Surveillance: Equity Markets Still Pretty Good, Patel Says

Bloomberg dot Com, and of course, on the Bloomberg. So the top story the President raising the pressure on Beijing once again to strike a trade deal, announcing he would increase tariffs on two hundred billion dollars of Chinese imports Friday from ten percent, also floating the possibility of extending a new duty on another three hundred and twenty five billion dollars of imports not already covered. So the judgment call you've got to make this morning is this material

escalation or the beginning of intensified negotiations? Here in the studio to help us answer that question in New York is tiny too kind of call. Generacy, Chief market strategist, Good morning to Tony. Good morning. So help me answer that question. Which one is it? It's impossible to say. I would guess more and it's a guess is that it's more intensified negotiations. You know, I just remember two weeks ago or over the last couple of weeks, we've been looking for a little bit of a pause in

the upside. You know, wrote a report called cause for Pause, and part of it is volatility was so low in expectations had become so good that when it gets like that, if it wasn't the trade negotiations, it would be something else. It would be a fed comment, it would be an earnings comment, it would be a political comment. There would be a reason for a pullback. And I think the tariffs and the tweets kind of certainly have have that excuse. Well, the comment is broken. The VIX up five points this

morning to eighteen point two one on the VIX. The judgment call also involves what you anticipate the Chinese do next? How the Chinese response. From what we understand here in Bloomberg, there has been what could be considered a media blackout on the president's tweets. Within China, we understand from the Foreign Ministry and Shanna the officials are still planning to travel to the Nut of States for the next round of talks. We don't know when there is a subtle

sign there that they are considering delaying the trip. How do you anticipate that town is a mockup participant this morning. That's the big on note. How China responds, how do you think about it? I think it's impossible to make an investment decision off of a tweet. And if there's one thing that I can convey to the listeners, please don't listen to people like me when they actually make

an investment recommendation off of a guest like that. I think what I would ask the listeners as they're driving in their car, if interests the tenure not yields it at two forty eight, the five years down five basis point, you've had an extraordinary drop in interest rates. At the same time money available. Money is still available via bank lending. So I asked the question, does the presidential tweet prevent you from refinancing your debt or taking out new debt

at the lower debt level. Every house and in nor than Bergen County where I live that was for sale is now under contract because mortgage rates have dropped a hundred basis points. Those people don't really care about the tweet. So has anything changed this morning for Tony Twat and kind of cool Genuitcy in the team over that? No, because we've you know, people like me are famous for saying this, we've actually been looking for a pause. The

question isn't whether the market can correct. The question is whether you use it to take advantage of better opportunities and equities. Well, we try to do here, folks, is frame moves. Obviously there were two presidential tweets among a zillion of them. This weekend obviously had an effect on Mark because but John and I kill ourselves every day to framewords like cratered crushed numbers with them. Okay, folks, let's frame it right now. From the peak Dow was

down three point six. It's it's not even a mini correction or whatever. And very importantly, John, to the more short term space people that are looking at the markets, since you're the real yield. On Friday, we're down just a little over two standard deviations on Dow, which statistically is totally normal, totally normal. And I'm seeing the headlines plant the Dow plunging right now. Well, you know, I think let's do the best service we can for the listeners. Okay,

so let's say it's down three percent. How do you know if it's gonna be down five percent? Versus down fift and the answer this cycle, the three major drops two thousand, two thousand and fifteen, sixteen, and two thousand and eighteen were all driven by expectations for significantly higher rates from the Federal Reserve. QUWI two was being withdrawn in two thousand and eleven. That was driving rates higher. Two thousand fifteen sixteen, the Fed had started raising rates.

Two thousand eighteen, they really raised rates. That's not the scenario here. If anything, the trade tension is gonna lower expectations of rates. I want to go Tony just away from China and US and all that. How do you veil you now differently double digit revenue growth without naming any companies. If it's a low yield environment, that revenue growth is ever more vailue, isn't it? It is? It allows it allows you to do so many things. Time,

you could buy backstock, you can increase. What ratios do you use to show those differentials of of better than good revenue growth? Well, it's it's it's more of don't tell me the pe ratio. It's more. Well, there's two things that go into the valuation. There's price, and there's earnings and and what you're willing to pay for those earnings goes up significant. Revenue goes up significantly when interest rates are down because you don't have as many alternatives

to that money. Taylor from San Francisco email and John and said, what about price to sales? Do you use price? Are you on the edge of Tom Galvin, the giant at Donaldson, Loveking, Generate and Credit Suite years ago? Price to sales matter? This is for over time. It matters in price to else ratio has been very, very high for a very long time, and it hasn't mattered. What I try to do is focus on whether something's right

or wrong. I don't really care. I what I care about is what other investors used to value what they're doing. And price to earnings is what the institutions use to price their equities and price the overall market. So I focus on that rather than other ratios that might make more sense. So, Tony, I think this morning is a great morning to to recycle something we often do with you,

and that's discipline. Maintaining discipline when there's so much drama going on around you, like me in the studio right now, trying to anchor with Tom Keane if you remember December. December is the world seemingly is falling apart, and Tony comes on with us and talks about maintaining discipline and ignoring the drama around you. At the time, it's easy just to say Tony is a perma boil he's always saying.

By then, when we reflect on it, it's easy just to say, you know what, with hindsight was so obvious, Why wouldn't you buy that weakness the FETE was going to back away? Help us on a morning this morning, maintain discipline as you see all these dramatic headlines about an escalation in the trite war and how it could get a whole lot worse from here. Discipline is not making a decision based on a guess. Two days ago, we're close to a deal, everybody's on TV, everything's looking good,

and then over the weekend, no deal, everything looks horrifically bad. Ultimately, what should drive, in my opinion, what should drive an investment decision again falls back to do the people listening to this show have access to money, to companies that are on this show and pay for the advertising have access to money, And as long as that answer is yes, I am obviously not very good and calling for drops

because I didn't expect what we got in December. But I I will say the reason that it was to be bought was because the answer that those two questions are yes, we have access to money. And he says kind dis regards to Anthony Dwyer as well. Mr cast will join us later today. I believe ye, Dougie's the best some of our selected when he's coming on later, he's during your always well here's you've got so many other properties. I mean topic for a second. Here's a

great example. Doug and I over the last two weeks have been on the same side of the trade. I've been looking for a pull back and he's, I think looking for a bigger pullback than me. But the whole status of what listen to what people like us say, don't don't buy what you know, you think you believe in the Yankees, of course I do. Come on Yankees giants, Tony, thank you so much, Tony Dwyer, Knichordan Juyker. Book is why presidents fail and how they can see succeed again.

Ellen e. Lane comarc Rather Elane Comarca Brookins. She's been on many times of Foreign Elane instead of all the Mueller stuff in that, I just want to talk to you with your scholarship about our tweets policy. As Mr Faroll just mentioned, are these tweets policy? Well, I haven't actually sat down and counted them. Although it's a good it's probably a good thing for a scholar to do. The fact is that sometimes the tweets are literally the

president's random thoughts, and at other times they change policy. Now, I've been scouring the newspapers this morning trying to see if this looked like it was a concentrated effort to move the China talks in some direction, or whether the president's negotiators were as surprised about this tweet as everybody else wants. These China talks are nearing their end um and suddenly the President throws this into the middle of them.

It could be a considered negotiating tactic, or as we know with Donald Trump, they could be just something he woke up and decided, what's your experience of what staff? Does? I mean? There's you know, let's say as a round number, like the Lincoln White House, there's twenty people in the White House trying to get through the day. How do they respond at seven fifty Wall Street time to these

tweets of the weekend? Well, I think they go screring to the press into the Oval Office as soon as they can, and they say, look, here's where we are with the negotiations. Um, the Chinese are supposed to be here soon. Um, what does this mean? Is this something you're doing for tactical purposes? Or do we have to now negotiate with this in mind? Is something full? And you know, these these negotiations were going on quite well, right, There's still a lot of things. However, the Americans want

out of them, as they're always are. And Um, it's possible that this is a sound negotiating stance that has happened before. But it's also possible that this is the President being disconnected and randomly throwing something out there. And there was a belief just to jump in quickly. Now, there was a belief that the president wanted a quick deal.

Going into the weekend last week, many people were saying that the president wants a quick deal, He's giving up on certain issues, he just wants to get this over the line. With these two tweets, can we put that to bed? You know, it depends because we have seen other presidential tweets. We've seen the tweet come out, and then we've seen his advisors walk it back and really

change it around. So we don't really know right now whether this will they'll walk it back and say, oh, no, no, he really actually didn't mean this, and we'll we'll get a deal, or whether if this is going to disrupt the negotiations and keep him from getting that quick deal that he said he wanted. This is policymakings from the U. S. Side. Let's try and get in the heads of the Chinese just for a moment as well, elone, if we may, How do the Chinese respond to this? This clearly comes

as a surprise. The President puts out two tweets over the weekend, the gearing up more than a hundred of them to come to Washington, d c. And what many people thought would be the final round of trade talks between the big bilateral. How do they think about this? Well, look the world, you know, in the first year of the Trump presidency, whether the issue was NATO, the NATO Alliance,

or trade or other things. Um, the world was very very confused about Donald Trump because he behaved and continues to behave without the stability of a normal president and a normal policy making process. This is and we are now three years into this, and I suspect that people around the world there's a lot of evidence that oh, they're getting used to this guy, and that they have to wait at least twenty four hours after their presidential tweet to see if that is American policy or not.

That's my guests, and um, I think we'll know in a couple will probably know by the end of the business day today whether this is going to disrupt the talks or whether or not people will simply ignore it.

Elane Kimark whether Brooks Elane one more question. You know, I went into Kissingers Diplomacy, which is a classic textbook that you read folks on like the Walls from Westphalian Europe forward, and I just randomly picked out August of ninety nine, an actual handshake treaty, and this of course a Stalin and the Nazis Molotov ribbitrof pack, which folks was you know, basically Joe Stalin lining up what he wanted to do with Germany before the US got into

the war. We we have the thing in our mind of like photo ops and shaking hands and pen's being signed and papers being signed and all that. Are we completely removed from that on this U S. China discussion. No, I don't. I don't think so. I mean, I think we will still have um papers being signed. I think

eventually we'll have we'll have some agreement on this. The difficulty here, I mean look to to on the U S side is that China does it doesn't have a legal structure that guarantees that what we sign will actually happen in its government. Now, before they entered into these talks, they did make some changes in their laws trying to sort of pre empt the U S objections to the

way they do business. But China, when it comes to the rule of law, is not really where we are, and I think that that makes the negotiating more difficult. I'll get to leave there, Lane, Thank you so much. Well time Mark with us with a wonderful book sort of on presidents and how they behave in the White House. Let's bring in Markett's house, shall we? Was? Fargosset Management

Senior portfolio manager, See joins us on the phone. Great to catch up with your Margie what are your tanning clients this morning, What are you doing with your portfolio? If anything, it's all well. I think the old book fundamentally is still pretty positive for the equity market and for interest rate stability. So I think this is just

another blip we've seen relating to tariffs. Isn't gonna have a material effect on our economic growth, And if the market stays down materially, I'd say it's a great opportunity to add a little bit pretty cheap prices. So Margie talked to me about troceriies and the way they've been responding to the data quite recently. Even though the output numbers on payrolls were pretty good, beneath the surface down submerged. The I s M s fueled further doubts both on

manufacturing and non manufacturing too. Have we hit the limits of where trotory yards can break out too? I think we're still trapped in the trading range. I haven't seen any material change age. Inflation still looks like it's going to stay under two percent. The economy looks as if it's growing, maybe a little slower than last year, but

enough to sustain continued growth. And the short part of the curve continues to be distorted by the FED actions and holding such a large proportion those shorter security So I think things look pretty good and we're still in that two to two and a half percent range market. The number one thing I get from people on a high yield. If I quote an average yield of six point for eight percent, as you do in your note, when I get to a bundled portfolio, the yield always

comes in lower. Where can I actually get a six and a half percent yield? And how do I do that? Well? These days, that would mean you would be buying a single B or a single B minus, in other words, a very lower limit of respectable quality below investment grade high yield bonds. Uh, there's not a lot of spread between the better quality and lower quality high You'll on double bees and you would have to buy a longer maturity newly issued tenure bond. Can I diversify my This

is critical? Folks with MS Hotel just said, can I take risk out by buying many of those longer dated garbag bonds? Well, I wouldn't say to garbage. I would I would stick away from the triple seas, But really duration isn't the risk in high yield bonds, it's really default. So I think it's better to take longer duration get that extra yield because it's certainly it's worked for the last top of half a dozen years. I see no sign in all yield spreads blowing. Did you guys just

make up a word? So Alf from New Jersey just emailed in and he says more garbage bargie? Is that a new bond market? So I've been doing this for year l five, Margie. Let's talk about how high yield is priced at the moment. As Tom points out, the absolute yield is just not the six percent on that basis, I think with the lowest in about twelve months, looking at the spread of a treasury is what are we out now? Three fifty ish? That's not even the tightest since October. So how do you sort of look at

things at the moment? Are we richly valued? What do you think? I think our yield is quite fairly valued. And when you look at the default rates and expected default rates right now defaults unbelievably or less than one percent, it seems to me that you're actually getting extra yield compared to the true risk that you're really taking. So I would see spread staying where they are or even

going nearer. Markeys. Interesting to have you on the program to get those calls market battel there whilst Sarko Masset Management, Senior portfolio manager. What we thought we'd do was go to somebody with perspective long agoing far away. For example, when I received in the gold colored reporter or the dark green colored thin report in very typewritten, fought Doug Cass and I would look at the same line. There's

no reason to do hand springs over games. This was a year in which any fool could make a bundle in the stock market, and we did. To paraphrase President Kennedy, a rising tide lifts all yachts. His yacht is so large it can barely turn around at the Gulf of Mexico. We welcome Douglas Cass of Sea Breeze Partners. Doug, this is not the Berkshire of twenty years ago, is it?

As you know, back in two thousand, um Warren invited me to sit on the days with him and Charlie mu the Credential Bear, and I wrote up an article on Real Money this morning about it UM. I spent a long period of time two months and had two of my analyst, Nick and Kelly, embarking on a research project aimed at asking them questions that were respectful, hard hitting and that never been asked before. And considering how what research Buffett and the company was. It wasn't easy.

And I went back this weekend because Yahoo Finance actually just published the videos for the old But the first time I saw myself and I looked very young then um. But I made a bunch of points in the questions, the most important of which and my first question was that size matters. And I made the case um with Charlie or and Warren. Although Warren said, you have not

convinced me to sell or short my own stock. Um. Well, that the company, that the company was becoming almost like in an SMP fund of passive fund on the spiders, Well, I mean, I mean Golden Sacks last ten years trailing six percent a year. Berkshire has done way better per ear But how do we compare that? I mean, does Doug Cass think that Berkshire for the last decades been a successful investment? I have to say it has been

as a bundled conglomerate. It has been successful, but increasingly, tom UM the relative performance visa VI, let's say, the senior index, the SNP has been deflating, and he disgusted. Charlie disgusted, and weren't disgusted. On Saturday, I watched the full annual meeting on Yahoo Finance, and he basically said, it's something we can deal with. We made so much money uh in the past, and this is what one would expect. Size does matter. I think he did make

a couple UH. I think the one important thing that came out of the meeting on Saturday UM was that he highlighted that UM the unusual circumstances that exist today, that unemployment remains low, yet interest rates and inflation are not rising, and at the same time, the U. S. Government continues to spend more money than it takes in, and as Buffett says, these conditions are not sustainable for

the long term. And he said, quote no economics textbook I know that was written in the first couple of thousand years that discussed even the possibility that you could have this sort of situation continue and have all variables stay more or less the same didn't exist. I agree So, Doug, I know you. I've been following this for such a long time. You've been out in Omaha so many times. In your perspective is certainly appreciated here, which brings me

to my question, which is succession. How comfortable are you with what Mr Buffett has done in terms of planning for the future of the company. Did you get access to uh, did you feel enough access to the heirs apparent? Well, one of my questions back in two thousand thirteen, which I tried to make respectful, and it was a tough question to ask, and I think it made him uncomfortable

that year. In two thousand thirteen, leading into the annual meeting, Warren says his son Howard would become non executive chairman on his death. And my question was given the fact that he basically has never made large capital allocation decisions, never traded stocks, and was basically a farmer his whole life. Was that appropriate and um, he sort of shifted in his seat. Um, And I didn't think he gave me a very good answer now in terms of operating people

to replace him. After all, he's eighty nine years old, Charlie's almost Um, he's got ag and George Abel, and I think both of them would be a great addition. But you know, this company has grown larger and again it's becoming sort of a g d P type of company. Duck Cass the series will be with us or the far which is a joy. Duck Cass on Amazon right now, you've been flogging it at CBS Partners with all your

different communications. How behind is Mr Buffett to the Bezos party? Well, I would say that the you know Amazon, as you know, I boughted around eighty um in late December last year and it became my largest long position. The negative for Amazon is that there are forty five By recommendations and no Cell recommendations, and that, as you know as a

baseball fan, is not a great score. The second thing is the greatest non tech investor of all time, Warren Buffett has decided to buy the stock, albeit uh you know, one of his boys either decision. Look, um, I think it's pretty irrelevant. In my views on Amazon are quite clear. It's the super disruptor and it has established an insurmountable first mover advantage. Let's do this, Let's come back Duck

cast with us again. Lots of talk about and getting tons of emails to get a Cassie and update on Twitter. And you know Paul Sweeney can talk media with duck Cast as well. He's a Senis partners. Always come a virtual 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