Surveillance: Black Lives Matter With LeBron

and that was Lebron James leading early. It is something he has continued on our Jason Kelly with this important interview with Mr James on his business enterprises. Here is Lebron James on a leadership and the National Basketball Association. Being a leader is not when. It's not about when you decide to do it. It's every single day. If you want to be a leader, or you call yourself a leader, has to be every single day that you wake up and you jump out of your bid and

people are gonna follow you. Then if people are gonna understand you and understand that you're not perfect, but they know you are true to them, so you know, my mission has always been that and it will it will not change. I will continue to point out things that I know is wrong, UM if I see it, UM, not only socially, but also with cameras in my face. And I will also continue to leave by example as a model citizen, as a black man growing up UM

in America. So my mission stays the same, Lebron, I do wonder I think back toeen and and Eric Garner and the T shirt UH that you wore, and the NBA has consistently stood behind you and its players in terms of protests. Other leagues have not done that, most notably the NFL. Now the NFL has changed its tune.

What do you make of that? UM? I do know one thing I can speak from is what I'm a part of and a part of the league with a great commissioner and Adam Silver, and he's always listened to the voice of his players, UM, and I've always respected him of that for that, UM, He's given us an opportunity to when we feel something that's very wrong with society, that's very wrong with what's going on in our communities, that we could speak upon that and use the NBA

shield to back us. And UM, I have nothing but respect for Adam Silver. Um, as far as the NFL, I'm not in those locker rooms. I'm not with those guys. But I do understand, um, that an apology. I have not heard true official apology to Colin Kaepernick on what he was going through and what he was trying to tell the NFL and tell the world about why he was kneeling when he was doing that as a San Francisco forty niner. Um, So I just see that to

be still be wrong. Um. And now they are listening something. But I still think, um, we have not heard that official apology to a man who basically sacrifice everything for the better at his world. So I can say that about about that, And Maverick, I wonder about the Kaepernick issuing from from your perspective, knowing the business world, the endorsement world, the economic element of this, how does that change going forward? Given that, I think it's fair to

say Colin Kaepernick was vindicated in a lot of senses. Yeah, well, I think you know. The fact of the matter is, Um, Colin Kaepernick did what was on his heart, He did what he felt was right. He took all the right steps. People always obviously look over that he met with the military. Uh. I think it was a marine or maybe even a Navy seal that told him sitting was the wrong thing to do, that he should knew. That's where he actually

got the idea. He took the right steps. But I think as black people, you know, we've been ringing this alarm for a long time, and and and the rest of the country, who are you know, I happen to believe most people are good, so who are not? Even races have just been hitting snooze on it because it's just the system has been set up in a way that even if you're not racist, right, that you still

perpetuate a system that oppresses black people. An important conversation when Jason Kelly started this project in February, but now in the summer of our discontent, exceptionally important to listen to Lebron James not only on his business affairs, but also on his take on American society. This is a joy. He comes to us today within the vicinity of his Colby College, and he comes to us from BMB Perry

Bob where he does global allocation. But far more than that, Mark Howard was an institution at Lehman Brothers for years in credit analysis, were thrilled he could join us this morning. Mark, I'm gonna cut to the chase. There's no real yield. There's barely any nominal yield at all. What's a retire read to do? Tom, That's a great question, because I think even the real yield that is there is a

little bit illusory. For example, if you strip out some of the distressed assets in the high yield market that that the same person wouldn't normally buy, the remaining yield or spread is really uh, quite average, if you will, in the scheme of things looking over time. So I think a retiree is supposed to be diversified. They're supposed to own equities, perhaps a little bit more than they

normally do. And uh and they have to be very careful to keep dry powder, to buy tips like we had yesterday, because the way to generate return, the way to generate alphau is to be fairly nimble. Unfortunately, this is a this is a very odd market, as John is talking about. On many occasions, policymakers are really distorting things and that makes it very difficult for retirees. Well, John does that on his property. The real yield we're looking for that folks to come back sometime in two

things and twenty two. Mark, I want thank you, Mark. I want to look right now when I look at the yield dynamics, there's a one way bet right now in conversation about higher yields, yield curve control, etcetera. Do you push against the one way bet and look for yields stability or even lower yields? You know, Tom, I think that you know, there's a there's a short term

and there's a longer term. We do think that that there's probably gonna be some give back and perhaps a bit of a rally and yields, but ultimately we you know, over the into the fourth quarter as we have election uncertainty and and other noise in the marketplace defensiveness. But but longer term, we think central banks are gonna really keep pressure on yields and it's gonna be hard to fight that tape. That's a that's a tough one to

fight against. Mark. There's a real worry about the instability and some of the states across the United States right now. And I just want to and I just wanted a little bit more deeply if the United States become the source of instability in the months to come. What does that mean for the primacy of dollar denominated assets. You know, it's a it's a great question, Jonathan, and and I

hear that increasingly from global investors. We've seen quite a bit of money flowing into Europe, for example, recently reflecting both a more active ECB, better growth data, and underlying that issue about whether the currency tail winds might be better in Europe than in the US. But the dollar has been surprisingly resilient and as you as you know, a lot of people expect one more round a fiscal stimulus,

particularly its administration looks to bolster it's reelection chances. So um, you know, it's it's it's hard to see the dollar giving up a lot in the short term, but longer term, yes, that dollar primacy is at some risk, particularly depending on how the election goes later this year. So Mark, is that basically your way of saying that you currently are still betting on US dollar assets ahead of others or does this mean this is sort of a medium term

bet on on Europe? How how are you positioning well, As one of your earlier guests Andrew said before in a in a risk off. Treasuries still hold a lot of the lure, as does high quality credit, so uh, in the in the shorter term, not that we expect a major risk off, but we wouldn't be surprised to see a pullback over the quiet summer months when liquidity is less and as investors position four, we think the dollar will remain resilient, So we're not uh anticipating a

big move. We do think structurally the dollar is a little bit expensive versus the basket and versus the Euro longer term. Uh, you know, there there are very real questions about dollar primacy and UM, but we're not staking big allocation bets on that until we get closer to

the election and have more clarity around that mark. You talked about central bank distortions, and there is this feeling, don't fight the Fed, go into risk your assets because yields will remain ultra ultra low and they're going to keep pump being that prime to get asset prices higher.

At what point does that fall down? As we see the highest pace of bankruptcy is in the US since two thousand and nine, with Chuck E. Cheese filing for bankruptcy this morning, at least it's a it's a terrific question. And and you know, increasingly we're seeing fund managers, the big major fund managers acknowledge that, uh, you know, rates, much of the mortgage market, the investment grade credit market, even part of the double being market is hugely distorted.

And that's not just in the US, but it's it's in Europe as well. And so equities are the one place to kinda to pivot or to to uh swing your at your risk allocation. And the very low end of the high yield market, of course that's not liquid enough to do very tactically. So um we we do see um, you know, the potential for particularly as we

see the second wave of corporate stress. Right the first wave were the most directly affected companies, the airlines, the cruise companies, U edging, and the light The second wave are going to be the ones that are exposed to have been basically broken, either from a business model or from a balance sheet standpoint, and that's where you're going to see more bankruptcies, particularly in the energy patch, but

also in retail and in other sectors. So I think you see more dispersion, Lisa, I think you see more differentiation between winners and losers, and then ultimately consolidation through the bankruptcy process. Only Lisa could fit in Chucky Cheese, and our guests would call it a great question. Still, that's something Tom and I seriously can't do. Tom Caine for me now, looking at this data at the moment, there's a serious shift and we need to talk about it.

We were focusing on sequential growth and I think we all got to slap around the head big time in the last few weeks to focus once again on what's really important, subcapacity economic growth. For a long long time, we will be below potential. We talked about the airline sector is just one example. They're going to be below capacity, below potential for months, if not years, Tom, and that's a massive problem for this economy. This is a really,

really important question. I should point out, folks, I've never eaten at Charles Cheese. I'll try to get there before they shut down at the shop Mark Howard. What is so important about this is it really goes to the comfort of investment grade. If John gets his subcapacity economy, does that take out profits and reduce margins, which begins to affect the price of investment grade paper. Tom. In

a normal world that absolutely would be the case. So we're not in a normal world where central banks are are really propping up the investment grade market to maintain um you know, good good liquidity in these markets and access to capital. All the major US corporations who needed money this year are into early next for refinancing or for um for investment purposes have tapptain marketing. As you know, we've had one point two trillion of I g issuing

so far this year. The back half of the year is gonna be a lot less, perhaps only four million a billion of issuance. So there just isn't the need for for this type of excuse me, isn't the need for fresh capital. And as long as the central bank is they're buying assets. We don't see a real pullback, only a modest pullback investment grates and we think it's a safe asset class for the foreseeable future. Mark. Maybe this is off the mark, Howard Radar, but I'm going

to ask it. I think it is a timely question, folks, and that is of state and city finances in America. How urgent is it in the fixed income space to get our state and local taxation fiscal debt fixed soon. Well at the time, you know that there are both structural and short term issues, whether it's the long term pension and retiree health issues that that plague our our

municipalities in our states. But in the short term they're you know, very real budget gaps that need to be um sorted out by uh, you know, per per law UH. And I think there's gonna be a band aid applied to that in one form or another. No structural fix um and so it's important, but I think Washington is working on it, and I think it will particularly now with the migration of the virus. It's no longer a we they phenomena uh, and money being transported from one

state to another. We're all in this together. So I think we're going to see some some band aids applied to that fiscal situation. But it's a very real issue for a lot of insurance companies, particularly pncs that are very involved in the muni market, and of course for a broad swath of retirees who who are active investors there.

Mark how would have BEFITS has today to catch up with he said, right now, with us Sebastian page of Tiro Price of course, the venerable buy side institution in Baltimore, Maryland, and we're thrilled he could be with us for a mid year correction. Sebastian, Within all this turmoil and the record uncertainty, how do you reframe for the second half of two thousand wanting Well, Tom, we just had our Assocation Committee meeting and we will remain neutral for now

between stocks and bonds. You were just talking about the key risks with the reopening, and those are all very immediate risks, the pandemic and the reopening risk, and the only thing I would say there is a significant risk. But we also have to contrast the statistics on the number of deaths and hospitalizations and there's a risk there in Texas that came out this morning with the number of cases themselves. So there's interpretation in the data and nuance,

but it is a risk. Then the election, you know, for the second half of the year, and then just generally the uncertainty on the pace of the economic recovery. And this is where sentiment matters. What are what is priston with respect to what's going to come out. We're just talking about unemployment and claims data. You know, I listened to your show a lot, and every gas on Bloomberg Surveillance was pessimistic about six weeks ago. Right. The refrain was, we're not getting a V shape and it's

going to be really, really slow more than people think. Uh. But recently you've seen a little bit of a reset of expectations on the upside. So that kind of gives us pause. Actually, because we tend to lean against the wind. So we're willing to take some cyclical exposures in our portfolios for the second half of the year, and we typically take a six to eight horizon under the hood of a neutral stocks re respond positioning, so we'll have

slight overweights to small caps and emerging markets. For example, what is leaning against the winds Maine? An environment like this sebastition, you know it Generally speaking, it means looking at valuation. Now, in this environment, it's very hard to look at valuations because the fundamentals are very hard to estimate.

But let's look at emerging markets. For example, emerging markets if you look at just forward pease, and again the data is not perfect, right, but relative to the US, they've essentially never been that cheap if you look at say fifteen twenty years of data, So we're talking nine percentile valuations in favor of emerging markets. So that's an example of where you could lean against the wind. But in the current environment, it's not just about valuations. It's

also about, of course, the macro. The macro could be could be favorable for emerging markets as well. You know, we expect a weaker dollar, and just generally speaking, coming af you use business cycle models coming out of recessions, emerging markets tend to do well, and the sentiment could turn favorable if you take the six to eighteen much horizon. So, Jonathan, that's an example of how we would think about leaning

against the wind. Look at how extremes some of the valuations are, and then look at the other factors fundamental, macro and sentiment. So looking at the fundamental factors, we're just getting news that Macy's, for example, is a planning layoffs that are roughly three percent of the total workforces. Plays into this feeling that as this goes on, as a sentiment SAgs in the face of those higher virus counts, the layoffs will only continue to mount. From your perspective.

Are official shutdowns positive for sentiment given the fact that perhaps it will shore up some confidence that the virus will get simed and get curtailed. Or are they negative given the fact that they could spread fear further. It's clearer their negative, and it's clear that the news flow for sentiment over the last couple of days is negative because there's just so much uncertainty just about the pace

of the reopening. Right if you just zoom out and take a longer time horizon, this is fundamentally more of a temporary shock than other economic shocks we've had in history. But day today, Uh, I don't think there's an expectation that will go back into full nationwide lockdown, but it will be a bumpy road towards reopening, and that is

definitely negative sentiment. But if you're kind of a longer term investor, again going back to the idea of leaning against the wind, it gives you an opportunity to do that when valuations get really really stretched, you know. Yep, Sebastian, the heritage of tro price. Just one final question, if we could is growth. How do you deal with the mega growth stocks right now? How does tro price deal with these stocks that just go up and up and up.

You know, for us, growth remained the secular winners. But going back to valuations, that's the most kind of worrisome aspect of the value growth decision. Just just look at the performance of value on your Bloomberg year today right minus seventeen and relative to growth over the last twelve months, thirty percent under performance value relative to growth. So we like the fact that growth are secular winners, and we're

investors in growth stocks. But if I talk to some of our bottom up portfolio managers, some of them are starting to hedge some of these exposures with more cyclicality in the portfolio, looking at financials and energy stocks for example. US as asset allocators, we're going to be neutral for now between value and growth. Now is not the time to be a hero in either direction between value and growth stocks. Sebastian Page as hero price and really good advice.

Right now we need to catch up unvail. You you can do that with Mario Gabella. Yeah is this title in that title at Gemco and Gabelle And yes he's a grateful anthropist and all that. But what you really need to know is he was a disciple of Roger Murray. One of the reasons we have the I R A and the old Kio account and frankly the four oh one K was a Columbia University professor who stood up and change the perception of value investing many many decades ago.

Mr Gibelly was a disciple of Roger Murray and he joins us this morning, Mario, is value investing changing right now? Is it changed from Graham and Dodd to Roger Murray and that is it changing right now into is something new? Yeah, that's a great question. And I'm glad you mentioned h Roger and his success of Bruce Greenwald. What we do and basically read annual reports. I was on conference calls yesterday, for example, Patterson Company was talking about so on and

we're talking to broadcast of executives to understand business. So we look with a microscope on the details that are unfolding, but also use a telescope and say what the company and the world gonna look like in five years. So nothing has changed. But going back, since the middle of March, Gubbies gold and now growth stocks have been the flavor

of the day. The descriptive see between owning a basket of in quotes UH interesting value companies are particularly small leverage companies on the downside of a cycle has been a challenge. How Growth team led by Howard Wards up thirteen percent of value teams poly down fifteen. But we think the best is yet to come and over the next three or four years you're gonna get an enormous

UH surgeon. And as the economy improves in value investing type stocks, you are notorious for the conference call and for speaking to managements. Are they impatient over there under valuation? And can they affect a plan to find value while they wait for the market to find value? Are they motivated to see their shares move higher? I don't know

if they want motivated to move the shares higher. Independent of that, If you want to be practical, Tom, if you had a stock that was forty in your options, are ours? We're at a strike of forty five and you stock ten? You know you reset the option, So forget that and let's stop being cynical all the time. The point is that what is intrinsic value? What is the business worth? Why aren't there more deals surfacing that value?

When will deals come back? When will the Henry Travis is and the private equity guys and the facts unfolded. And you're going to see more of that, particularly as you get closer to the election, going into independent of that, what how bad is bad? How good is good? What are the changes in the world with regards to the changing business models? You know Shampa has said this before, creative the structure, we call it creative innovation. What's going

on in the digital world? And then how do you what's going on in the economy and what are the speed bumps short term and what are they long term? So you've got all of those. Okay, are you so? How bad is bad? And you'll get a dot today on the c Fred on his Federal Reserve of the United States and stress tests. But what the Fed did was they went into hypersonic in terms of monetary policy. That you've gone into hypersonic with regards the fiscal policy.

You'll hopefully get some kind of an infrastructure bill coming down, even though it's politically a challenge to do it. But bottom line is that the second quarter earnings coming out in about two weeks, they're gonna start showing. If you look through the reary mirror some uninspiring results. The question is when the able just look through the UH windshield and then the second pirate francy and is fairly uncomplicated.

When PPP drops out at the end of July, will the US economy, which is a quarter of the world's economy, will the Japanese economy well, the Chinese economy which is seventeen percent of the world, and will European economies improved. The I m F came out yesterday and painted a very robust picture. For one, I'm kind of in part in that camp, and I you know, the Chinese are doing better at an accelerating rate. So the global economy

looks okay. US margins will be under pressure because of higher cost UH tax rates are likely to be a questioned in terms of the outlook. One corporate cash flows are not as good as they think. The second part, however, is companies are not buying stock back. Yesterday, for example, TEAMUS issue twenty billion dollars T Mobile to buy UH Softbanks ownership of their stock UH and so on. So you're seeing corporate issuance is also putting a lit on

the market. And then the question is the multiple So We're very optimistic over the next two or three years about what we find. Marie, I guess you know, how do you look at supply chains so you can find a value company or value investing and then something happens in trade wars are actually you know, countries are much more inward looking and changes everything. Well, you know Francy and that's a great idea. And you take a look the old concept of the nineteen thirties when you looked

at companies with a microscope. You looked at companies selling the low cash value. You know, we find them today hard to believe. If there are companies out there selling the location, the problem is they're not large, Okay. But then the question is what do you do with financial engineering?

You saw uh Adele look at potentially selling of vm ware or spending it or monetizing at Deutsche Telecom, which you look at what they're doing with T Mobile in the United States and what soft bank did, and that's financial engineering. You see DuPont when international flavors and fragrances

ed Reeden that runs that as a financial engineer. Then you see companies saying let's try to make corporate love, and that has been on a challenge short term and it's politically not appropriate because you everyone wants to not lose their champion to h takeovers, and then what you're also seeing is a lot of fraud. Uh. You had another one today and uh, I believe was Singapore. You

had some other companies. It reminds me of World Calm in the United States and Enron about eighteen years ago, Mario gabell I gotta make a tuition payment to Fordham and after that, I got to write a check to Boston College. I gotta make some money fast. What's the best education? Education? Education? Start thinking about helping out inter city schools, helping out schools where we can bolve Okay, the students through the system. Let's rip up the script

right now. We're Mario Bally. Well, let's rip up the script right now. Mr James is talking about education matters. What are the fat cats like you need to do to generate a jump start education experience in the poorer parts of each major city in this country. What's that plan about, Johnny? Start that education? Yeah, twenty five years ago we started giving money for the South Bronx Educational Fund with the Mayas, the Supreme Court justice came out of We also have been involved in in the city

schools through Christo Ray. We'd like to give back to the community in that fashion. The problem we have today, even though we were roting working with Zoom, we're working with the team and those kinds of technologies. How do I train individuals? How do I get them to learn about, how to do research, how to do independent judgment unless we can get them in one location. Sometimes are the

challenges in terms of going out and recruiting individuals. We've actually hired individuals from high school that we're in the in the city to work with us for a training program. That's a challenge today in terms of you know, do you put them on mass transit to get up to

wherever we're located in Grantiture and so on. So those are some of the challenges Tom And on the other side, we have endowed scholarship of professorships at Taulane at the University of Miami and so on, and we're looking at other schools to do this and how why should we not go to Temple in more House and try to do something like that. We just got to figure that out right. Marioga Belly thank you so much. Greatly appreciate that. Mr Gabilly, of course alluding to our interview to Lebron James,

see them across the Bloomberg Network. 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 before the podcast. You can always catch us worldwide. I'm Bloomberg Radio