Best performers in the s p 500 or if perhaps because Elizabeth Warren is walking back her proposal for medicare for all, interimhere would be an and the fact that Pete Buttigieg is pulling so well. Down about 2. 7 . Guy . Guy european stocks low but not down by much. Volume is like. We seem to have people trading on trade headlines that are risk off. We have yields lower and bonds are better. By half of 1 p against the u. S. Dollar. The reason for that is better polling for the conservative party. We will talk british politics shortly with joe swinson of the liberal democrats. Vonnie lets get to hong kong. Raging fires, tear gas, flaming vehicles have all gripped hong kong in battles between protesters and police. Of a are growing on a crackdown on protesters as police around a university. In the u. S. The senate is preparing for passage of a bill that shows support for protesters supporting democracy in hong kong. When do we expect that vote . We are expecting it at some point this week. Lawmakers are still getting back to washington so the calendar for the week is not set area the senate will have that this week. The legislation needs to be reconciled with the house version but that is something that could take less than a day. We could be on the cusp shortly of that legislation passing and going on to President Trumps desk. Is there any indication this will impact trade negotiations . In the past some of these issues, political issues have come up and not sidetracked the trade talks that have been ongoing. Any criticism of hong kong will be something the Chinese Government is very sensitive on. It comes after the weekend report in the New York Times about the internment camps so there is a lot of International Condemnation and pressure coming on china and it remains to dean whether that will bleed into trade talks. An eye oneping everything Hong Kong Related for us out of our washington, d. C. Bureau. A special guest now, he is a legend in the value and investing space and redefined Value Investing. He owns hundreds of longs and shorts and has made a fortune for his investors. I am joined by joel greenblatt. Welcome and thank you for joining me. You are obviously known for your index strategy, i different style of Value Investing. We have talked a lot about Value Investing. Im curious as to your metrics where are we now . Thisere anything about market that makes it special or overvalued according to your metrics or expensive . Joel that is an interesting question. If you take a look at the s p 500 we value each stock within the s p 500 the way we value companies. We call Value Investing figure out what something is worth and pay less. Time, backack over to 1990 and value the s p 500 every day for the last 29 years and contextualize where we stand now relative to those 29 years. We are in the 14th percentile towards expensive, meaning the market has been cheaper 86 of the time. That does not indicate negative returns. We are not making predictions but we can go back in time and see what happened from the 14th percentile in the past, what has happened is the market has been up three to 5 over the next 10 over the next year. The second part of your question is the russell 2000, stock number 1000 three 3000, the smallcap stocks. That is in the first percentile, it has been cheaper 99 of the at thiswhen it is point we may see negative returns. Vonnie we may see something for the russell we have never seen that we are not seeing that for the s p 500. If we are in the 14th percentile there could be a way to go . Joel it is hard to make predictions. One way you could get back to 10 annualized returns as if the market would fall 20 tomorrow, then forward returns from there would get closer to the 10 we have been used to over the last 29 years. Markets continue up and get returns over the next four to five years of 45 . If earnings continue up of four to 5 . Vonnie you have many different strategies but im curious on how you think about time. Do you have time horizons or do you rebalance on a daily basis . Byl we value businesses ranking them according to their discount of our assessment of value. We buy the cheapest ones we can longand if we are in a short strategy we will short the most expensive ones. The value of a business does not change daily but prices do. We rerank daily because prices are changing and we compare them to how we value the business which is like a private equity firm would. Stocks are not these of paper that you put fancy of ratios on, they are ownership shares of businesses. [no audio] joel that is the way we tend to look at it. To compare expected returns between outside the u. S. And inside is more difficult area of difficult. Guy what kind of data do you see from the bond market if any there is a relationship between bond yields and what happens with Value Investing. How much attention do you pay their . There . Joel we dont adjust for Interest Rates. If you look at the 29 year period, rates are lower than they were so the competition for stocks is much lower. Theoretically you could pay more for stocks if you thought low rates were permanent. If you make some of those assumptions you could get more aggressive returns. We are value investors, we are quite conservative. If you have 1 yields it is hard to say you should a 100 or 200 times earnings for something just because yields are 1 . There are risks in stocks that are not just as a we dont adjust for them and our data does not show that is effective in making predictions though i understand the logic of your question. If you want to make the assumption that rates are permanently low then stocks are more attractive than i indicate. Vonnie you say you dont really this, it is not high on your ratings list but you do rate cash flows. What kind of cash flow yields would you say from a 1. 5 or 1. 75 environment . Joel the s p is pretty close to 4. 5 pretax yield the way we look at it. That is our proprietary number. If i compared it to the cheaper stocks they are at 7. 5 . Getting 30 or 40 discount to the market for some of the cheapest stocks we can find. That is how we look at it. We are always buying the cheapest we can find and shorting the most expensive. It is not a question of guessing which way the market will go. Vonnie how are you measuring the trade war into this . This willime impact all the factors that you look at. Joel it is not our area of expertise but if you ask for my guess the market has factored in that we will have some kind of solution to the trade war in the nearterm for election reasons and other reasons and not much will be accomplished through that deal but there will be a deal and the trade war will be called off. If that does not happen it will be a negative for the market but i think that the market is priced as if that is the logical thing that is going to happen. Curious on the data that goes into your thinking and how you are thinking on what you are getting out of the models. The credit market, the amount of debt going out to the door is eyepopping. Companies are gearing up and the market is taking in. In terms of the way you screen companies, how does that factor into your thinking . You are obviously looking carefully at cash flow and that is something the debt market is paying attention to. What are you seeing in the debt market, the credit market and what clues do you take away from that . Joel its a big picture question. The example i usually use for investing is if you are buying a house and they are asking for 1 million your job is to figure out if that is cheap. Rented outsk if i the house how much rent when i get . If you could get enough in rent for a 5 million house that might help you justify paying those millions of dollars. The next question you would probably ask is what are the other houses on the block going for . We say how cheap is this relative to other similar businesses. It is measures of absolute relative value that we are looking at. One of the things we would look at with Interest Rates are the lower rates. That Million Dollar house and how you finance that house, whether you put up 500,000 or borrow 500,000 we tend to include both. When you buy a stock you are taking on the debt the company has. And Million Dollar house is a milliondollar house whether you by cash or half cash. A lot of the companies that we are short not only have high valuations and are trading at 100 or 200 times earnings, they have a lot of the debt relative to that valuation and that is how we measure how much debt the company has. Elative to its market cap if you have an elevated market cap and a lot of the debt and the market stops funding you in the equity market that can get scary. We are pretty optimistic that if we are not buying the index if we are shorting the index we are shorting the most expensive stocks in an index we have opportunity on that side of the market. Guy are you getting more interest from investors that you were six months ago . Joel i would say about the same. Move to still a big indexing and passive investing and active investing is challenged. There are a lot of good reasons for that. I gave a talk a couple years ago at google and i started this way Warren Buffett said most people should just index. Him, but id with also said that Warren Buffett doesnt index and neither should we. I think there are plenty of opportunities for active investors and there are many problems that explain why active investors have not been as successful. If you are disciplined there is a great opportunity in the active space. Vonnie we have been looking at the returns for your mutual fund. You10 consecutive years returned more than 50 a year before you close your original hedge fund. History howve to short versus how long are you right now . Dont quite work it that way. I can tell you where im. We buy cheap stocks and short expensive ones. There are a lot of ways to express the ability to do that and one would be to stay neutral. Funds that go 50 or 60 net long and funds that are 100 net long. We buy . 90 more of our favorite stocks and short 90 of our least favorites. We have an overlay on the index in a way to take advantage. There is a different place in everyones portfolio for what we know how to do and what we can bring to the table which is buy cheap and short expensive, they have to fill in their particular piece of the portfolio and how they want to use us. Vonnie im interested in your talks on private markets. Joel greenblatt from Gotham Asset Management and cochief investment officer. Guy still ahead, the u. K. Liberal democrat leader joins us with her perspective on the upcoming general election, brexit, and plans for the Business Community. Vonnie live from new york i am vonnie quinn. Guy from london i am guy johnson. Lets get an update on markets. This point we are looking at a mildly risk off tone around the world. Take a look at the nasdaq in the u. S. Down 3 10 of 1 . The dow slipping slightly positive but the german dax down 6 10 of 1 , on pace for its worst day in a month despite some strength we had in the Asian Session the hang seng bouncing back up 1. 4 but not helping european or u. S. Markets. It will be interesting to see if the risk on flow can come through. We have a bit of a rally for bonds. That is influencing the sector composition for the s p 500. I will show you what im taking a look at. Lessp the s p 500 down than the nasdaq, down to tenths of 1 , but more sectors are lower. Though are the three defensive sectors. When rates go lower those stocks look more attractive, energy down 1. 5 . Industrials,s and investors selling the growth the your spec schuurs growthier sectors. Bw down sharply, down 4. 3 after they cut targets for next year citing a slump in big markets around the world including china. That is weighing on ferrari and fiat chrysler. A week weekend for autos. Vonnie that is Abigail Doolittle. Coming up, the u. K. Democrat liberal leader Joanne Swenson joins us. Talking about lib dems plans for the Business Community and much more. This is bloomberg. Bloomberg. Guy from london i am guy johnson. Vonnie from new york i am vonnie quinn. Guy the u. K. General election is less than a month away. Leading political of pictures for more we have joined by joe swinson, the u. K. Liberal democrat leader joining us from the confederation of british industry conference. Really wantness certainty. I often hear people talking about the liberal democrats and what they want is certainty from you. If you were to hold the balance of power, host the general why wanton the 12th, to tell us how you would exercise that our . Will you be clear on that why wont you be clearer on that . Jo we are not going to support Boris Johnson or Jeremy Corbyn. Neither of them are fit to lead our country and liberal democrats will not support either of them. For every liberal democrat mp we stop brexit work to and pursue the other priorities we are outlining in our plans for the future. Whether that is more free childcare, tackling the climate emergency, and agreeing to focus on mental health. You talk about Boris Johnson and Jeremy Corbyn. Do you have an issue with those two people or do you have an issue with their parties . Minded tobe potentially do a deal with a labour party if it was not led by Jeremy Corbyn . I certainly do feel that those individuals are not fit to lead. In Boris Johnson we have someone who has no regard for the rule tolaw, was prepared to lie the queen, parliament, and the country. In Jeremy Corbyn we have somebody who not only wants to take the country back to the 1970s in economic terms that has fundamentally refused to deal with the scourge of antisemitism within his party and not standing up to that fundamental value of equality. Both of those is parties has moved to the extreme under this leadership area it is not clear that even if the leader changed that the direction of travel would be any less extreme. I do have an issue with Boris Johnson and Jeremy Corbyn in terms of their fitness for leading our country. Partyve the conservative in step with nigel farage and that brexit party and you have a labour party on the far left of british politics. It is likely that is where those parties will stay for the foreseeable future. Liberal democrats are absolutely going to try to stop brexit and use our greater strength, and we are being very ambitious in this election, to bring more reason to british politics at a time where it is heading off to the extremes. Somewhat argue that you have taken your party to the extreme and are now suffering for it in the polls. Many people would argue the way to reverse brexit is via the routes of a second referendum. You have said you will not go down that road, that you would simply reverse brexit. Do you think that is an extreme position that has cost you in the polls . Jo lets be accurate about our policy. There saying very clearly, liberal democrats want to stop brexit. If we get a liberal democrat majority government we will invoke revoke article 50. If we do not win a majority we will push for a vote on a brexit deal to give the public the final say with the option to remain. We have let that campaign from the beginning when it was a lovely thing to argue for and now it is a much more mainstream idea. In the last parliament we tried to make that happen. We took down 17 amendments to try to make that happen. Unfortunately the labour party refused to back that in sufficient numbers and we were not able to secure it. Guy do you think that the labour party would be the most likely party that you could do some sort of a deal with to get that second referendum to happen . Hunge event of a Parliament People are trying to understand what is going to happen, the markets are trying to price that. Any clarity would be welcomed. Do you see the labour party as your best route to achieving that . Corbyn is not going to be put into number 10 by a liberal democrat vote. We have worked constructively with people of all different this issue one brexit has split the conservatives and the labour partys. We have worked with people in the labor and conservatives as well as the green mps and the Scottish National party where we have agreed to try to push for a peoples vote. We have succeeded in stopping brexit twice in the past year. Liberal democrats will work constructively with those mps where we share those goals, whatever party they are written. We are not in the business of putting into number 10 somebody who is so obviously unfit to do the job of a Jeremy Corbyn or a Boris Johnson. Can i ask how you anticipate attracting more mps . You have 20 mps, where will they come from . Jo we are fighting a campaign that is ambitious. There areteresting is so many constituencies were liberal democrats have not one or been in contention that are now absolutely in play. There are polls over the weekend showing constituencies in london that were previously conservative labor marginals. Now showed liberal democrats as the main challenger to the conservatives. We were able to win in other still people parties, in the labor and conservative parties who are very unhappy with the direction of those parties. Thoseinue to have conversations with those individuals and it may be that there are more defections because liberal democrats have received an unprecedented number of mps from other parties joining the liberal democrats in recent months. That is part of our general growing membership with tens of thousands of members of the public joining us. A sign that we are on the up. Guy on that note we will leave it. Jo swinson, u. K. Liberal democrats leader joining us, thank you. Lets check in with the bloomberg first word news. Hong kong h