completely pushing against the productivity is dead. View. What will be the catalysts to give us the green spanning and mystery of better productivity that we saw in the nineties. Well, that's tough to say, Tom, but I think it could just be the passage of time. Because what we highlighted in the piece, Matt and I highlighted the widening gap between the leaders on productivity in each industry and the laggert's. That gap has never been wider than it's been in history.

I wrote another piece this weekend on superstar firms, the emergence of superstar firms highly productive companies. Think of the Fangs, the Google's, the Apples, um, the facebooks of this world who have had extraordinary productivity growth, and then you look at other companies who have really been lagging, and you know,

I think this gap will have to close. Uh. And the most likely way how it closes over time is that the less productive companies will will leave, they will have to exit, or they will have to adopt new technologies themselves to bring productivity up. The timing of that is highly uncertain, but I'm pretty convinced that overall secular horizon next three to five years, we will see a pickup, and maybe it's Jumpertian just clearing of the markets and

moving the laggards out. You cite in your article two of our frequent guests, professors Bryn Jolson and McAfee of the Massachusetts Institute of Technology and the Use of Technology. How do you get their technology to benefit a huge part of America that's not in the crucible of this revolution. If they're outside the revolution, how do we get them into the revolution? Well, I think that's that's a very tough question. I mean, first of all, we are all users.

Large parts of America are users of the new technologies. The problem is many of the users of technology of new technologies these days don't show up in GDP. We use it in our leisure time. So partly I think this is a measurement problem. So consumers welfare rises, the consumer surplus is increasing, but this is not showing up anywhere in the GDP numbers. So in that sense, we've

already seen diffusion of technology. But what I do worry about is that as the productivity laggers are leaving our exiting uh their their respective industries, you will see technological unemployment rising. So in that sense, I think we should be careful what we wish for. If we were to see a pickup in productivity growth, it would probably be accompanied by higher technological unemployment, and that could be quite

disruptive and it could lead to a political backlash. How much of this is being reflected in the the jobs reports that we get here month? We're looking ahead to another one on front of of of this week is the issue of productivity? Are being adequately reflecting those numbers that we see? Yeah, I think you know, that's the mirror image of weak productivity growth. The mirror image of weak productivity growth is stronger job growth. So to produce the same level of output, we need more people or

to you know. So what's happening is we're seeing very decent job growth, but most of the job growth is in low productivity and low wage sectors, largely in the service sector. This is where we are sucking in UH workers. That's good because you know, even low page jobs are better than no jobs. But this perpetuates the low productivity environment because we are creating a lot of low productive and low wage jobs. Off script, one final question, how I compels if we could for your Germany, the idea

of what UH what Germany needs to do. There's a primal scream for a better, more buoyant consumer in Germany. Is it out there or just a cultural reticence? Well, I think partly it's cultural. Partly it's demographic, because Germany is aging very rapidly um and so what what can be done? I think, you know, tax cuts would clearly help.

And I think after the election, which is scheduled for September, you will see a mix of higher government spending on infrastructure but also on on welfare spending, and you will also see tax cuts. So so I think that could help a little bit. But by and large, I think this high savings rate that we're seeing the low consumption in Germany is a structural phenomenon. It won't go away anytime soon, and that's why the current account surplus, which is more than eight percent of GDP, is likely to

stay here for quite a long time. Yeah, Concise, thank you so much, Never enough time, and when you're in New York again, we'll be honored to have you in untelevision in radio as uh well, thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts. SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio