Reuters Insider - BMO Wealth Mgmt U.S. Jack Ablin on markets drop
28/06/2016 06:58
Click the following link to watch video:
https://insider.thomsonreuters.com/link.html?cn=share&cid=1634594&shareToken=MzoxNGE4YzM4Zi1hMDdhLTRmNmQtYjk3NC1mNjI2MzU3M2JlYjY%3D&playerName=ReutersNews
Source: Thomson Reuters
Description: Jack Ablin, Chief Investment Officer at BMO Wealth
Management U.S. talks with Bobbi Rebell about the
two-day stock drop following Britain's decision to
leave the European Union.
(To access all exclusive Reuters Insider programming visit: http://insider.thomsonreuters.com)
Short Link: http://reut.rs/29948cr
Transcript (May be auto-generated)
Brexit continues to wreak havoc on the global markets including the US. Here
with more, Jack Ablin. He is Chief Investment Officer at BMO Wealth Management.
He joins us from our Chicago bureau. Nice to have you, sir. Thank you. All
right, this is day two of the reaction - not looking good, where do we go from
here? Yes, I think we just need to have some sort of direction in terms of the
bigger picture, in other words, do we have politicians step up and say this is
what the game plan is going to be or do we still have no leadership? You know,
Cameron has said it's going to be up to the next prime minister. We really just
don't see much leadership in either the European Union or UK to say, "Okay, I'm
in charge here and this is what we're going to do." So, what is your advice to
investors?
Well, I think investors tend to draw these long straight trend lines and assume
that you know, this means that we're going to have a huge domino effect; it
means that we're going to lock down every border. And you know, there's the
scenario that plays out like Herbert Hoover or something. So I do think that we
tend to overestimate the impact longer term. My guess is there will be some
moderation but we're looking right now near term for some stabilization to say,
"Okay, we've had this big correction and now we're looking for an entry point."
At one point does that happen? Is there a catalyst that you're looking for?
Yeah, I don't know if it'll be a catalyst per se or just valuation. You know,
going into this thing, for example, in the US, markets were expensive. We were
trading at the higher end of our price-earnings ratio, we are trading about 25
percentage points above of our median price-to-sales ratio. So even going into
this upset, I think that equity values here at home are pretty high. It's
interesting to note that small caps are down more than large caps largely, even
though they would seem to be more insulated from the vagaries of the global
economy and yet, small caps are more expensive. So I think it's just also a part
of a correction that's going on. What do you think about the situation with
financial stocks especially banks? They've been hit so hard, is the worst over
there? Well, I think you know, financials outside that region, the worst is
probably over but inside the region but whether it's in Europe or in UK, is
difficult especially since they're grappling with not only the uncertainty but
negative interest rates at home. And that's just wearing on them and costing
them money every step of the way. So I think that I'd like to see some kind of
direction there either perhaps maybe central banks actually raise interest
rates, which would be interesting but that certainly would shore up bank balance
sheets. You also like commodities and REITs. Talk about why. Sure. So you know,
if you assume we're in this you know, kind of a low and slow, central banks have
pretty much done everything they're going to do, Federal Reserve not tightening
interest rates, then really what you want is certainly hide decent income -
REITs offer that. They can also offer that spread between what I'll say, the US
economy and cheap financing rates, and also commodities. Commodities in general
are trading at about a 15% discount to their production costs so that's good,
not just in energy but in agriculture as well. I do want to ask you, you were
surprised by this decision but you do think it was the right one. Can you
discuss that?
Yes, I think that the - certainly, the European Union not necessarily but the
Eurozone in particular, was just you know, just built on a very shaky
foundation, one that really you know, the European Union is a political
organization or I said, affiliation, and Eurozone obviously financial but one
that's really has a tenuous footing. I think that what the European Union and
the Eurozone has to do is really shrink and become more solid. That may mean you
know, getting rid of the weaker players like Greece and Portugal and consolidate
around Germany and France. All right. Thank you so much Jack. Thank you. Our
thanks to BMO's Jack Ablin. I'm Bobbi Rebell, this is Reuters