Valuations Are Just About Average, Herro Says

of course on the Bloomberg. John Gollub joins us now in our Bloomberg eleven three studios here in New York. John and Gollo the chief US market strate that RBC Capital Markets. We're just reminiscing about the evening of number November eight. You are here as we went through the results. Even what's your sense of what's happened since market wise? There was this swoon, there was this great enthusiasm in the markets afterwards. Help us understand what's been through the

going through the dulations here leading up to today. Well, you mean, I think there's two stories. The first thing is there was this natural knee jerk reaction to to Trump. But then I think the market realized that these pro growth policies may actually um not you know, maybe maybe much more important or positive than people think. But what really has happened over the last four months is that the economy has been really good. Expectations for corporate profits

have been good. UM. If you look at um market returns, the day before the election, when people thought Hillary was going to win, the market was up, and then after the market was still up. So it appears the real story here is this is way less about Donald Trump and really more about an approving global economy and US economy and the reflation trade. You've helped us with the definition of that, and your most recent note you you note that you know there are so many definitions spinning right,

how do you define those reflationary pressures? We we've been in, uh, this ultra low inflation, ultra low interest rate environment, and it's been really damaging. And it's been damaging, for example, to people who are in retirement or planning for retirement, and it causes them to do something really interesting, was to save even more money because they can't get any

kind of return on their assets. UM. While you would think that corporations would take advantage of these low interest rates they look at as a sign of the world being broken, and they do the opposite. They actually refused to invest and so so there's actually a fair bit

of damage done by this this kind of environment. So reflating and getting back to something which looks more normal, where you can actually get a return on your bank you know, on on a savings account, that's actually a really positive thing and maybe the big surprise over the next year or two if rates can get back towards something that feels a bit more normal. Was there a Trump trade, as as you look back at it now,

was there a Trump trade? If there was, when one did lose its luster for you, I think that there was probably Trump trade for about a week, you know, if you look. Market had this vicious sell off and stopped out really overnight, and then it bounced really hard. But for the last three and a half months, most of this has just been economics, and we can see that by the kinds of companies that are are driving

the market. John's great to have David gur back. He took his family to Antarctica and I've got an email he was like a tour Tara del Fuego and he got at the Buenos Areas for the fight back, and it's long with that. Help us here with the idea of foreign investment right now, if I want to invest seriously, not in Antarctica, but in Argentina, is how do I express it? Now? Do I do it through US multinationals

or do I buy abroad? You know, there's there's a ton is a big difference between the companies that you would invest in in the US compared to overseas. Um non US portfolios tend to have a ton of banks and old economy, and in the US, you you know, if you think about innovative tech companies and biotech companies, so the US kind of feels more like the Nasdaq

is a bit fresher. The interesting thing though, is if the economy is bouncing, old economy, these old banks in old industry tends to actually bounce harder, which could surprisingly be good for some of these non US investments. What's been going on with emerging markets surprising results since the election you've versus Yeah, if you look at kind of the orthodoxy or and the data proves us to be

the cases. When the dollar is strengthening, you don't want to be in emerging markets, and emerging markets have been on fire. Um, it's really about a re risking. I mean, what do you have right now is small caps are beating the markets. Riskier assets are beating the markets. Companies that are more volatile and less stable and less have less dependable earnings are beating the markets. And that environment

has just been great for emerging market companies. And and it's it really has been the whole the big surprise over last three or four months. I was talking with our colleague Oliver Rennick, and he said that small caps is really where it's at at this point. How do you what's your advice on how to approach that space right now? If we're seeing that looked upon so favorably well, if you if you said, what are the real big wins, and all of them I think are going to continue.

First of all, just betting on the banks as a win has been If you did that, nothing else you've got, you've done unbelievably well. I think that continues to ride. Um. Value stocks, cheap companies have you know, have outperformed the market. And then smaller companies. But the smaller company thing is really about risk. It's the fact that they are risky or more volatile, and that's what's really been driving it, not the fact that they're small. How do I catch?

And I mean I heard this, it didn't buy the bank. I didn't hear this eighteen times this weekend, but I'm sorry, folks, I heard it like six times. The percentage of the institutional and retail public that hasn't made the bogey is I've never seen it. It's off the chart. Do you catch up with you so leverage? Do you catch up with going sexier, fancier higher? Beata to use a Greek letter, folks. We have to use a Greek letter every day. Last night, I mean, I mean they needed beta last night at

the end of the oscars. Help me, Actually they needed a stiff drink. Help me here with how I catch up? You know, Tom, I don't think you want to invest thinking about how you catch. There's what you haven't done. So what you want to do is just you know, if you think that this thing has lags, I think that you want to get in it in the kind of in the and really what's been working the last few months. It's value companies. It's companies are a little

bit riskier, it's banks, it's cyclical. The arch idea here, and please you're the pro I'm not. You jump into the market knowing you could enjoy a bear market of x percent down and you still got to get in the market psychologically ready to take that hit if it comes. We've all gotten spoiled. I forget about whether you you you have a pullback of two percent or five percent or something like that, which is which is normal and that.

But but if you're talking about really big you know, pullbacks, they almost only occur when you have recessions, and there's just none of the indications that a recession is around the corner are in place. So the likelihood of having that walloping pull back's just extremely alone that you lower right now. You have to have something really go badly um and and right now from an economic and markets perspective,

it doesn't appear to be there. Could we be missing something We talked about orthodoxy and how emerging markets should be performing with the dollar ware it's at Could we be missing something when it comes to forecasting for a recession at this point if there can clearly be policy issues, and you know, if you have these border just a tax issues, or if we end up in a trade war, or if to some type of a geopolitical event, they could be really disruptive and in the market struggling with

a hand handicap that but if you look even at the volatility in the market, the market's telling you that that it thinks the likelihood of those things is reasonably low. So, yeah, we could be missing We could always be missing something. But the yield curve that you know, the difference between a long dated bond and something that's near you know, a short dated UM, it's steep. That's a sign that you're not likely to have a recession. Um. You know,

the employment market, we're creating lots of jobs. That's not something you have as you're moving towards a recession. Wages arising steadily, that's not something that has housing activity. You know, if you've made a list of the dozen things you want to see to tell you that recessions aren't around the corner, you know ten of the twelve or telling you or twelve or the twelve we're telling you that

everything's gone. You and I mentioned the banks earlier. You said me, in the banks, if you believe in higher rates, what about the industrials. The President likes to trot these people out a photo fest at the White House. Are they happy? I mean Emerson Electric the CEO shows up. Is the Emerson Electrics of the world happy. I think it's a much murkier picture. The g D P ain't there. Well. But if you think about if you're a company, one of the things you want to know is where you're

gonna get your supplies from. And if you don't know what the border adjusted taxes or trade agu is gonna be. If you're a Ford and you don't know whether you're making cars in Mexico or the United States, it affects decisions. It's hard to me. I'm glad you mentioned this. We're gonna come back with John Gallup. Here's gonna do, folks, because you know my theme this week. And besides, I missed David Girl so much like Antarcticle with the kids.

Are you kidding me? A sheet of ice is gonna fall into the ocean anyways, I said, besides missing David Girl, I said, I gotta read about the border tax I'm gonna put out on Twitter two killer articles on the border tacks that I looked at. Uh, this uh weekend, We're gonna rip up the script big time right now. Greg Villier just wrote a blistering note on Republican reality, speaking about an epic war to come in the budget battle.

He takes it back John Gallop to the Budget Control Act of two thousand eleven, which sets the question your caps and you know all the rest of it. What happens to your world And forget about the politics of this, folks, pro Trump, anti Trump. If we just get delay, if the X axis extends out where what we thought would happen in April happens in November, where we thought what would happen in November is pushed into the next year. If two thousand eighteen is pushed to two thousand twenty,

how does your world respond to that? Well, first of all, I think that's exactly what's going to happen. I mean, you saw this with Minuchin who talked about hoping to get something on taxes by August, which probably means that getting something on taxes is a two thousand and eighteen events. Um, as long as we are confident that there's something which looks like pro growth somewhere in the attainable future. Six months nine months twelve months out. I think the market

stays perfectly engaged. What we don't want to see is the process breakdown in front of us to believe that it can't happen as long as we have that promise a year from now, six months from now. All the same time, I look at the Bloomberg, I pick up the FT, I see a lot of articles about how investors are very hungry for detail in the speech tomorrow night. And you look back at history State of Union addresses, joint UH addresses to joint Sessions of Congress are usually

short on details. They're full of sweeping statements, and seems like from Gregvlier's note, the tom I just mentioned, we're going to get a big, sweeping rhetorical speech tomorrow night. How important are the details to you? How important is it that there be details in that speech tomorrow night? Okay, so the details are really important, and I have zero expectations. I mean, I mean, you're talking about, David that on a president other than Donald Trump has been short on

giving details. What's the what's the incentive for Donald Trump to give details at this very moment of time. David, continue here, but I just had an incredible insight went through my Monday morning brain. Forget about fake news. What if he started going on fake strategy guys like John fake strategy from John gollub, I mean, that could be that that could be the next frontier for Bloomberg surveillance.

We can debate the fakeness of it. But listening to the Sunday shows yesterday on on Bloombergradi yesterday afternoon, there were a lot of conversations about here we are a few weeks into the first hundred days, so there's still time to go. But we haven't seen great movement in the House or Senate when it comes to repealing the Affordable Care Act. We haven't seen a lot when it comes to tax reform. How worried about that? Are you? That the that the great strategic promise there was a

lot of this stuff would happen early. You know, from a market's perspective, what's most important is that he give priority to the things that the market cares about most. And so the market doesn't care about um immigration issues. The market care is really about two things that care about. It doesn't care about the New York Times. Yeah, and the market doesn't care about but but the latest tweet or whether he shows up to you know, to a press event. What the market cares about is, um, are

we going to see something on taxes? And and frankly, if it happens at the beginning of eighteen instead of the middle of seventeen, as long as we believe that in directly it's moving, so I think the market is going to be comfortable with that. And the market wants to see, you know, a pullback in regulation and all these things. Taxes is really hard, but on the regulatory front, there's a lot that it can do through executive order. UM.

There there is areas such as financial regulation. We're both Democrats and Republicans believe that there are areas within Dodd Prank Frank that can be improved upon. So even a modest softening of things like that, UM would would really be quite appealing. What the market doesn't want to see is an obsession on things that don't matter to the economy.

As an investor, am I happy that executive from big companies are now interfacing with the president in a new way, that they're being called to the portico, that they're being called to the cabinet room to meet with the president to have these listening sessions. Is that a good thing,

that new kind of dynamic. You know, as as I'm talking to institutional investors, they're frankly not spending as much time worrying about the latest photo up with what they what they're obsessing on which they're not getting to your point is they want to see the actual details around this tax plan more than anything else. In the extent that they can get that on some regulatory issues as well. Great, Um, but it appears as if this stuff is going to

be um, take a little time. And I think Manuchin did a brilliant job of putting August out there by basically saying, is I'm promising if something's on the come, just be patient with me. And I think that that was a really smart move. You must be happy now to see Steven Manuchan in that job, to see Rex de Lerson confirming in that job. It must provide some stability for the market to have the heads of those

agencies in place. Yeah, And I think that there's a wide belief that whether you agree with their politics or this or that, that they're grown ups in the seats their reasonable guys. Um. If you look at the when when Tillerson was speaking to foreign leaders or when the Vice president speaking to foreign leaders, they're speaking with with

the tone which is I think pretty comfortable for people. Lincoln, we're gonna run out of time here, Lincoln, here in thir seconds your view with Tom Purcelli's view, there are we going to get the g d P the president needs to make America great again. Let's call it three point zero. Yeah, we have a shot at something between two and a half and three percent this year. But but the real I think that what you're gonna get is nominal GDP will be substantially hired. That's GDP plus inflation.

What's that We can't talk real wages. You gotta come back and we got to talk about real wages will be out. That's that's what people will focus on. Okay, John Golif RBC Capital Markets, thank you for the time commitment. This Monday morning, David Gura and Tom Keen worldwide, coast to coast. This is Bloomberg. David, I want you to bring in the next guest here as we tell talk

about policy in the abstract issues of medicine. But I just want to say, David that every parent has tattooed to their brain the once a year, the once every three years. Where you you go, where you go where I live is five. He's that's where you go when you need there's that moment where you need to go with said child, and it's He's sixty Street, New York, New York. A man very familiar with that addresses Dr Steve core and he's the President and c of New

York Presbyterian Hospital. Joining us here in our studios in New York as the President prepares to meet with health insurance company CEOs. He's calling it a listening session. Today he's had he's had a few of these. Were you around the table or what would you say to him about what needs to happen to Affordable Care Act, whether it's repeal, replaced, repair? What does the government need to do here to write the ship? Well, I think repeal is UH an overreach. I think that the Medicaid expansion

has worked. I think a number of Republican governors have told the President that I think the Medicaid expansion should continue and not be rolled back. UH. The individual insurance market needs to be repaired. We have many areas in the country where there's only a single insurer. People are concerned about deductibles and premiums, but that individual insurance market cannot work in the absence, in my opinion, of an

individual mandate and subsidies for the insurance companies. And I think the health insurance executives will tell the President that today you've got a company like pulling out of a number of these markets saying they're not eager to get back into them at this point in time. What's it going to take these insurers to get back into markets that they well, I think first there needs to be stability. You need to tell people this is where we're going.

I think it would be very unfortunate if with the House Republican Reconciliation Bill, the individual mandate and the subsidies were removed, because that that will just precipitate this happening. Doctor, you're out of Northwestern and then Columbia p ands and you've got this blending of being a practicing cardiologist with the actual running of hospital. What do doctors and nurses want or think of this silly debate in Washington. Basically, we have non experts experting on the fact that if

David Gura's kids or my kids are sick. We need them fixed by the best talent we can find. How do you people respond to this debate? In Washington, we have over thirty thousand employees, and I would tell you that their response to this is, when somebody's sick, you've got to take care of them. One out of every four people in New York State is on Medicaid. One out of every three New York City residence is on Medicaid,

and this is replicated throughout the country. UM. I think it's important to recognize that Medicaid insures over seventy five million Americans, and you have to have insurance in this country. Access to care is not insurance. One of the great things is that Logan in Boston are there's many other cities. Here at JFK, foreign people come here when they're really sick. I've seen it. They come through our airports, whether it's

Cleveland Clinic or Mgture You're wonderful hospital. How do we repair and move forward away from six of gdp HE or whatever we're spending to the proper balance of medicine. I think in order to bend the cost curve, you've got to deal more with preventive health, mental health. I know this is unpopular in many areas, but UM, I am in favor of attacks on sugary drinks. You've seen

in Mexico, the the reduction in soda consumption. Uh, if you can't prevent illness, you're going to have UM six substantial expenses associated with caring for people, and I think that that is one of the things that should be kept with the Affordable Care Act. Just about thirty seconds left too short. I'm sorry to say it. Are you? Are you convinced this is going to be a more

participatory process going forward. A lot of people have complained that when the Portal CARECT came about, all the parties were involved in crafting it. That needed to be when it comes to changing the law. Do you think more voy say we're going to be here, They're gonna be more voices at the time. I would hope that we can get bipartisan support on that. Right now, it looks like it is just going to be one party doing it, and I think that would be unfortunate. Do I have

to walk ten thousand steps today? I'd like for you to go away the tall ten thousand step things you think is A is A is an adequate measure of good health. A path to good health. Exercise is great for the brain, great for the heart, and I would urge everybody to exercise. You are you are so done. Dr Corwin, Thank you so much. Presbyterian. Please come by in a weekly. Oh I just got in a message here from Mrs Keane. Have Dr Carwin daily. Okay, thank you,

David Garrow Toime Keen. This is Bloomberg, brought you by Bank of America. Mary Lynch. Dedicated to bringing our clients in sites and solutions to meet the challenges of a transforming world. That's the power of global connections, Marylynch, Pierce Federin Smith Incorporated, Member s I p C. David Gura, this is very, very smart work on our foreign policy and the choices in the debates the new administration has to do. I like Trump's team of rivals. It's very lincolness.

Thomas Wright is online director of the Project on International Order and Strategy at the Brookings Institution, co author of a new report Building Situations of Strength and National Security Strategy for the United States and Thomas right, let me ask you first of all about this president's national security strategy. How different is it now that Michael Flynn. Lieutenant Michael Flynn is out office, he's no longer the National Security Advisor.

Did we see Donald Trump's foreign policy change? I think it's highly significant, actually is it's one of the most significant developments or in his first month in office, and not typically in the way people think, though, I think, what what what? What? What's striking to me is that this basically denies President Trump and Steve Bannon sort of access in control of the bureaucracy to forward the America

First agenda. So you know, to the extent that they have very radical ideas about American farm policy, it is much harder now for them to use the interagency process and sort of the flight as infrastructure to push that throughout the different departments in a way they might have been able to do so with Flynn. So you know, President Trump still has its views, Bannon still has this views. They'll do their thing, but there's a bit more of a constraint there from the NSC than there was a

few weeks ago. What's your sense of who is crafting and guiding foreign policy in this White House? Is it hr McMaster, Michael Flynn's successor. Is it James Maddis the Secretary Defense, Rex tillers in the Secretary of State, or

is it the as in himself. I think there's no easy answer to that, because there is a structural incoherence sort of built into this administration, like there's no um, there's no sort of unified position, and there will not be one because there the views of the President and of Bannon and maybe two others around him are so fundamentally different than those of the cabinets. So what we're likely to see is a continuing sort of struggle and wrestling maps to see who comes out on top on

different issues. But those looking for sort of the you know, the voice of of coherence or who can sort of sum it all up, I think they'll be looking for a long time because that's that's not going to happen. Um. I think in a Trump administration. We're talking to Jonathan Galub with the OURBC Capital Markets and he spoke about how he's listening to what the Vice president has to say when he's traveling abroad, He's listening to the Secretary of State when he goes to Europe and talks to

our our allies there. How much discord or distance, says there between the message we're hearing from those underneath Donald Trump and those the messages that we're hearing from the president himself, Well, there's enormous difference, you know. But the Vice president's comments and Munich are a great example, like he went there and gave a speech as that that George W. Bush could have given. Um, So that that is reassuring to a lot of people who want to

see a strong story of US alliance in Europe. But the fact of the matter is that if there's a crisis, say there's a crisis of Russia in the politics or somewhere else, the person who gets to make the decision about what to do is the president, right. So, um, I certainly understand those who point to Tillerson and Pence and Madison say, oh, you should just listen to them,

that's really what's important. But at the end of the day, you know, Trump is going to have a major say and his personal views could determine whether or not the US polled some of these commitments or not. So I'm not bully reassured. I think it's a positive thing that they're saying, that things are saying and I'm glad they're doing it when they go tom when when matters Tillerson offense goes to these places. But it's not as sufficient. Okay,

enough of the brookings feet stuff, doctor Wright. Tomorrow night. If the president possibly goes off speech script and let's say he goes after fake news, etcetera, all the other themes of the moment, if he starts bashing name the nation or you know, the Sweden idiocy of two weeks ago, how do you respond to that? How how do our allies what a quaint word, how do our allies respond to that? Yeah, No, it's a great question. I mean

I think what they have two reactions. One is that it will it will really um, it will really underscore their concerned that they will be really worried basically that they can't trust the president. Um. They'll essentially, you know, think that if push comes to shove and there's a problem, you know, this guy doesn't understand them and it's a wild card. And the other thing is they look for assurance from everyone else. Just as we were talking about

a second ago. The next day, all the other members of the cabinet will come out and say that's not what he really meant and you know, our alliance is strong, as there will be some sort of assurance there. But these episodes like Sweden or Australia or any one of a number of examples over the last you know, month or so, you know, they point to the fact that the commander in chief is not exactly um, you know, it's not exactly uh, you know, upholding the alliances and

commitments from your international relations per view. Why is trade down? Why is world trade down down? Down down over like over the last few years or less ten years last, the growth of trade is down. I mean, we're not getting it like we used to get it. Yeah, I think it's you know, I think there are I do think that they're you know, we're the important time we say this in the report you mentioned to look at free trade agreements and look at economic diplomacy and say,

you know, it's not just about market access anymore. It's also about distortions in the market, whether it's Chinese use of state owned enterprises or currency or many other issues, and then to work with like minded countries to try to address those, you know, problems. So I think there

are problems in you know, the global economy. Trump is not sort of wrong about that, but it's really you know, how he's responding and whether or not the appropriate way to respond is by launching a trade war or general economic war with China or Mexico, which could be catastrophic and kind of productive, you know, or is it to work you know, diplomatically and multilaterally with with other sort of large industrialized democracy to try to address these these issues.

So I do think, you know, I do think there's it's not that the concerns about the training system are unfounded. I think there there is, um there is some reason for concern, but it's not it's not in the sense that he's saying that the US has lost out in these deals and it's just been negotiating badly. I think

Thomas right. You have a book coming out All Measures short of We're the Contest for the twenty Century in the Future of American Power, due to be published in May, and I can just picture you pouring over the galleys in early November and the election was how much did you have to revise in light of this election, in light of what we're seeing with this new administration. Yeah,

and it's a great question. You know, the draft was done before November eight, but I had you know, they said that if the if Trump won, I'd have a chance to make some revisions. Um, well, you know, the book read is arguing that the you know, this age is sort of great power cooperation and convergence towards the liberal international order is is over and unraveling, and that we're seeing the advent of a more nationalists and geopolitically

competitive world. And so prior to the election, I thought the US to be pushing back against that, you know, that the US to be trying to op that from happening and trying to uphold the liberal order. And I guess that what I sort of corrected for was that actually the US is more caught up in it than

I might have, you know, than I had anticipated. But the basic sort of gist of the of the argument I think was was, I mean, in some ways Trump just confirmed it, right, because it's just really underscored that this was this force is even stronger than I pought, and I thought it was sort of the driving force. That's right. One more question if we can squeeze it in here. You have the luxury of experience in Dublin,

Cambridge and over UH at Georgetown as well. Is there a risk of the city in the financial part of London could move part or all to Dublin. Do you buy that idea? Well, I think that. I mean, I think that they will definitely lose. The City of London will definitely be diminished. I think there's very little dabt about that, and the folks I speak to over there when I when I go over to UH for events in the City of London very much acknowledge it upfront.

If the question is the destination, I think it's not. It's not at all clear will be Dublin, although Dublin is picking up some business, but Frankfurt and Amsterdam I think are strong competitors as well. But you know, the folks in London hope that they will only lose business that is specific to you know, the passporting issue, but it could be more broad than that. I think we've got to leave it there time right, Thank you so much.

Dr Wright is with Brookings Institution. What we're gonna do years investment talk and we'll do the political talk in our next section with one of our most popular guests, one d Herrow David Harrold of Harris associates and the oak Mark International Fund joins us. Now, David, you've had mense repair to your track record, and this is typical with international where you get a ginormous year and then you get a bad year, and maybe you get two good years and two off the marketers. What's the year

ahead or the two year ahead view? David Harrow on international stocks versus US multinationals. Well, good morning, Tom, And this view for me, anyways, always predicated on where we sit in terms of the valuation spectrum, where stocks are trading, in terms of you know, conventional conventional valuation uh in dissees that I like to use, like cash flow yields EV two EVA. I mean just looking at how businesses are priced and given what business conditions are like and

what we see today's there about average price. We don't see panic fire sales like we saw during certain periods in the last year or two. Recalling the beginning of we had a very very weak start, a bottomed in February and then an international market's got really hit hard right after Brexit. And to me, these were really really good panic buying panic There was panic selling given a

good buying opportunity. UM, we don't see you four in the markets because they're still there's still people scared of what might happen in Europe with the elections, and we always have this with the elections, um. But so what we see is valuations are just about average. They're they're not super attractive, and they're not over the humble. One forgets to mention that thirty two days ago you were named morning Stars International Stock Fund Manager of the Year.

And the issue here, David Girl, it's like the Oscars. You just expect that Meryl Street will come up on the stage, same thing with David Harrow. But David, to the boom bust of your world and you've won every award there is within is you just assume last year was a great year, this year is a bad year. No, not necessarily. What you do assume is that you can't look in the past, and you have to keep looking forward and you have to keep the portfolio forward positioned.

And you know, if I look at my history at Harris Associates, it's almost twenty five years, there's been about three or four big bust years and about twelve or thirteen big boom years. And to me, that's that's livable, because what we're ultimately trying to deliver is performance over three fifteen years as opposed to just trying to match the index over week to week, month to month, quarter to quarter, half year and a half year. And I

think there is a trade off. There is a trade off between, you know, trying to achieve short term performance and trying to achieve medium and long term And we'll take the medium and long term any day. So if it means some short term under performance, I'll take that, if it means we're going to get greater medium and long term out performance. Ask you a bit about the Italian banking sector. We've talked about that a bunch here over these last last few months, and let me just

get a sense of where you see opportunity there. There were reports here of Antessa generally merger happening, and we've talked about the need perhaps for for more consolidation in the banking sector in Italy and Europe more generally. Where do you see things headed there? Yeah, there definitely needs to be more consolidation in the Italian banking market, probably even in the German the Lindest bunk in which the setup there makes it very difficult for any bank to

make money doing local banking in Germany. But back to Italy. Yeah, we're big shareholders of Intessa and we were watching this quite closely because this generally, in our view, it made limited sense. And management assured us they're going to stick to the plan. They're going to stick to their capital allocation policies Etter and so we trusted and we trusted him as they have a very good track record. The

CEO of Antessa is very sound. Uh. They continue to form, they're starting to grow their loan book, Loan losses are going down, costs are going down, and they're distributing most of their excess capital, which they have a bit of and Testa sel Paul actually has excessive capital and they're

distributing it most of it back to owners. So this is what we liked, and we were raise some doubts on this generally, but they looked at it, they looked at it closely, and they decided to pull back, which um us was was a good sign unless you could really really make a strong case for business combination because these things are littered, littered with the laws of unintended

consequences when you merge to big entasis. There's so much work that needs to be done in combining businesses, and you just have to make sure you're really paying the right price and you have the ability to integrate and to manage. So that's it's fraught with risks, or we're pretty happy that they backed away from that. Jonathan Donald was here just a few minutes ago talking about how well you would have done if you've gotten into America

and financials shortly before the election. Is there still room to get into financials here in the US and indeed overseas. Overseas in particular, there's been a little bounce, but if you just look at the valuation spreads where they're trading at versus historic on an absolute basis, for other sectors, there's still a lot of room, and especially since we're starting to finally see in Europe finally starting to see lending growth, you know, three four or five six percent,

and that's better than not. And in the meantime, these banks have been very proactive at cutting costs. The regulatory burdens seems to have been the strictest regulatory burdens that we saw in Bossil three seemed to kind of be in the rear view mirror. Most of these big European firms are at or above their desired capital positions. So I think valuation is still saying for at least for European banks like B and P and Tessa Lloyd's. It's

it's yes, you should be looking at these seriously. How did you respond to the Craft Heinz Buffett private equity tons of money going after Uni Leaver? Here? Did you wan Unilever? We don't own Uni Leaver, but I and I've looked at it, we've owned in the past, and you know this, this company does not have a good pedigree. I mean we recall it was an Anglo Dutch monstrosity. Two chairman to ce CFOs do everything and I don't

even know if they've ever quite recovered from that. Um. You know, these big companies with all these brands, they just sometimes lack focus and they become huge bureaucracies. And you know, to be honest, I think maybe you know the three gene Heinscraft people would have had had good run at would have had a good run at Unilevers. I would guess there's a lot of fact that cut there. Um, and they have some good brands and some good businesses,

especially in health and personal care and ice cream. We all like ice cream. Um, But you know, I'm I'm surprised that backed away so quickly. Maybe they're reloading or because I think there's an opportunity there for someone. When you look at the VIX hovering around twelve on the issue of where does David Harris down the issue of complacency? What do you make of the VIX being where it is and and indeed where it's been here for these last few months. Yeah, that's not something I give a

lot of thought about. But just looking at how quiet things are and knowing that you know, for every period of quiet, there's a period of disquiet. I would assume that, um, it's not sustainable, but you know, you never know. If you look at charts of the VIX, there's been periods of time where it's been law for quite some time, and I think, you know, the market's kind of in a good place because you know, what they think is going to be better more pro capitalist policy coming down

the road, David, let's talk about the politics. You've been moderately active in Republican politics and in Wisconsin. How's a state that the president uh, I took right now. How intrusive is the Washington debate? What we're going to observe tomorrow night, the present budget debate and with that any delay in the hopes of Republicans. How intrusive is that on our g d P and particularly on our investments.

I think market participants have grown used to this political discourse for better or worse, and as a result, um especially as as a result of various events happening and the impacts of markets becoming less and less and less, and so you're going to continue to see more noise out of Washington. It is a constant flow. This is an altunate, but it does seem to be amped up

a little bit. How I had to do is watch the last night's programming on the OSCARS, and I mean, people are just extremely excited about this whole presidency in one direction or the next. But I think the markets have grown, um what less responsive. I wouldn't say immune, but less responsive to all this noise and chatter. And I think that what really market participants need to do is listen to the policy UH and look for things that make it better for corporates to grow their profits

and cash flow. Streams. You know, if that happens, they hire more workers. If that happens, they invest more. If that happens, you know, it leads to better business conditions and economic growth. It's the bottom up value investor. What we really want is for our companies to be able to, you know, grow, grow their cash flow streams in a in a safetound environment. And I think that's what this whole rally has kind of been about, is the belief that the policies of the previous eight years been very

anti capitalist, very anti free market. And I think the policies, even though they there's a little hair surrounding them, I think there's an anticipation that the policies will be lot more pro growth, pro free market capitalism. When you are you listening now more to those I was chatting about this a little bit earlier today. Do you listen less to Donald Trump and more to say Steven Manuch and he has been on the job now for for just over a week. Are you when you're when you're trying

to understand what this administration is trying to do? Is it more useful, last investor, to listen to those heading the agencies and those beneath them. You know, it's a really good question, is you know, where does the puck really stop? Because you know, Trump was all his roaring.

He does listen to the people around him, and I think that was evidence during the whole Remember the first executive order, UM, the immigration restrictions, and you heard the story of Madison whatever said well what about the green card holders? And they very quickly got to Trump and he wanted, you know, wanted that clarified. So he does listen to people, um, and he does have very strong people around him. That was one of the things that surprised me. I thought someone was such a big ego

would put a bunch of weeklings around him. In fact, he put some very very strong, highly opinionated people. And so I think you have to really listen to both and you have to see how to interact. And I think really what one has to do is look to see if Trump is listening, learning and reacting to his skilled advisors. And I think it would be a very good sign if he does, because he is new, he is new to politics, and he has some very good

people around David Harrow, Thank you so much. Congratulations David Harrow in your morning star acclaim it will be. It goes on the Harrow mantle of the fireplace, crowd fireplace in the west wing. That's where it goes. David Harrow with the Market Harris Associates International Manager of the Year. But that's how it is, David, I mean, David garraw Um, I find it in the international you know, you wait,

you wait, you go. It's not working. It's not working in a boom you get one year or two years too. It's a it's a different cadence than domestic. Yeah no. And I was again struck by what he had to say there about the European banks. We talked about European banks in terms of how they are structurally and in the context of financial regulations. But interesting to hear that, David Hare, they're talking about opportunity in the European banking

system right now. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio brought you by Bank of America. Mary Lynch dedicated to bringing our clients insights and solutions to meet the challenges of a

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