Surveillance: No Recession Anytime Soon, Doll Says

And Bob, I don't think so. We're gonna need to see a lot of weakness to get the fifty back on the table. I think the job's number at the beginning of the months told us, you know, the economy is fine. Um, so I think it's twenty five, and the debate should be what happens thereafter. The chairman was asked directly about that job's report on whether it changes anything for you him, and he answered quite directly to

Bob that it changes absolutely nothing. The strike that is no. I think if you came into this a way that the chairman was uncomfortable with the outlook, and ask yourself whether the risks around the outlook of diminished in the last couple of weeks. The answer to that very simple question, Bob, was no. In yesterday's testimony, do you have any outstanding questions today? No, I I agree with what you said a few minutes ago. Day two is more more of beyond. Look,

there's the inside the US. Things are going really well. The problems are a bit with manufacturing and trade and all this associated with that, and so we're you know, when you expect an economy to grow about two there's always some puts and takes. Last year, remember we grew three percent, so it was mostly good news. Now it's a little bit more mixed, and we're starting to see that with corporate re releases for second quarter earnings. There

are more problems than been the last few quarters. In the pre releases, notably, they've come again more on the manufacturing, the trade side, The consumers scenes fine, and financial somewhere in the middle. Bob, good morning. You know, making jokes about being all cash and finally getting into the market, But what is your conviction on a higher equity prices from here? So this is the way I hedge it, Tom. I think the path of least resistance is still up Comma.

But to think that central banks are gonna bail us out if in fact, earnings growth is going to be more flattish, I think is a tall order, So I'm I'm a bit more cautious. I wouldn't chase them, recognizing the more time to talk out the other side of my mouth path to least's resistance still up. Look, if you've got a ton of cash, you shouldn't have a ton of cash because the economy is okay, and therefore earnings are reasonably okay. I don't see big downside, but

I don't see big upside. Are predictions coming too? The year were choppy and frustrating, but no recession now, to be self critical, it's better been better than choppy and frustrating, no question about it. And I don't see recession anytime soon. But what do you do with a defensive call, and I've got a one way flight or everybody's piling into defenses in the equity market that all my radars up on that, Well, okay, there there's where I'll be a contrarian.

I think to trim the defensive I'm gonna call him expensive um doesn't need Ernie's growth. Um at the expense of buying some things with a little bit of hair on it. Call it the soft cyclicals. You don't have to go to the deep metal benders. We need big commodity price increases. But you there are a lot of consumer cyclicals, are a lot of cyclicals. I think you're fine. John Farrell wants to talk about the techli cyclicals with a little hair on them. What are you trying to say?

What are you trying to say? So, Okay, let's let's say value cyclicals versus high P cyclicals. Like like Cisco Systems has been a good stock, there's more to go low. It's still relatively low expectsions expectations stock. Compare that to some of the stocks that have gone through the moon, and maybe their fundamentals have been really great. But I'd rather get that risk reward right rather than paying anything

for good news. Chuck Robbins entertain we've done a great job over at Cisco over the last few years, Bob, and I don't think you're along with that. Coll just more broadly, even the team put out a note at the start of the year and it's ten predictions for the year ahead, and then you don't just bury it for the next twelve months and forget about it. You revisit it six months later, and you're revisiting it now.

Out of the ten things you're predicted at the start of this year, Bob, what's been the most difficult to get right? To get visibility on sector? Call has been our most difficult. We thought, let me pick on our things we've gotten wrong. We thought intrasensitive defensive stocks would lag utilities and reats. That's not been the case obviously. And while we said tech would do well, we also

sadly said healthcare would do well. Medicare for All drug pricing concerns have gotten in the way, so that's been a difficult call for us. Doll. We come in here in the morning, and you know, I come in pretty early and Farrell comes into about six fifty two to get ready for seven, and both of us miss gold. I mean gold. This morning, Folks is breaking out the new eyes. Good morning, Dennis Garbon, Good morning. Jeff Curry over at Golden Sex and others have been really strong

on gold. Bob Doll on gold, Now, is that a Doll like investment. No, it's not. I I'm not a gold player in the up or the down. My observation is gold just gives us lessons, and I think the lesson is, hey, guys, if the central banks keep flooding the system like they are, inflation is never dead. I mean, look at wage growth in the US. I had to pick one little place. It's moving up slowly, but surely. Uh. You know, we're over three percent. You're over your average

hourly earnings. Thankfully, we've got reasonable productivity, so it's not hitting margins yet, but eventually that will be a problem. And if it heads towards four percent, which it will with unemployment stays under four defends not gonna like it. Great briefing, Bob gol SMP three thousand. We both feel ancient. Thank you so much. With it be what we're gonna do now. We do this with some guests, particularly people with huge track record and skill. We're gonna do that

now with Christopher Krissanti Unveilua. But Chris, I want to do mistakes and things to do best practices in investing. Let's start with the obvious. You make a bet on a company and it goes down ten percent? What do you do when a stock doesn't work out? Tom? That's it. That is the toughest question in the business. You've done all your research, you spent months and talking to the company, You placed your bet on the table, and all of a sudden, in the short term you're feeling stupid. What

we do? We actually have a ten percent rule. We regroup the whole team. The guy who's doesn't who recommended the stock, doesn't even get a vote on this, but he explains what's happening. The rest of us vote whether we should cut our losses or double down. This is often, i'd say more often than not, we double down this. Oh no, no, it's more like the guillotine. If the stock goes up ten percent, right, what do you do? I know my answer. My answer is the same as

Dennis Garbage. What do you do if the stock goes up ten percent? We tend to be buyers and then as well, all right, and this is anti Martin guilt. Three good morning, Ed Thorpe up in Cambridge, and this is what you do. Nobody knows. This goes up ten percent, you go, yeah, you buy more. And and it's a bunch of reasons. But we usually don't buy a whole crapload at the beginning, and we can't wait wait, can we say that on radio? Now it's too late, but we buy half often to us, I thought it was taped.

We buy half a crapload and then we're off to the races. If it's up ten percent, we feel encouraged. Things are coming to For example, a great example just happened in a half hour ago to the the airlines just reported terrific earnest and and so that's something where we have a half a position and we could easily add to the star. Did you see did you just see we're live? We're live with life on air on Blimberg Radio. Chris is great to have you with us. Let's go

back to that committee. You will get round the table and you vote, but the individual that recommended the stock doesn't get a vote. How important is it to take away the emotional attachment that the stock pick half? Well, that's exactly that you put the question. He's he or she is the person who has the information that we need, but they're too close to it. They're they're they're too invested. They don't want to have been seen as making a mistake,

so they're pounding the table usually to buy it. So you know, we've had some tough conversations where we say no, no no, it's time to cut our losses and go. And it's just as you know, a good track record isn't just picking stuff that goes up. It's getting rid of those things that you're really going to hurt you. Next question, management shock. I'm not going to mention the company tragedy. The CEO dies Liuly in oh hair like literally dies thumbs. Thing I ever did is it didn't

sell the stock. Right. What do you do when you get executive shock within a core company that you own. Well, the good thing about us is we do so much research before we go in, so we generally know who's invaluable and frankly who's expendable. So when that happens, we have an opinion. It's generally a pretty well educated one about what we should do. And we were really of the belief that management matters, like it matters who's running Apple,

even though they have a great phone. John mentioned one of your great stories abou how you were advantaged. Yeah, yeah, yeah, So in are are Are we had a client who unfortunately died. I don't know if it was in o'heranon, but in January and we couldn't. The account was frozen. We couldn't touch it for the entire year. That turned out to be our best performing account that year, and it's because everything was going up and we were getting cautious and we were selling Cisco because it only tripled

and value in Microsoft and so. But nine neglect is often the wisest, right, that's our big slogan. First, what's what's the lesson? What's the parallel us now with an equity market at an old time high and people start to get nervous. Yeah, you know, Jonathan, we are not seeing the valuations that scared us in We have a tailwind. The FED is accommodative. We think corporate rings are going to be fine. Delta is a great example. They're up seven percent in revenue year on year. UM So, I

would say Warren Buffett had a great line. He said, there are years where I would do my clients a great service if I just went to the beach the entire year, and the ninety eight was one of those. This may be one of those. Of course, you never know. The thing is you need to be sitting there and things like Christmas Eve of two thousand eighteen, where there's opportunities and you can put a whole lot of bets

on the table. This is great. I had a lawyer once I paid just the one so much money that he bought a grand Banks and he named benin neglect. Christophers Santy, it's great to see you. Thank you very much for your grassantic capital management. See really thoughtful stuff. Tomp what the equity market three three thousand yesternight? You don't come on, folks, it's Grassante's above SPX. What six

months trailing? Eight months trailing? You're trailing? You're how many people walk in here they can say that seriously, it's a huge respect. Christmasani, thank you so much. Eighteen stocks, you know, value quality and all that. We don't send out his research. Go to Mr Cassani to get their research. As you choose, Lisa, you gotta bring in the next guest because my neck hurts so bad from the whip lash of the last twenty seven hours in interest rates.

It's just it's just I don't know anybody in a bond managing position cannot lose money this week. I mean, I just don't know how you do it. It's I think that people are saying stay stay with longer term perspectives joining us now. I'm so happy to say, Alicia Levine, chief strategistic b in why Melon Investment Management, and we

take a look at longer term. I have to wonder, do you fight what's going on right now, this sort of flight to risk in a wake of expected rate cuts or GF do you go do you go against that or do you just dive right in with everybody else. Look, you know, as we've said, you know, we feel we're in the midst of a liquidity, you know, massive liquidity globally. It's a sea of liquidity lifting all asset prices. And it really reminds me of and the reason that it

does is because the fundamentals are good enough. Right, So we're not looking at a two thousand and six two thousand and seven where the real economic activity was falling off a cliff. We're looking at a softening and therefore this global liquidity is just lifting asset prices everywhere. Look at European high yield, Look at the spreads there. The ECB is going to be buying corporate bonds. Hard to

lose money that way. You two are too young. During trust me, it was ugly there was some serious sweat on the beach. Alicia, this real simple. As we lift prices with this wall of money, are we lifting them into a leverage condition like August? So I think the conditions for bubbles are present in that if we don't see a pickup in the real economy, we don't see corporates being able to bring profits to the bottom line,

we don't see some de leveraging. If we don't see that, then the the the the circumstances for a bubble are present, but they're not there yet. Okay, where specifically, where's the most vulnerable spot for bubbles? So the Fed's actions today are going to support the riskiest parts of the market. So you're talking about leverage finance, You're talking about the leverage loan area, You're talking about the high yield area.

So that's going to support those areas the most because companies can refinance at lower rates, so they're not at risk as much. And so that's where I would see the risk. But the difference today than ten years ago during the global financial crisis is the risk on the leverage loan side is now owned privately and not by the banks. You don't get a systemic boomerang. Here's what

I'm struggling with. People have been raising concerns about the leverage finance area for about eight years now, and people have been concerned and those concerns have not come to fruition again and again and again, and here we are, and yes there has been a huge rally, but there's discretion. You're seeing dispersion and returns among names that are winning and those that are losing. What are you looking for to say now is the time that we can call

this a bubble. It's dangerous, get out. But I think if you look at the more um the sectors that are most at risk, and we've just been talking offline about retail, and retail really is the sector that's most at risk here on the leverage side and still still because you know, fundamental customer behavior has changed. And if you look at a bad Bath and Beyond for instance, I mean, this is a company bad Bath and beyond it,

Bath and Beyond Um she audition. Tom just gave me this thank I you know, look, I mean, here's a company that clearly did not change its business model even as the world around it changed. And there are plenty of retail companies out there that in the sense of walking zombies because of this global sea of liquidity and money. Is this bond market a walking zombie? That's the arch question. That's a great question. It's a great question. I'll come up with something as good as bad now. I mean,

it's it's not the Night of the Living Dead. But look, a few and and corporates can cover their debts right now. But the risk always was when you raise rates too high and yields got too high, how in the world was this going to be refinanced going down the road, I'll say this, the corporate tax cut is no longer talked talked about. This is continuing to provide cash flow

for all these corporates. On the investment grade side, you're fine, right, I have to wonder going forward, how much do investors have to lower their returns expectations in order not to take excessive risk and get caught with their pants down when the market does decline. You know, that's a great question. I mean on the equity side right now, that it seems to be that the market just it's levitating upward.

And the pain, the pain trade is the short right, you know, because you were coming in short and you were selling and going into cash. That's the pain trade. So clearly expectations are removing higher. And the truth of the matter is if you look at twelve months forward multiples, yes they're high, but they're not crazy. I mean they're fully valued, right so they're not excessively valued right now? Okay, so sp X three thousand, What does b N y melon do for someone with cash to deploy? What do

you do right now? So I think you have to buy US equities? I mean, you know, I you have to buy US equities. But you have to hedge. So you have to hedge with with with fixed income, and you have to hedge with different strategies. And you should definitely be an alter natives right now. But you have to buy equity, so you know, hard assets, real estate, gold, I'm not a gold buck. I like real estate. I like I'm a New Yorker born in bread. Bitcoin why not?

Bitcoin is being used as a head for the debasing of currencies globally. And don't forget the word debasing comes from the fact that you know, we were all on the gold standard, and if you added you know, jump to the base metal, you had less value. Can we get a headline up B and Y Melon says we're going to the bitcoin standard. Does that work? Please don't? Alicia Levin, thank you so much for being with us. Alicia Levin always a last two strategies investment management with

some real talk. We need to go because finally, the weather here is actually lovely today in New York, but it's more lovely in Sun Valley. Idoh. Our colleague Paul Sweeney is at the Allen and Company's Scale event. Because everyone is scaling up with a scale event. They're all arriving, Paul, everybody looks exceptionally casual. They've all got their knapsacks on their back. What's in the knapsacks? What's in the knapsack?

I think is you know a lot of I think people are really starting to figure out, um, this technology is really impacting the traditional media, communications, entertainment businesses. We've seen it over the last you know, certainly dozen years or so, but I think it's really coming home to roosts for a lot of these companies as they see you know, a T and T, a telecommunications company by

Time Warner Media Company, Disney doubling down. Technology companies such as Facebook, UH and Google really becoming big players in the in the media space. In fact, I booked the media mogul John Malone about how media companies should interact with technology companies such as Google and Facebook. Here's what you had to say. They've changed the world and they're the disruptors. Now we were disruptors and at our youth.

Now they're the disruptors. We have to figure out how to position ourselves to adapt to the changing world that they're changing. Uh, you're not going to fight them, so you better you better accept them as a as a fact and then adjust your physitioning. We're seeing a lot

of you know, come here to Sun Valley. It's it's a mixture Tom and LEAs of some of the traditional media companies, whether it's a newspaper company, a broadcaster, or a cable network, custom of the new technology companies obviously, um, you know the Google's and the Facebook of the world, but also somebody comes that you really haven't really heard of before, but you know, their new technolo ologies and they're really starting to impact the way consumers consume entertainment

and communications in general. And I think you know, these companies here, these CEOs are just trying to figure out how it all works and how they need to adapt their business models. So does adapting mean basically understanding that everybody's cutting the cord and not relying on on this sort of thirty second advertisement spot anymore? Is that the is that? Is that what adapting means? Or does it mean uh, something deeper about the way people uh sort

of cater Yeah, yeah, it's interesting. I think you're absolutely right. At least it's certainly about that, the corp cutting thing. It's really an issue that's been on the minds of these companies for the last three or four years. And you know, I think the most notable example of what that means for these companies is Disney's acquisition of Century Fox. They're saying, we just need to get bigger to get more content so we can go direct to our consumers

with our content. Is there anybody there from Hawkins Indiana? I'm not sure, Paul nobody cares about all this investment mumbo jumbo. Aren't they all there looking for the next script like Stranger Things? Um, it's you know, it's interesting.

There's a lot of content creators here, you know, even some of the all the studios you're here, Uh, there's a lot of creative people here, the people that you know are coming up with all these great streaming services and and so on, and all the big movie studios are here as well, so you know there's gonna be There's five hundred scripted television shows on television right now versus about two d and fifty ten years ago. So it's never been a better time to be in the

content creator. But but is the basic thrust of all these fancy money people and the creative people gluing my kids to the modern digital space? Is it all just simply find the next Game of Thrones, find the next Stranger Things. I think it's I think it's more about that. That's that's It's always been a hit driven business. You're right, it's always been a content driven business. But I think the real question now is how do I deliver my content to my consumers in a way that I can

maximize my revenue. Is because it used to just be I would just rely upon Brian Roberts Comcast to pipe all my content right into your your your cable box. But that's not the game anymore. Now it's I have to speak to you know, read hastings of Netflix. I need to speak to some of these telecom companies as well, so it's a whole different model. Here's what I'm struggling with.

What is a conversation going to shift from the very basic, oh, people are consuming their media online to what Netflix has actually gotten very good at, which is taking data who's watching, what, what types of trends in plot lines actually appeal to people, and then crafting plot lines around that. In other words, having sort of an interactive experience with the user and using data in new innovative ways to create content. Yeah,

you're exactly right. Netflix really changed the game by their ability to have a direct relationship with their consumers, so they knew exactly what you like, what are you watching? Uh, and and then creating content around that. And that is all about having that direct relationship with the consumer, so you know, a me what your consumer is doing. And that's what the big Bob buyker, the Walt Disney Company

is making with its Disney Plus streaming service. One final question, if that's the case, how does traditional TV respond to this besides showing the All Star Baseball game with what appears to be very low ratings. I mean, how do they compete with stranger Things, telling my offspring that Jim Hopper, the chief of the Hawkins Police department's a bad guy. Exactly. Well, I think the big media companies are trying to do

everything or trying to appeal to the broad audience. So they're going to maintain them and that's dead, it's done well, They're they're they're doing both. So you take a look at the Walt Disney Company. They're maintaining the ABC broadcast

network to the people that want that content. Yet they're also developing and putting most of their eggs in the basket of Disney plus their streaming service to appeal to the consumers that have already cut the cord or or never really really been in the paid TV ecosystem and trying to peel to everybody that way. Will it work? Um? It remains to be seen. Paul, this has been Are you having fun out there? What are you coming back like the first week of August? Yeah, that's that's that's

that's okay with you guys. Yeah, it'll be good. Paul Sweeney, thank you so much. More important interviews through the day as 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio