Surveillance: Stay The Course, Kantor Says

The bad news for the Prime Minister today is that hardly anybody knows when Parliament might actually get to vote on it. Johnny guests now from London is Edward Evans, Bloomberg Managing editor in charge of Brexit. Quite a job, ed, So let's talk about it. What happened this past weekend and what's the sequencing of events over the next couple of days. Parliament on Saturday rejected the deal that Johnson

struck with Brussels. He will try and put it again Parliament today, but in doing so he risks a clash with Speaker John Burko. There's a convention in the British Parliament that once Parliament has voted on something, you can't put it to Parliament again. Nevertheless, the government is going to put forward the what's called the Withdrawal Agreement Bill. This is the actual piece of legislation that implements breaks it to Parliament this week and the idea is to

get that through the whole of Parliament by October thirty one. Now, the problem for Johnson is going to be whether he can get both either of those pieces of the legislation through, but will probably with the second, whether it's going to be subjected to amendments by his opponents. What do we know about the numbers at the moment and how they've changed since this past weekend. Well, the numbers are very

very close. It has to be stressed. To get his deal over the line, Johnson needs to get sixty one waiverers to fall in line behind. Now on our estimates, we think he's got sixty two. Foreign sectually dominant RAB over the weekend is saying that the government thinks it has the numbers to do it. But you'd expect a government in to say that. How often do you hear a government in US to say they expect to lose

a piece of legislation in Westminster? I think the only safe answer is that it's going to be very very close and we're in for ten days of intense parliamentary credit warfare. Here. A lot of rumors over the last couple of days about the DUP, the Democratic Universt Party and what they'll be pushing for in the next four hours eight hours and whether they'll team up with Labor at what do we know about that? Yeah, this is

a DP. They rejected Boris Johnson's initial deal. Their argument they do not want to see Northern Ireland treated differently to the rest of the UK. Now Johnson has because he wants to leave the EU customs you need. He that Ireland is dead opposed to that idea, so he has had to fudge a Northern Ireland status essentially like the UK will leave the customs you do, but it will be forced to follow some new customs rules. Now

do you teem in? MPP says that the government party meeting with with to discuss potential amendments to the government's legislation, but he's ruled out back in any need to keep the UK in the European Union's customs unit. That's something that Labor has been looking to do. Ever very quickly here, we're gonna we're gonna do a ballet here and I'm beginning to your discussion of November there will be a general election. Who wants a general election right now? Boris

Johnson in short? In short, but nobody else but Johnson. It's it's the way that he can get this through, go to the country, get a majority in parliament that allows him to his Brexit deal through um. Everybody else is very much more ambivalent about it, Labor. If you look at where they're Poland, Corpin is no real in no real position to go to the country. His party is divided on Brexit and he resisted any chance to do that. To do that so far Everard Evans, thank you.

Something really should say in working truly there's a cliche, but they are ye. Let us continue this discussion. Maybe brought it up. Meredith Sumter with us with your Asia group. It was a joy to have Ian Bremer with us last week, and we're raving about Meredith Sumpter's abilities not only on Asia and on China, but really with a holistic view for your Asia group. She joins us from

our studios in Washington. Uh, Meredith on on China right now, what is the mood that you've seen within the Chinese media, the Chinese speaking media. The Chinese speaking media is really of of two minds. One, they are messaging constructively about the interim deal that has been reached in principle with the United States, and all eyes are on some kind of arrangement being agreed to ahead of the APEC meeting where Presidents She and Trump will meet UH and signed

the agreement. On the other hand, they're also messaging calm UH and a medium to long term view of how they're managing the economy. So we've seen a lot of hyperventilation in the markets about China being at six percent growth. This is this is something that look, you know, Chinese contact on me. Look, we've been actually been below six

percent growth for some time. Nudge nudge, right, So they're they're looking to just manage those expectations that higher quality growth means a lower growth rate for China, and look that with the trade confrontation going on, of course you're going to see a downward pressure on their growth. I want to bring what you just said with your your core expertise on Asia over to Brexit, because it's the

same thing they're managing. The chaotic message in the United Kingdom is well, do you just assume damp and growth in the United Kingdom for the same reasons, frankly as China, which is just a certain level of chaos the UK economy is. They're going to have the government's going to have to find some white Look like all the focus has been on Yal or new deal. We're gonna get this through. And as soon as this gets wrapped, then I think you're going to see Westminster focusing on, oh

my goodness, now what do we have to do? And not just on the economic front, like look, negotiating trade agreements takes time, but also they're going to have an eye towards Northern Ireland and towards Scotland as well to think about what are the medium to long term effects of all political effects of leaving leaving the European Union

on those two important parts. And jump in here because with all this going on with burkau at to thirty, there's a court ruling in Scotland basically out of nowhere. I mean, Meredith, are we gonna end up talking about Scotland having an independent vote leave the United Kingdom? I do think momentum is heading that direction, but listen, I want to give you a quick update on what the

Eurasia Group call is. It has been this way since actually um Saturday, and that in lifting the threat of a no deal, Oliver Letwin, who will now vote for the agreement very well be remembered. Is the man who paved the way for deal approval. Now, why do we say that in our call is we think that Boris is within touching distance of getting the majority that he needs. So for those MPs who wanted to take no Deal off the table, we think that they will now be

more ready to vote for a deal. This includes seventeen former Tories who lost whip for back in the Band Act. Same for the labor backbenchers that the government has now been willing, we think that Boris needs an additional five to six more labor votes to get to the number that he needs. Meredith. What is lost on a lot of people is that this is not the beginning of the end. This is the end of the beginning. This is going to go on for a whole lot longer.

Even once this deal passes, we then need to negotiate with Europe what the future relationship looks like. Meredith. How much longer is this going to go on for It could take a couple of years, frankly, and during that period of time, you know you're gonna have a year of transition and the governments on both sides will be trying to figure out a way to mitigate the negative effects of the UK leaving while also they're preparing their populations for what comes next. And this is not just

trade and investment, but it's also workforce issues. People are going to be dislocated and we'll have to make plans for their future. So you're gonna see all this attention that we've had on are we going to get this deal passed? It's now going to be turned to now to what do we do to move forward at a time when the year Zone growth is slowing and there's concerns about the political will of country governments to do the fiscal stimulus necessary to keep these key economies out

of recession. Meredith, thank you so much, too, Short group with us today, greatly appreciate the perspective there on England. One of our most popular guest darks the door, Charles Cancer, is a Newberger Berman looking at along Short always gives us good spirit. On the UH, the equity markets you mentioned earlier to me, Charles, the idea that the gloom out there is tangible give us the level of gloom that you see right now. I think gloom in the

equity market UM. Despite ten years of excess returns for both equities and credit, gloom is ubiquitous. I think you see it in valuations. You see it in the record amount of cash that flowed into money market funds the last six months. I think it's about three billion dollars, which is similar to what you saw in two thousand and eight. So there's there's no lack of worry UM in the stock market, whether it be global manufacturing recession,

slow in earnings, impeachment, Trump, brexit, pick your poison. UM. I think. I think it's not lost on on equity valuations UM in general, and I would say UM because of that, for anyone that has an investment time arising that can be measured in five and ten years UM, I would just urge folks to stay the course because I think the next five to ten years will produce UM at minimum average equity like returns, which will more

than likely get the job done for most. Well, let's talk about the risk reward proposition going into next year, the low single digits, low single digit profit row? Does that get it done? Is that good enough? So? UM, next year is going to have a lot of idiosyncratic risk. It's not lost on you that we have an election at the back end of But I need to say this. The ability of anyone in this chair to predict the

next one year return is a complete random walk. If you believe in valuations, I can show you the data, whether the starting multiple is high or low. Prospective one year returns totally unpredicted. I know everyone wants to talk about the next one year. I beg folks to look a little longer. And because of the amount of pessimism that is in the market today, UM, the likelihood that that that that we enjoy attractive five to tenure returns

is very high. So chance this is really important for anyone that stumbled across this channel and thought, you know, well, I'll listen to this and I'll listen to this guy talking about investing. I can't predict the next year with any accuracy. Try and predict the next five years because that's easier. Yes, that sounds counterintuitive to some people who perhaps aren't in the market with the experience that you have.

Why does that make sense? It's it's all driven by my philosophy um that starting points on valuation are the most critical inputs and the more reasonable the starting point is for anyone that has a long term investment horizon, Um, the greater the likelihood that you're gonna enjoy at least average equity like returns. And I can tell you based on our work based on whether where valuations are, which

I know folcusing stock prices are high. Yes, stock prices are high, but earnings growth has has more than caught up with that. For anyone that believes that has a cash flow earnings, economic profit valuation mindset, today's starting point is more than attractive for anyone that has a five to ten investment aising heart of this, this is so important. The heart of this is Johnny has a good question. They're in the blended market. You're not looking at the

blended market. You're looking at what five or ten or fifteen percent of the stocks that are out there. The goal, increasingly and thankfully for the first time in ten years, has moved away from treasury yields being a put on the market to actually understanding your company's UM understanding how they're the deploy capital and the markets and the growth

that they're going after. So for us, it's kind of like kids in a candy store right now because for the first time in a while, there's wide dispersion between securities, between growth and value, between large and small, and so for our job, we feel like finally, UM certainly running along short. We're playing a little golf. We playing golf

with a little wind. It's Monday, nobody's listening. Give us one idea, Give us one company that needs the cantor prison, one company that needs to just give us the name. I don't know what about Brookville, ASCID Management, the real estate people, real estate infrastructure UM to buy the Montreal Canadians. They're probably not going to buy the Montreal Canadians UM, but they all about alternative assets that own scale and scope in long duration assets with inflation protection that most

folks don't. Their tenure track record is spectacular and there's no reason to believe that that the next ten years wouldn't be as good per year with five year dividend growth. Charles Cantor, thank you so much, New New Burger Berman there we didn't get to Amazon will do that next time. A big week of earnings ahead. Let's bring in a guest, yeah, with Laurie Calvassin or ILLBC Caunpital Markets, head of US

equity strategy. Laurie, do you find that that some people have struggled to get over Q four even twelve months later? I think, especially as we flipped the calendar into four Q, those scars, as you mentioned, run pretty deep. Um. One thing we noticed if you look back at sort of late August early September, we had that weird style rotation in the market that felt to a lot of people similar to what we had seen late last year when people were just starting to take profits on the names

that had done really well. Now that's all died down, but there was a little bit if I wouldn't quite call it panic, but there was a high level of nervousness when you saw that profit taking trade happen. You think the position unwind still has more to go. What me through that? So you know, we're we're a little bit less focused on the growth value discussion right now.

But in turn is of looking at sectors. You know, one area that we've really been trying to focus people has been on industrials, and we're quite simply looking at it and saying, we've been fighting the trade war here for a year and a half. You're at financial crisis lows relative to the S and p um. You know, so far earnings have been good. We'll see if that continues.

But really we feel like five years down the road, we're all going to look back at this period in time and say we should have been buying the machinery stocks in the middle of the trade war. This is your big cyclicals called at the moment, right right, And I would just stress you know, we have enough nervousness of our own. We we don't like where valuations are.

We have some positioning concerns. We are keeping some overweights on defensives things like reads and utilities, but we want those to be very balanced with cyclicals that we think have been de risked, like financials and industrial. Yes, so I'm looking at some of the otherweights in the large cap sectors that you like at the moment and struggle to reconcile the overwing financials with the position and utilities. Those two things walk me through why you've you're strong

on one, is strong on the other. I think we think about them in terms of different time horizons. So it feels like utilities and reads are the things that we want in our portfolio for say the next six to twelve months, you know, and I would emphasize probably more of the sixth than the twelve. But when we think about things like financials and industrials, that feels more like a longer term call where we're really gonna wish we have been um when we look back in a year. Fortunately,

industrials are working right now. We'll see if that last I just did October to October percent per year over the last four years, fourteen percent per year over the last three years, ten percent per year over the last two years, ten percent over the last year as well? Forward, are you gonna make double digit equity returns with the same stocks of that one year, two year, three year,

four year excellence. I think when we we sort of peer into twenty and we start to think about what's to come, we feel like you're going to have a whole heck of a lot of less multiple expansion than what we've had. I mean, we've had just tremendous So what does that mean? Because you see how she goes partial differentials on a Monday, just like multiple expansion. Is it a price movement or is it an earning spool? So basically, this year we're going to have flattish earnings growth,

it looks like. But we've had this tremendous move in the equity market. It's been multiplex pansion from the FED. Um the next year, we don'k you're going to get a lot less of that. We think the FED is probably going to be on pause. We're looking for about five six percent earnings growth next year, so you know, I would say less exciting than where we've been. So what's a twenty multiple stock? The price to earnings, price to cash flow is to zero? Where is that migrate

to twelve months out? I think it's going to depend sector by sector. You know, I'll tell you some some of the areas where I am frankly very worried about the multiples or things like software stocks, and a lot of those are arguably Microsoft. Well I can't get into individual names, but yeah, but come on, some of these stocks are moon shots. You're telling me to sell the

moon shot. Um. I don't ever want to be recommending to people that you buy things that are incredibly overvalued, incredibly over owned in Hedge fun Land at a time when we are starting to see pockets of the market factor inside what's under own, what's under owned in hegel So when we look at the industrial space, we think that one has become a lot less owned. Have you ever been to Hedge fund It's a Disney World, isn't it.

You go down there and it's like a one week lacrois as campings of Disney as it is four days and you know your daughter plays lacrosse and you go to Hedge fund Land. Well, let me give you one stat on the industrials. If you look at cell side

net by ratings, they are right back down to type lows. Now, I don't know what three thirteen neaps are gonna look like for three Q yet we'll have to see that jargon in the last three sentences there, what's that let's let's let's let's un what do they say, let's unwrap that? Unwrap it on cell side? What if you get cell side net by ratings? So just a gauge. So that's like the analysts and what they think. It's looking at

the analysts. It's my favorite way to gauge positioning because number one, I think it aggregates what you're seeing from cell sider's, hedge funders, mutual fund investors. Everybody's kind of baked into that number in terms of what they purely feel. But we can also look at that on a daily basis, so we get a very very fresh read. You are back down to historical lows, which is in line with twenty six teen lows. That's about as washed out as

anything we've seen. Consumer staples, by the way, we're right there a year ago. That was one of the reasons we liked staples last year. Let's talk about industrials a little bit more, because I know you've got to run at accoun per minutes. I'm looking at the economic data worldwide at the moment. The South Korean export data was terrible. The Japanese export data wasn't great either. The economic data still without much conviction. I don't think many people can

make the argument that we've started to bottom out. I think that's a low conviction. Cool, So what do you see an industrials Apart from the valuation? Why do you see stability? Well, the other thing we've noticed, if you look at the rate of upward revision. So it's a way to gauge sentiment around earnings that's been extremely low. It's been one of the sectors where we've seen the most downward revisions coming into this reporting season. Areas like technology,

consumer discretionary. You just haven't seen quite as many. And so, you know, the other thing we've been saying about the the economy and the broader outlook is if we lose this economy. Everyone already knows the manufacturing sector is weak. The consumer resiliency thesis is what's at risk. We haven't seen the downward revisions there. We don't see the washed out valuations there, we don't see the washed out sentiment there.

So if we see a tipping point as opposed to a turning point out of a growth scare, we think there's more risk in areas like consumer was per all He say, well, Tom is still very bullish on the economy for next year. But you know, if you talk to him, he will tell you that the risk that we talk ourselves into a recession has risen. Um So I think he's still in the bullish camp, but he has he has tempered that a little bit. Great to see you, She used to go. She's got to go.

We've gotta let it. Govley's out front. This is a joy. This is, without question, the quietest guy in New York. It is the name you don't know. You know Hurst, of course, and all that Frank Bennett has done for them in the years. His leadership at New York Presbyterian and at Lincoln Center particularly has been absolutely profound. And he has put out a book that's based on culture, which is something to talk about right now. But I have to go because I'm in the room with Paul Sweeney,

who's expert on media. I gotta go to your your harsh negotiating tactics. Here. Lb j'son a Lincoln, bombing down the road with one hand, negotiating in a Lincoln out in the l b J ranch. Dick, what do you think our TV station and Austin is worth? Excuse me, Lyndon, I want to take a picture of that bowl over there later lb J. Not even want to be tonight. Follow up, Dick, do you think in Austin station would be worth as much as a Sin and Tonio station

that recently sold? Is that how business has done in the insane media business? Well, business has done in so many ways. That's certainly unique. However, and it's my view that that President Johnson was not really trying to get Dick to buy the station, but he was so opposed to taking risks that that would entail that he had this little man Ox camera that he would stop every time that Johnson would try to nail him and take

a picture. So yeah, but but but I mean, Paul, this goes back and this is the Maze family and everybody media to San Antonio Tech. It's all transactional. It's all transactional. Back in the day it was big media tycoon's big media personalities. And of course Frank executive vice chairman, former CEO of Hearst. And what I like about Frank and the Hearst company, Tom is it's the biggest media

company that nobody's ever heard of. Um And they've owned print, they've owned broadcasting, they've owned cable TV, including this little cable network partial ownership ESPN. Frank, So give us a sense of, you know, kind of how Hearst has evolved and tried to stay on the forefront of media trends, whether it was print to broadcast to cable. How do you guys do it well. The generation of management said,

I represent got handed a wonderful opportunity. The company almost Mr Hurst almost lost the company in the Great Depression. Everybody knows it was an afternoon a newspaper company. When I came to New York, we had three television stations. And when I got the opportunity to run the company beginning in nineteen seventy nine, I knew that the pivot had to be made and that electronic was the place

to go. Initially, and incidentally and parenthetically, my successors will be making yet another pivot because of course the world is changing. What's the pivots too? Right now? And the kids won't run a watch one advertising. In our case, the pivot is to business media UH databases that people use every day. For example, we acquired the Fitch Radio Agency, which is one of the three largest radiators in the world. We have databases for both the medical profession and for automobiles.

For example, if you have an auto wreck, God forbid, when you go into the shop, the data that's used, both parts, costs and where to get it, and the amount of labor all come out of a database that we offer. What do you think of all the young Turks. I mean, you guys used to run things on price to care slow in like actual accounting, and you try to figure out down the income statement, there would be the strange thing called profit. What do you think of

these guys with the revenue growth hopefully but no profit. Well, some of them seems seem to have brought along, uh, their their investment base, their shareholders. Uh. Certainly in the case of Amazon, you have to say, what a phenomenal job he's done in his shareholders staying with him during a time where he wasn't returning a profit. Now of course he's returning a profit. I think the system that we have with public companies were earnings per share rather

than cash flow or most looked at. I think they lend to that kind of an approach to business. And I happen to think, how much is going to fall out if you show should turn us upside down? I'm We're going to fall out of our pocket. Is what business is about. And so therefore there's no one that puts a heavier emphasis on cash than we do. So Frank and your career, you've seen, you know, the media landscape transition from print to electronic. As you mentioned radio

TV broadcasting to cable television. Now we got this new thing called the Internet and that seems to really be changing the way people consume media and therefore the way big media companies need to distribute their media. What do I need to own? And we've seen your good friends at the Walt Disney Company really change and pivot that company, for example, to appeal to the new consumer and how media is consumed. What's the Hirst Corporation thinking about streaming

and kind of embracing the Internet distributing their content. Happily, we're part of that as it relates to our ownership and ESPN right is one of the places that Disney is making that pivot. But we're also independently and with other other parts of our business putting a significant emphasis on the web and on the Internet. And it's as certain that we need to do that as it was when we needed to go electronic. I want to talk

about the book. The book has leaves something on the table and it is a wonderful history out of Texas of Frank Bennick. I want to talk about culture right now. You lead with culture is everything. How do you make a culture in a rushed modern world. Well, it's all about the respect that you have for the people who work with you. That's how can you do that If they're working eight hours a week, well we don't have

them working anybodus in it. That doesn't work for us. Uh. We recognize that people are entitled to have lives at their own and if management wants respect, it has to show respect to the employees. So the first principle is the company's larger than the employee. Let's build a culture where everybody is inclined to be on the same page. Now, there's no perfection, but I would argue that our culture is by far the biggest item of the success of

the company. It's come from four hundred million to eleven billion dollars over on my watch. And I think that that the relationship and culture is at the heart of that. I mean, you got pretty good blurbs for your book, and think leaves something on the table only because of this blurb He's coming back Frank Bennock's about decades running a company at the center of American culture. Boy, is

that true? Leaves something on the table offers valuable lessons and leadership by a great CEO and an even better storyteller. That's true too, Michael Bloomberg Bloomberg of course, Mr Bloomberg, principal owner of Bloomberg Radio and Bloomberg Television. We're gonna leave it there, Frank Benneck, thank you so much to leave something on the table. I really can't say enough

about it. From a childhood in Texas and driving down country roads with lb J that with one hand on the wheel, to dealing with the American Broadcasting Company and his immense philanthropy in New York City, including tangible leadership at Lincoln Center. 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.