Surveillance: EM Valuations Are Very Cheap, Memani Says

enough about the Third Pillar. It's March and it's already my book of the summer. Rockgoo, congratulations on the third Pillar. And throughout your book on community as a discussion of education, seamlessly throughout four hundred pages. Let me cut to the chase. Your Chicago is so lead. These parents out on the West Coast weren't even trying to get their kids and the professor Roger and Chicago. They were looking at other lower schools like that one in Cambridge in Massachusetts as well.

Ruggle just simply your thoughts on the desperation to buy academics in America. Well, this is very worrisome, right because on the one hand, we already have isquing of opportunities. You have to go to the elite schools to get those elite jobs and and then you get you know, zillions, But for most of us out there, it's very hard

to even take the first step. And then you read that it's not just about legacies, it's not just about preparation schools, which helps you prepare your applications, but it's about buying your way in illegally through corruption. That that that's really a blow to the system and we need to clean this up as quickly as possible. It's not happening you for us. Are you had the most interesting

childhood in India. I won't go into it all, but like many others, you traveled around the world with your father and diplomacy and enforcement for India as well, and you are acculiar ware of the path for you through university in India and then onto your acclaimed world excellence. Is the place those students took. Is it a place from someone in the middle class or is it a place of someone who just went below that level of whatever school and they just eaked out not going to

that fancy school. Well, I think it is a concern that so many people don't get a chance to really get into these school schools. First, you need a level of ambition in some of these schools outside the big cities, which tells you really the way to progress is to go to these high these ivy League schools, and from there get those wonderful jobs. Many students don't even have the ambition because they don't have access to good college counselors who tell them that's out there waiting for you.

There are lots of scholarships, please do apply. And even if they they do, hear that the next step of doing the college tests, of writing the good applications, of getting past those hurdles is very difficult. So when you hear that there are separate tracks here, I think it creates a whole lot of new anxiety over and above

what we already have. Professor, Does this feed populism? Do these kind of scandals the idea that actually the elite and the rich and get whatever they want will lead to people voting to more extreme parties, of course, because I think the sense that the system is cued, even before you add on corruption to it, is already there that the elite look after themselves. I call it the UH.

We have a meritocracy, but it's a hereditary meritocracy. Only the children of the successful get a chance at being successful because of the extreme importance of a really good education. So given that, when you add on to that corruption and after all, what is populism, it's ultimately the corruption of the elite. They're not working for us, they're working for themselves. It leads to a significant amount of distrust

in the system. So my sense is this is one of those scandals which is which has to be cleaned up very very quickly. Professor, again, congratulations on your book, which is fantastic, which is both tom and ized book of the year. When you look actually at central banks, and you said this in the past that you don't believe central banks should do any more, Quei if there was a downturn around the corner, what do you think

they should do instead? Well, certainly the the US Central Bank, the FED, and UH and and China still have some room to cut interest rates. I think part of the normalization was in a sense to create some of that buffer. Of course, the problem with both the CB and the Bank of Japan, is they already into negative interest rates. As far as Quee goes, They've pretty much done what they could and whatever modest effect is that it has had,

it's pretty much out there. There's very little more ammunition in the central bank tank, and so my guess is we have to look for other instruments in those countries. I mean, Professor, this is extraordinary. If you look at a college like Carleton College in Minnesota, this is an acclaim liberal arts institution of the Midwest, just like you're in Chicago. Brian Levitt joins us in the early morning down here Oppenheimer Severia investment strategies. Brian, let's start that

which treasuries, Yeldner, it's an nineteen loves. What's driving things, what's driving the lower rates is just to slow down in global economic activity. Um, you know this was sort of we preordain, We sort of expected this. I mean, you had a lot of stimulus last year, drove rates to three five, FED raised rates a couple of times, and that starts to slow down economic activity. You see rates back down. We've been in the low for long camp for a while now. We believe interest rates are

going to remain low. For a very long period of time. That's what happens in a world where there were just growth stars. So so does equities dovetail in the lower rates or does a dovetail into slow g d P, which means lousy earnings. So earnings are likely to be good enough. UM growth is likely to be good enough to support corporate earnings. But we're still in an environment where rates are so low that stocks are very cheap to bonds, and I expect that with modest earnings growth,

some multiple expansion equity market should continue to do. This is really important, fo Brian, you and I've done this before. Let's walk to it again. When a process stocks are cheap to bonds, what does that mean on dividend versus yield on PE multiple? I mean take that right back to Lewis Ruth Kaiser one oh one. I think an easy way to do it is to just flip the price earnings ratio over and look at the earnings. He has a price to earnings ratio of ten using a

round number ten divided by one. Right, flip it one divided by ten compared to a two, and so one divided by ten compared to a two and a half percent treasury rate and you're gonna you're gonna look pretty attractive. So the SMP earnings gilts probably close to around five percent compared to two six to seven on treasuries. Was that too much math now thought that was? That was

a great stop. Let's let Tom enjoy his food. I think there's something that front strates a lot of people on Wall straights when people turn around and say, the bond market is telling me something. Is there a sinister message in the bond market the equity market doesn't know about.

Can we just clear that up right now? Well, the bond market is telling you that we're going back to an environment of very modest growth but modest inflation, and we see that in the inflation numbers, and paradoxically, that's actually in a better environment for equity. Jonathan. If you remember last year, very good growth, but what we would call bad policy, federal reserve raising interest rates, the administration fighting a trade war. This year, what the market is

focused on is slower growth, but better policy. The federal reserve is backed off, We're hoping to get some clarity on trade, and the market is enthused by that. This is a theme for Oppenheimer coming into I've heard it from you, I've heard it from Christian and multiple times, and I've had it now for several months. What I haven't seen yet is the better policy for the markets at least work for the economy. I haven't seen the bottoming bottom AUP process come through in China in a

clear weight right yet. Do you see it? Well, you're starting to see stabilization in Chinese growth, so you're starting to see some credit growth. You have a purchasing manager's index that's hovering around forty nine and a half, so we're getting closer to that expansion territory perhaps of recent turn and industrial production. So it looks like we're getting to stabilization and Chinese growth back to my trend level.

But remember policy moves take some time to work through the economy, so we would expect to see that second half. This is why, quite frankly, the US is slowing. We raised rates and that's working its way through the system. When John trades, it's like a three day trade as a long term trade, and I would suggest here Lappenheimer funds, you know a long term trade is like five years or even ten years. In two months we're up eleven point four s. How do you Christian and the rest

of your team, how do you answer the question? Wait a minute, I'm up double digit go to cash? Well, look, first of all, we had a very difficult fall in winter, so we've been recovering ground from what was a pretty nasty correction. You're gonna take to do your compare and contress well, right, And the reality is, I mean, investors can try and trade, they can try to move into cash, but they've got to make multiple decisions, right, They've got to know when to get into cash. They got to

know when to get out of cash. The realities, I believe we're in a secular bowl market. I've I've been told you get three secular bull markets in your life. The first one I was too young, the next one I'm likely to be. I'm just saying we've got a live audience here, and everyone's face is just We're like, what is he talking about? It's sort of like imus, you know, it's like it's a hotel full of people here right now. It's a beautiful thing. It's it's just

I'm happy to have it. Car. Does that make me Bernard? Yes? So so anyway, um, this is the one. This is the middle secular bull market in my life, at least as I view it. And you know, secular bull markets are ultimately going to end with either extreme excess in the system, valuations that are incredibly excessive, or a policy mistake, and none of those seem apparent. Let's talk about your

regional bus right now. What would it be? Well, I would favor in the United States, I would favor true growth. I'm favoring Cleveland this morning. Can we can we wait? Can we wait? Region? Because let's just wait. We've got a bit of time later today this Can I just say that my eleven year old daughter that Mr what's his name? Beckham Beckham jam Jr. Not the soccer player football moved from Giants to Brown's. Everyone is shocked, continued

his daughter devastated. But Jabrill Peppers, Michigan guy coming in New York. So she gonna change her Giants tattoo to a Brown's tattoo. She did ask for Beckham Brown's jersey for a birthday. What did the Giants get in return? What did they get? Mr? Mannigan returned? So they get the number seventeen pick in this draft, The number pick in this draft and Jabrill Peppers, the safety who came

out of Michigan Patterson Catholic High School. But it's interesting, and is it really would you suggest that, folks, this really goes to all the sports, including John we'll talk about Juventus, Juve, Juventus, we'll talk about there when yesterday. But Brian, it goes to the management trying to call a locker room and they think they're gonna do that by moving this gifted wide receiver. Well, I suspect that's that's what they're thinking. Um, it's also a check on

the surveillance locker room. I suppose it's a team that thinks they need to rebuild, and so that's this is talking about Blimberg surveillance giants. I'm just trying to work that we talk about a real sport. Can we talk about Uventus a real sport. Christian Christiano Ronaldo needs to score three goals. That's exactly what he does. Juventus wins. They can to score three goals and win three nil. Ronaldo scores all three stunning comeback over in Turin in Italy.

The stock this morning Juventus up sixteen percent, just up sixteen percent, just off that win. And the market can move off the back of it the equivalent of two times what the club paid for him. Two times what the club paid for him, We're up about two d forty million euros in market cap on the day. Does Manchester City have the same dynamics with a year they're having so Manchester City and events, I think probably the vor it's for the for the tournament. Now an outside

Barcelona like to Cleveland Browns. What can I tell you my regional view? Now? Can you seconds? Thirty seconds? Week? We're very favorable on the emerging markets. Last year was the US above trend, China below, China stabilizing US slowing policy accommodative around the world. That should be supportive for Nocoba. This is really important. We'll come back and talk about the international expertise of Oppenheimer Funds and Brian Levitt's view

on emerging markets as well. It is a joy to be at Oppenheimer Funds with our expertise in the international investment. Of course, those of us have a certain vintage. Remember Oppenheimer Funds from a few years ago with definitive equity and particularly growth equity at work as well and hosting is today Christian MoManI, head of the shop here. Wonderful day have you here, and you get surveillance yeoman's duty today. We're gonna give that to Francis like wa freezing on

the green at Westminster. I think for our audience we sort of perceive New York to Istanbul, which is not quite as far as New York to Buenos series. You just flew in from Argentina and you had a brilliant insight. Christians always their bankrupt pastos at forty two and the hotels are packed. How can that be? Well? So, I think that's very interesting. That is they have a crisis, and it was a crisis created by the Machrie government by depending too much to fund the fiscal deficit from

external sources. Beyond that, I think there is the draw down in the economy is relatively modest. If Makri can win the win the election, and there's decent chance for that despite the economic debacco, he can implement lots of structural changes. The most in instinct thing that I observed there is Argentina uses Venezuela more than anybody else. I think that is one of the REASONSOS know what they're saying is well, if Christina comes back, Kush Nurse come back,

then we will be another Venezuela as well. So that is a that is a good election platform. Bottom line is, you know the country is going through an adjustment. They are in a sort of a recession. But I don't think the recession is as deep as people suspect. Is there opportunity there for traditional investors or is it the prevailance a fancy alternative fund people that know more than I do. No. I think the companies are dirt cheap.

If we've met an agricum company and they generated almost ninety million dollars in free cash flow in dollar terms, because they exports its dollars trading at seven hundred seven hundred seventy million dollars in market cap, that's a ashaan cash yield, which is significantly, significantly cheaper than anywhere else in the world. So how do you think about Latin

American in general? I mean, do you really need to break it down country by country, company by company, or do you have a macro view of Latin America that you need to be longer or unexposed. I think the thing in Latin America is important, but the larger context

is emerging markets. Valuations in emerging markets, as Argentina and other places show valuations and emerging markets are very cheap relative to the developed work, especially the US, and that's the primary reason why we want to be in in emerging markets. And as as the company that I was talking about, it's really not about Argentina as much as it is about a dollar exporter in Argentina who has significant cost advantages. So emerging market investing for US has

always been about companies rather than geographies or countries. How about also in the context of your emerging mark CA thesis, as you just stated, how concern are you bout just slowing global economy something specifically China, and then also you know Europe as well, Um, how is that impacting kind of your view of emerging markets. Well, so global economy is slowing down for sure, I mean US is slowing down,

China will slow down, Europe has definitely slowed down. Having said that, the slowdown is not catastrophic, So China is not going to go to four percent, It's gonna be still be higher than six percent, and Europe hopefully stabilizes around you know, for the whole year around one percent US probably too. So the global economy is slowing down,

but it is not slowing down catastrophically. Policy, on the other hand, is going to be meaningfully more supportive in two thousand nineteen than it had it was in two thousand and eighteen, and that's what gets the markets higher very quickly. My idea of international investment used to be to buy a case of Molson Golden Nail out of Canada. It's changed a little bit. Christian say the least, do you just go into e M now and let you guys allocate, or you have to be supple and go

in and out. So you missed two thousand eighteen and try to get two thou well. So I think if you are a long term investor and you're looking for growth in your portfolio for the next two or three decades, which is a lot of people need, the real growth in the world is only going to come from emerging market. You just have to lean and say, you know, you'll have the five year period that we have had over the last five years, it's been a very subpar, but

that's not the context. The context is you want to be in this market for the long term growth we're gonna come back. He's got so many frequent flyer miles on the surveillance credit card that we're gonna bring Christian money back just in fluent from Buenos Aires. That doesn't

doesn't failed at that, you know, House Democrats. Uh, Now they're obviously back in control of the House, and they're actually taking another stab at legislation protecting young undocumented immigrants, while at the same time expending those protections to immigrants that are covered by other programs. To help us kind of breakdown this story, we're joined by Laura Francis, Laura's Bloomberg Law senior legal editor. Laura, thanks so much for joining us. Um What is the status of this latest

iteration of immigration legislation. So it was just introduced yesterday, there was a lot of fanfare by the Democrats, so we'll have to see kind of where it's going to go from here. I would imagine that with the Democrats and control of the House, they're really going to make a push to get this bill through committee and onto the House floor. Is there any Republican support either in the House or the Senate for this There has not

been vocalized publican support. I think there are some Republicans who are willing to work with the Democrats to expand this bill and kind of add some provisions that maybe include border security, interior enforcement, that kind of thing. They're not willing to throw it out, but I don't think they want to see it pass in its current form. But but okay, I get that. But essentially anything the House proposes is dead on a rival, right, I mean, this is the definition of grid luck. It can be

especially with immigration. Any immigration bill introduced by either party and either side of Congress, it faces an uphill battle. So how do you handle that every day? Do you medicate every morning before you go into the land of grid luck? I can't speak from members of Congress, UM, it's it's a perpetual challenge with any immigration legislation UM, because immigration bills have not moved in Congress in so many years. Anything that gets introduced is mired in all

these complicated factors. Is the bill going to be too small? Is the bill going to be too big? And it kind of puts everyone at a standstill until something finally kind of breaks that political logjam. So so, Laura, is is there some middle road here where we could uh or the Congress kid bringing some you know, some money, uh, some language about border security, about a wall or just border security broadly defined, to help push this legislation through.

Is there any middle ground there? I think there could be this time around. In past congresses, Republicans have insisted on we need enforcement first before we provide any kind of legalization to undocumented immigrants. This time there they change your tune a little bit where they're saying, we still need that enforcement, but we are willing to attach it

to legalization. So I think that may be a ground for them to work together on, not this exact bill, but maybe using this as a jumping point to something more comprehensive. To a grizzled pro like you. When you see a new number eight point six jillion dollars to build another X feed of wall, translate that for the jaded on Capitol Hill, what does that actually mean? So, what what you're seeing is the president's budget proposal, and that's really just kind of his wish list for what

he wants to see happen. It's very rare that Congress gives him anything that close to what he's asking for, and especially with the wall, which has already been the subject of so much contention. Um, it's it's highly unlikely that that's actually going to pass through Congress. Laura Francis, thank you so much, greatly appreciate the budget wish list conversation in Washington. Paul Swunian, time king with Oppenheimer Funds. We do this once a year and it is spectacular.

We thank them for their hospitality and a good food. To say the least. I'm a little shaky right now, Paul, after the avocado toast, I mean, after the second tray of it. I think this is the interview of the day for about all this investment stuff. Christina Boris with this head of client research at Oppenheimer Funds, which means know your client, which is actually go out and talk to people about their fears. Now, we could rip up the script and spend the entire uh interview talking about

how to get into college. But that'll be a theme maybe for another time with you. I'm sure people walking to go I gotta get my kid into slippery rocket? What do I do? But forget about that. What's the biggest fear right now of high net worth people? Okay, fear, um, I would say, just uncertainty. About the current political environment.

That's something we actually asked about last year. And yes, what about the idea of I've got you mean the masks says I've got to put this amount of money on because I mean, Paul's too young to remember this, But there's the idea of if I don't make I can't get it forward and the hurdle rates come down and return over the years. Is there a panic among the people you interview in sight, a true panic that that we're in an area where we've got to put aside a lot more money than we ever thought we

had to. Well not. In terms of the latest survey results, which we just wrapped up last month. UM, what we found is that high net worth investors are really focused on the long term. Even in the week of the recent market volatility in the back half of many investors said they actually didn't do anything. They didn't make any changes to their investment portfolios. They stay, they kept calm and carried on. That seems to be the Yeah, I was whipping a portfolio trying to catch the last So

you know, it's it's interesting. What we've heard from UM a lot of asset managers is that their clients, are you know, asking more about E s G and which is environmental sustainability and governance? I guess and those are becoming more important issues. Is that we find in your survey work as well. Yes, absolutely, we do ask that in the survey, and we do see that E s G investing is on the rise with high net worth

investors UM. As of this latest survey, almost of those who are invested in sustainable and E s G UM, almost half of their portfolio is made up of those types of investments. And what we're also seeing is that there's an opportunity for advisors to really help their clients design their portfolios around the causes that are near and

dear to. Okay, fine, I mean I I get the immediacy of the causes in E s G. What percentage of stocks are precluded from E s G. If I if I walk in and say I want to do E s G with OT, but I'm er funds or any other major institutional house, what percent of the market am I walking away from by doing E s G. I'm not really an expert on that. I'm not sure you could pretend to be it all the time. We do it all the time. If you don't know the answers,

just bluff your way through. It'll be great. Okay, you don't you don't know, okay the answers, Paul, I'm going to take a reach here. Philip Morris isn't on the exactly exactly. I'm a good stray with that anyway. So but when I go into when I think about a financial advisor, you know, and I'm selecting a financial advisor, at the end of the day, all I really care about is performance? UM is that changing? Not really for

the high net worth investor? We ask that. So we ask you know, when you're looking to work with an advisor, what are the top qualities that you're seeking? And by far and away, UM good absolute performance, absolute performance and working with an advisor who really understands their long term goals, meaning like what they ultimately we want to achieve with their wealth and their money are the top two things that investors are looking for. And that hasn't changed here

over year. What does give us an example of E S G investment? I mean I think of like somebody comes in and says, I don't want any dairy products, I only want almond milk. Let's go right, that's not what it is, right, right, right. So we in the survey, you know, we ask first of all, are you UM

investing in E s G type investments? And if they say yes, then we give them a whole list of different categories like clean energy, clean technology, gender equity, UM and you know, healthcare, pharmaceuticals, and we asked them to select which categories subcategories they're invested in, and we also ask them which ones they're interested in, so that we can kind of get a read on maybe future investment

in different areas. It's interesting E s G you know, just you know, on the Bloomberg terminal, there's more and more E s G data being put on the Bloomberg terminal, more and more because our Bloomberg customers are asking for there, they're they're demanding it. So that's kind of reflective of

what you're seeing. Is there a sense of how E s G. If I'm I don't know, if I'm do I go in and say I'm overweight s G or if I just want to representative percentage of my portfolio and s G type investments, how's the performance of those types of investments you get? What's the Appenheimer data show UM. Well, the e t F that we the E s G

E t F that we have UM. The way we look at it is we want to invest in companies that have exceptional and UM environmental, social and governance standards UM and our E t F fund actually UM invest in companies that have superior scores as described or defined by sustain analytics. So that's one way that we look at it. You also deal with I would guess something. You get to these high net worth families and there's

personal issues. I mean, the advisors have to deal with all of that stuff when in addition to just putting up good performance. Yes, well, we do ask about money related conflicts in the family, just trying to understand, like what are the biggest conflicts that families are dealing with around money and to advisors. So it's like a high net worth question, would we do I need the third lacrosse stick? Is that like part Well, what we found this year is that discretionary spending has bubbled up to

the top. Is the top money related conflicts? Break? This is too important? So how do you respond to the the afterthought that says I need a third lacrosse tack. What do you say a Appenheimer, Well, I mean it's difficult.

I guess it just depends on how, um, you know, how the family is feeling, you know, especially with you know, if you're seeing losses in your investment portfolio and you's learned about the economy, maybe you know, I think investors might be thinking about pulling back a little bit on spending. You know. Les dot Com was laughing at me as I bought the next Brian I think it was under what's it called from Baltimore under Armour? Under Armour brought

an under Armour lacrosse stick in yellow. There you go. Yellow was a key thing and he probably did you bite on Amazon have delivered an hour. You had to go to a specialist like cross Place so that you can kill me on the shipp Okay, that's the kind of thing you do. This has been wonderful Christina Boors, thank you so much, greatly appreciate it with really important research.

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 Keane. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.