Preparing For Negative Interest rates: Fiduciary CIO
Welcome to the bloomberg p._n._l. Podcast i'm paul sweeney along with my co-host this abramowicz each day we bring you the most noteworthy in useful interviews is for you and your money whether at the grocery store or the trading floor find the bloomberg pl podcast on apple podcasts or wherever you listen to podcasts as well as at bloomberg dot com. Here's multiple choice question for you on this monday. Do you wanna buy a u._s. Stebner gold u._s. equities or a we work. If you get it pre okay i pio. Luckily we're gonna have a man who's gonna answer that question. That's hans olsson chief. Investment officer of fiduciary trust with seventy eight billion dollars in assets under management so cross. That's that that was your multiple choice question. Which would you buy in ranking order. You work gold steep steep inner gold or u._s. Equities <hes> well. I'd have to probably can i get paid by the assets under management. He has the buy out there. So why like i it's my way of trying to see like where's their actual value right now. It's hard hard to find a lot of value anyplace right now. Perhaps the the areas that we find it mostly would be in places like europe even u._k. Which is really a non on consensus trade for sure but in the u._s. <hes> yeah the earnings growth is there. The multiples are expanding. It's been pretty tough. We're overweight u._s. Equities for sure. We've tried to rotate more into the low volatility types of names <hes> as a way to to to do it responsibly but i have sale the environment right. Now is is not great eight for people putting money to work. We're speaking with hans olsson chief investment officer fiduciary trust hans. Just let's start. Maybe just with your economic outlook. I mean the u._s. Seems is pretty solid but we see some weird news. Alexander talk about earlier out of germany earlier today. So how do you view the kind of the u._s. Economy so the u._s. company if if i were to color code the u._s. us economy with green being growth yellow warning danger and recession. I think we're probably going from green light green at the moment so whether it's the hard data the soft data we see a collection of surveys that all point to continued growth in the u._s. Slower than what it's been but continuing to grow is your call on so you can equities and european equities. Is that based on a brexit thing or is that literally evalu- trait well. I think in in the u._k. And europe immune put politics aside for a moment if you look at things like <hes> valuation and earnings growth they're better. They're more compelling than they are here here. In the united states it just happened to be wrapped in the difficult rapper of the politics that perhaps brexit won't be anywhere near as bad as people people think when you look at the statistics since the end of <hes> since the since the vote back in two thousand sixteen the one economy that has really defied expectations and the popular narrative has been the u._k. Economy both in terms of growth inflation and the like and i'm not so sure but what we couldn't see that continue to happen even post brexit. It'll be some hiccups or but. I'm not sure it will be as devastating. People are are postulating so as you think about that. You're global portfolio where you kind of in the allocation. How much risk are you taking these days with the portfolio so that's a good question because it's really an and exercising nuance increasingly <hes> so when the u._s. equity market as i've said we've we've been rotating exposures and where we have added exposures into more of the low volatility names right trying to stay away from any value by sees but but those companies with dividends and have less of an attachment to the overall market so the betas is lower to that of the market on the credit side we have for some time been shorter undulation where lengthening out the duration because i think there is a real possibility ability that in the next part of the cycle amazingly enough the u._s. will see negative interest rates and the other thing that we've been doing. We've been <hes> pivoting up into a higher quality credits to in an attempt to get some sort of carry so it's kind of a belt suspenders type of exercise so what i would say to that is that you're not alone and name but i mean by that is that low volatility stocks have now inherently become more volatile because there's so much matt now money into it for the reasons that you said you can make the same argument for going up the safety curve when it comes to investment grade and many argue that we're way over but when it comes to the long end so how do you deal with that when you say yeah i think it all depends depends upon what your benchmark duration as right so. We're not going out thirty years or twenty years. We're really trying to stay right on the benchmark for us has probably going to be around four years five life years whereas we were two three years before so we've we've langton out and you're right. There's a lot of money in movement. Money's is trying to find a home especially when we're back to the tino principle where right where there is no alternative equities so it's not a perfect trade but i think it's a trade and certainly over the the the agit that we've seen over the last week or so those low vol names that <hes> we've invested in have held up quite well relatively in they've outperformed by about three hundred basis points. It's not bad in an environment like that. So what are you. What do you expect to hear out of jackson hole at the end of this week. A lot of market participants think it's very very important time for chairman pow to articulate how he views the fed over the next <hes> several quarters yeah yeah i think i think the tel is going to be actually what <hes> there was a white paper that the i._m._f. Released and it reads something like a guy to <hes> deeply negative interest rates fight recession eighty dr page white paper that is the that lays out the fund the foundations in the fundamentals of about how to position the concept of negative interest rates. It's i think particularly in the united states and you're already seeing some of the fed governors talk about <hes> that it's not so unusual and that zero bound is really just a number. I think we'll start to see more of that. Conversation tumble out of a jackson hole without a doubt and sort of setting ourselves up for the next cycle all four. I think higher probability negative negative interest rates which when you think about the u._s. in the u._s. when you think about it turns never but but a reserve currency the swiss franc they have negative interest rates the entire german sovereign curve is below zero and you know we and what sixteen seventeen trillion dollars worth of negative yielding debt of both the sovereign and corporate variety in europe but does that bring up mt and i say that because i've been talking about this black rock paper all morning and probably boring paul at this point which is basically they talked about just that helicopter money you're going to have to have coordinated monetary and fiscal policy in order to get stuff done in the an extra session i mean is that basically what you think. We're headed for two sailing observations number one. I think we've come to the limits of monetary policy and and that's why i think we're hearing about the ideas of another tax cut being floated this morning and the other thing is that <hes> <hes> you know when you were a running trillion dollar plus deficits which is what we're doing especially at this point in the cycle when we're talking about more tax cuts and we are talking about negative interest rates even considering them that is actually you know modern monetary theory. Perhaps dressed up a little bit differently but that's effectively it so i think we're kind of their in many respects and that's a really uncomfortable thought to ponder interesting hansson. Thank you so much for joining. Yes hans is chief. Investment officer for fiduciary trust joining us here on bloomberg interactive brokers studio. Take turn our attention now to gold the commodity commodity is up about twenty five percent year to date so is that just a move by investors for a safe haven an asthma asset or is there something else driving the commodity to get those answers. We welcome joe cover. Tony managing director of world gold council u._s. joins us here in our bloomberg interactive brokers worker studio so joe thanks so much for being here gives a sense of what is driving gold here so far in two thousand nineteen. It's great to be here. What's driving gold in two thousand eighteen and into nineteen has been pretty much risk and uncertainty market risk and uncertainty a client or investors inability to understand where really elite the direction of the markets is gonna go and hearing regular and ongoing updates of large systemic issues that give them caution and concern even if it is talks about implementation of potential tariffs. There's concerns around negotiations with china whether there's a hard or soft exit in brexit all all of these factors are all playing now added as of late has been an increased concern particularly in the u._s. Market over negative real rates or is that even feasible or possible double so the rate moves the dovish stance of the fed all factoring in gold as an asset is a global asset so while we're seeing big risk factors that are taking place in developed markets around the world. Maybe even an emerging markets. You're also seeing a shift as well globally around de-dollarisation and monetary policy policy. That's leading central banks to buy so we're seeing investors taking risk positions that are careful and we're also seeing central banks shifting their monetary policy to address it so i i was covering gold back in the olden days two thousand nine for a few years <hes> so i was part of all that conversation of what we see gold two thousand and if i have thought we'd hit negative rates in many many countries that we could see it in the u._s. I would expect it easy goal to be twenty five hundred. What does it tell you that we're not. What does it tell us that. We're not what i think we need to understand is that the demand cycle for gold is driven and importantly needs to be understood and driven by strategic factors so what i think we need to be careful and cautious of is momentum and short term opportunity costs move the price fast fast and actually in large percentage amounts on any given day. We're almost down one percent today. Let's not get caught up in that. What i'd say is going back to your two thousand nine timeline and actually goes even further back some five thousand years type of reference there what i what i think is important for people to understand and is that in this wave of demand increasing that we're seeing this looks to investors taking a strategic position overweight and their commodity bucket and positioning positioning for longer term systemic issue so the financial risk the longer term. It's going to be a slow methodical continual increase in demand potentially so we'll get to two thousand five hundred. I'm not entirely sure but what we're seeing today are signals telling us that gold as relevant asset is gonna continue to remain very high our conversations again with institutional investors in particular are about how much gold should i have in mind portfolio not this question of do. I have a need for it in my portfolio. Roya is being found more and more prevalent in the conversations with institutional investors. What are the <hes> a._t._f.'s doing with golden. How are they impacting the gold market the are proving to be exactly what we know them to be an exce exceptional vehicle for investors to make a decision to invest in in the precious metal itself they can own the gold through the exchange traded fund not only in the u._s. market which we all know a lot about but what we're seeing our u._k. Okay investors german investors in particular driving enormous amounts of demand so year to date about nine percent of net new assets have flown into a._t._s. with price appreciation appreciation. That pool is up to nearly one hundred and thirty billion in overall holdings in e._t._f. So we're seeing investor saying. I need to make a strategic decision. I want to own gold as a commodity or as a precious metal or in a particular investment bucket divorcing themselves from concerning whether it's a commodity it's not simply saying it's a core allocation in my portfolio so the enabling people to get it done volumes are transparent which is helpful and actually significant significant so if you need to buy as an institution large percentages of gold over a course of a day you're going to be able to get done now. One last point that i'll make is is that in the us while we know that there are institutional flows going into the exchange traded funds. Don't overlook the amount of retail investment that goes into the as well if you're looking at the big wires or you're looking at the large platforms in the u._s. They all have available on them. Some mechanism to exchange traded funds to get access to gold. There's plenty of choices today to what happens if the dollar doesn't depreciate. I think that you need to understand that. The dollar is one. Only one factor actor remember gold has a global asset is impacted by demand in china and india which makes up nearly fifty percent. It's driven by european geopolitical nicole risk or or or economic concerns in those markets so it's an important factor but it's not the only factor to take into consideration so the dollar's been in kind of flat lining right where we going with gold. We're seeing a noticeable appreciation and the price why because the other factors are kicking again stepping away from tactical short term concerning issues which are important understand but understanding that financial market and the risks that come along with that we'll be driving long-term so just real real quick joe he mentioned central bank buying gifts a sense of how that works and how it plays out <hes> basically they're buying the billion outright and the boy and market okay they go into to the o._t._c. markets or the dealer market in the european arena for example and ultimately their their continuing. I think it's now in one thousand nine hundred trend that we've seen in terms of increased recent levels of of gold being added to the portfolio for monetary policy so they're buying the real stuff. They're buying the real stuff joe cava tony. Thanks so much for joining us joe managing aging director for the world council u._s. talking to us all things about getting getting us updated on golden. That's a nice chart for the year within that boy the one part of the economy that the remains very strongest the consumer <hes> and let's see how the consumer is doing particularly millennials and younger demos in terms of buying homes and getting mortgages and all that fun stuff with that we welcome vishal. Garg is a founder and c._e._o. Better dot dot com. He joins us here in our bloomberg interactive brokers studio rochelle. Thanks so much for joining us. Wonder if you could just give us just a brief description. What better dot com is. What are you guys doing doing. Thanks so much for having me. <hes> better dot com is revolutionizing access to homeownership for millennials and we're doing it by making the entire process better faster cheaper so you can get better mortgage and by doing that. You can get a better house. You can save up to three thousand dollars or more on a typical three hundred thousand dollar house in just upfront fees because we don't charge any commissions and we don't charge any origination fees and on top of that you can save some money on your rate so an average consumer save as much as fifteen hundred dollars a year on three hundred thousand dollar mortgage compared to traditional channel mortgage banks or mortgage brokers <hes> because we take the commission's out of the process. We've automated a huge chunk of the process. We made everything much much much better. How do you make money we make money mostly by packaging loans and having investors who we have thirty two investors on our platform with about seven hundred billion dollars of demand a lot of the largest financial institutions in the country who actually want to have mortgages that are not originated by commission loan officer or mortgage broker because those typically tend to perform much much better and so they pass premium for their mortgages and that's how we pay the bills you know today we just announced that we raised one hundred sixty million dollars from some great investors american express citibank ally bank <hes> the health plan of ontario pine brook investors and a lot of that you know when it comes down to is all of those banks and major investors are investing us for the reason that i started the company thirty five years ago so five years ago. My wife was pregnant with our second child. We were shopping for houses. Just people do and it. It was just a really tough process to get a mortgage. My wife worked at a big bank and even there it took over sixty days to get a mortgage <hes> approval and we lost the house that we're we're gonna buy to an all cash. Buyer <unk> even paid less than we did and i thought that was fundamentally. Unfair like branch visits fax machines. He's going to kinkos and like literally sending my social security number and all these documents over unsecure email had cost us the home that we we wanna buy so. It's like we're gonna make better seventy. Eight percent of americans need a mortgage to buy a home and how is this thing that everywhere everyone uses houses industry. That's fifteen trillion dollars in size exists if the internet was never invented right doom millennials dell's bhai homes they do their homeownership rate is half of that of traditional <hes> generations before the baby movers and like so on on average seventy percent of that those earlier generations were able to buy a home right now millennials of about thirty five percent of them own a home so there's this massive demand for coming up. Why is that do you think a lot of it has to do with challenges with student loans okay. They have a ton of student loan. So instead of spending being the first fifteen years of their working lives saving up money to get a down payment to buy a home. They're paying off the loans for college but they're all these products that are out there that your your traditional mortgage broker doesn't know products by fannie mae that enable first time homebuyers to put as little as three percent down to buy a home and over half half of our customer base particularly for those buying a home is millennials and the average age thirty eight and a lot of them are just the they want. They're they're getting married right. They're having kids. They're putting down roots. They wanna have a play room that they can actually paint the way the color they want and so we see not a lot of millennials entering. They're actually the largest group of homebuyers this year so as rates fall. What kind of activity have you noticed. We have seen demand go through the roof our businesses up over three hundred percent from the year before we're on track to do over five billion mortgages this year and almost fifteen billion leaner so next year and it's an amazing time to buy because rates being as low as they are lower than they've ever been in the past means low rates. Hi affordability higher affordability means you can buy a better house for the same amount of money. Remember a lot of people are renting but when you're renting you're just paying your landlords mortgage exactly homeownership homeowners. Should that's kind of been. It's the issue about the millennials kind of being underrepresented in home ownership potentially upside there for the housing market vishal. I shall guard founder and c._e._o. Better dot com joining us here in our bloomberg interactive brokers to you. Thank you so much better rhetoric coming out of the white house about trails where the action is with small stocks return to bloomberg stocks editor dave wilson david looking at this morning. I'm looking at the smaller companies company's doing a bit better than larger ones at least for the moment the russell two thousand index up one point three percent and the s. and p. five hundred up one point two percents now one of the russel's biggest gains belongs to empire resorts whose ticker is n._y. And why the casino owner is climbed fifteen percent after its malaysian majority owner offered to buy the shares it doesn't already hold son us ticker s._o._l. No is at a twelve and a a half percent. The maker of audio would raise the raymond james to the firm's top ratings strong by and tanker stocks are higher after dry ships chairman chairman and c._e._o. Georgia kanu agreed to buy the shares of his company that he doesn't already own nordic american tankers ticker and a t is risen nate percent antique tankers ticker t. n. K. has advanced six and a half percent. One of the russell's steepest drop belongs to revlon ticker r. e. v. the cosmetics maker is falling about four and a half percent after gaining more than fifteen percent on thursday and friday the earlier advanced unsponsored our report that revlon higher goldman sachs to look at strategic alternatives bloomberg stocks editor dave wilson. Thank you so much well. The tech companies are back down in washington this time they're they're testifying in support of a trump administration effort to potentially punish france for enacting a three percent tax on global tech companies to get the latest. We welcome lard davison lars congressional tax reporter for bloomberg news joining us on the phone from washington d._c. Laura thanks for joining joining us so again. We got the big tech companies in front of abortion but a little bit different tack today. What are they trying to get across. Yes so they're really concerned about this. <hes> this tax tax that france france france has passed that would target largely large u._s. companies google amazon facebook <hes> and and the trump administration has said yes we are concerned about this then you really see a kind of for the first time <hes> tech companies and the trump administration really being in lockstep on an issue <hes> what could happen from this <hes>. The administration is looking ping at some sort of retaliatory measure against france to sort of set a precedent of look. Don't go after our tech companies to raise revenue for your country. <hes> tech companies concerned during that they could be taxed. Not only from france with other countries could follow suit things zealand for example and they could be suddenly hit from little taxes from from countries all over the world. It's an i'm calling tech versus tenants because one of the things is with wine that trump is threatened tax one hundred percent of all wine coming from france and europe but in all reality like what could we actually do to retaliate so there's a couple of different things one would be tariffs and it could be on french wine or other sorts of french products. Now the one hundred your percent tariff on wind would be <hes>. You know that would be a bold measure <hes> but there's lots of <hes> smaller tariffs are targeting broad base of french exports. The other thing is there is they section in the tax code that actually would allow the u._s. Government to basically double <hes> the the the tax on <hes> french citizens and french companies operating breeding in the u._s. So there's several different things that are legal within the scope of the possible that <hes> that the u._s. could do to try to get france to back down from this so laura how how important or how much of a financial risk or is this tax to some of these big tech companies. We haven't heard any sort of specific numbers yet. They're they're single cost millions to comply <hes> representative from amazon said that <hes> their profit margins are usually less than three percent so this three percent tax from fans would wipe out some some of their profit margins on those transactions so at least <hes> kind of on a anecdotally it would be both expensive to to be able to track all this to comply with the tax as well as it could wipe out <hes> profitability or result in higher prices for consumers so play this out for me so tech goes to the we hate this. This is bad. Everyone in the u._s. is like totally. We don't want france attach attacks. This is terrible then what happens what the u._s. is trying to do is to get france to back away from this tax and focus focus more on this big global conversation that's happening with one hundred thirty companies led <hes> by g seven g twenty to come up with some way to tax <hes> these companies no longer you know make things earn profits in one country with the digital economy things cross borders all the time and it's really hard to to say which which country can tax which profit so they're trying to have this big multilateral discussion <hes> to come up with some rules that everyone in the world basically can agree on that's the u._s. Wants a not for they're trying to urge france and others who want to go off on their own to do so learn what just give us a sense a little bit of back story here. What was france really thinking here with this tax was. It's simply a money grab for them. Well partially that and there's a lot of <hes> anger in europe at american american tech companies who they feel are art paying taxes that they are using <hes> tax havens to to avoid paying what they should be oh and said look you know if the you you know u._s. Government isn't gonna address this. If there isn't some sort of global consensus we just wanna move quickly and make sure that we're getting a portion you know and being a first mover on this or able to grab a bigger agree piece of the pie than they would have if they did this in coordination with all the other countries so what's the counter to that. I mean that sounds somewhat reasonable. It does though i mean it then the then the answer. Is you know especially for france where u._s. is a close ally. You know what are the negotiations like. If there are extreme tariffs you know. How long can they can they. Hey we're standards or you know if i if every other country has agreed to this other set of principles you know could that be something that the that france <hes> signed onto this is really <hes> france kind of took a bold step kind of i think with the other countries assuming that they would be willing to maybe back down this if there was a larger consensus on something that would be agreeable lord davidson. Thank you so much for joining us. Lars congressional tax reporter for bloomberg news joining us on the phone from washington d._c. Thanks for listening to the bloomberg. Pl podcast. You can subscribe scribe listen to interviews at apple podcasts or whatever podcast platform you prefer on paul sweeney. I'm on twitter at p._t. Sweeney and lisa abramowicz on twitter at lisa abramowicz one before the podcast. You can always catch us worldwide on bloomberg radio.