Fed Now Positioned Like an Asset Manager: Lacaille

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Oct. 16 (Bloomberg) -- Rick Lacaille, global CIO at State Street Global Advisors, talks with Francine Lacqua about how he is positioning for a potential U.S. default and his expectations for how the Federal Reserve would act to handle the situation. He speaks on Bloomberg Television’s “On The Move.”

Question.

The debt idea that you can go in and out is a little unrealistic.

The important thing is to make sure you have enough of a cushion to get through.

We have a little bit of risk position in terms of being overweight credit he -- credit and equity.

So what is your topic?

What is your favorite playwright now?

We like european equities and equities in the asia pac region.

European equities are a little bit of a consensus trade.

I think there is good reason to think european equities are reasonably cheap.

There is a little bit of recovery coming through.

Labor costs are very low and that is a good market for profits.

We were just hearing from a fed president saying that he thinks they would have everything in hand.

Even if we were to deal with the u.s. default, the fed could support.

This is something you were talking about.

Are you now expecting the fed to be much more dovish than they were a month ago?

It will make a difference.

The last time we were talking about this, there was a fixation on the on implement number.

They are in a similar addition to an asset manager.

There was another data point that is important.

You see business confidence weakening.

That will affect their thinking on tapering.

Will that make a difference?

I don't think so.

Last time we were talking about tapering, a tiny amount.

You were a little bit more optimistic about u.s. equities last time you were on.

I think -- we are optimistic that the u.s. economy will still keep growing.

U.s. equities are a little bit more expensive than europe.

So we are more cautious than we are about european and other equity markets.

The fact that you like the asia-pacific markets, this has nothing to do with the fact that qe is here to stay longer.

You think these are reasons to like that region?

Absolutely.

Are you picking the countries where you want to be or do you buy the index as a whole?

We buy the index as a whole.

We tend to pick the smaller countries over the larger ones.

If you look at what drives performance it is valuations, liquidity.

The small country affect is very important.

Avoiding the bricks is sometimes very profitable.

Focusing on the smaller countries has worked very well for us.

We're going to talk about earnings in the second.

Are you worried that we are seeing a lot of disappointment?

A lot of these are company specific.

In the last three days, a lot of companies disappointed.

Expectations are rising.

That is a little bit of a vulnerable environment.

Expectations have been ratcheted up erie how do you deal with that?

I think you have to step back and look at whether they are individual stock stories or the european economy as a whole.

A lot of people are overweight the car sector.

That is a risky bet in the sense that it does rely on things changing substantially in europe.

The banks are more interesting in europe.

If you get through the stress test in a way that is credible -- fund managers are really looking for credible answers.

Europe may be a more interesting place to invest than the u.s. where it is overvalued.

I just want to get a quick thought on japan.

What is the potential?

Is this great financial experiment adding even more dangerous?

I think the danger point is not now.

It is in two years.

If you get through the next two

This text has been automatically generated. It may not be 100% accurate.

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