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katherine Ross: 00:00 Break down from me why you expect to see more volatiles, stock and bond markets?

Michael Cuggino: 00:05 Well, I mean right now I feel like we're in a period of relative calm, right? The Fed is off the table for the moment. They're looking at data. The two parties, China and the US are talking trade, so at least they're talking. So I think the market perceives that as a positive in that they'll ultimately be deal. Um, but swirling around all of this, it's kind of the eye of the storm thing and a hurricane swirling around all this are we're in a period of transition. So you've got positive earnings, you got low unemployment, wage growth is increasing a little bit. You have people working in spending. But on the other side, those are all positives. Corporate earnings have been strong. On the other side of it, the negatives, geopolitical issues, a US pending election year coming up next year, late cycle economics where we are in the US slow, anemic growth globally.

Michael Cuggino: 00:50 You have issues in Europe with Brexit, with Germany slowing down with the protests in France. Um, you have the potential slowing down in China, anemic growth, you know, and the emerging markets. And so the question is, are we ending a cycle and heading towards a recession or are we sort of consolidating before the next multi year run up? And I think that's the big question investors are trying to grapple with. Not to mention the fact that most of us are filing our first tax returns under the new tax law, as we speak. So there's an uncertain factor, especially with the US consumer and whether they're going to get a refund and how much or whether they're going to pay more taxes and what impact that will have in the first half of the year economically in the US.

katherine Ross: 01:30 So there's a bunch of uncertainty like going around investors right now. So if I'm an investor looking at this market, how can I diversify my portfolio to protect myself?

Michael Cuggino: 01:41 Well, we, that's our bread and butter. I mean, we advocate a multi-asset kind of diversified strategy all the time in a way that grows a principle and a capital base in excess of inflation. So the way we do it, we divvy up different asset classes. We invest in US and non US stocks, US and non US bonds, gold and silver commodities, real estate and Swiss franc assets, you know, Swiss, a sovereign bonds. And the idea being that all of those assets together provide a good broad comprehensive diversification for an investor. Um, and so that's the way we would approach it. Each of those asset classes respond to different situations. They don't necessarily correlate to each other. So any of them could be considered volatile and dependent on one issue. But when you put them together, they make a more broad based, less volatile overall portfolio return and a lower volatility number.

katherine Ross: 02:33 Do you have any specific stock picks in this market?

Michael Cuggino: 02:36 Yeah, and the equity side of things. I mean I think we look for value all the time. A relative value. So some things that come to mind in our portfolio would be something like a British Petroleum or BP on the energy side. Energy's been a beaten down sector as of commodities. Um, great dividend yield. I think oil prices are going to trend up. So big macro bet there, but it makes sense. A similar name would be a Freeport McMoRan, copper prices are improving. There's going to be demand for copper with technology, with, building and construction, et cetera. Uh, a dividend yield, I think one and a half percent roughly, but a lot of room for improvement of coffer prices do improve. Um, I would include Facebook, which is you don't think of Facebook and value per se, but a on a relative valuation basis, Facebook's trading roughly to market multiple and we still think the growth rates are going to well exceed that.

Michael Cuggino: 03:25 So if your patient and can ride out the headline risk, that's not a bad bet in a high growth area. Um, and then probably another name and a similar bed, but a different company altogether would be intel. Um, a lot of resources, a lot of demand for technology and chips and devices all over the place and they've got the capital, the broad base to take advantage of that over time. I think they've got some new issuances coming out. They've got a brand new CEOS, they've, they've gotten that issue off the table. Also a good dividend, I think access to 2%, um, and room for growth there with good earnings and I do think the semiconductor, and we've seen a lot of bounce in semiconductors so far this year and I think one reason is that from a macro longer term standpoint, semiconductors with are going to be there as an industry group that, you know, I was just going to be a demand for a while and so the bed beaten down, it's good chance to pick some up and kind of ride with it for the long term.

katherine Ross: 04:19 You know, I got to admit you say those four names and you know, it's kinda hard for me to see why you grouped those together. Can you explain?

Michael Cuggino: 04:27 Diversification? No, I mean we, in our equity selections we try to have a broad base of different industry groups so we're not wedded to any one sector. So I mean yeah they are disparate. They make no sense kind of together, but, but I would group them, you know, as we're talking here today as, as stocks that have relative value for the long term, um, we tend to focus on a three to five year holding period roughly for our names if not longer. And we think that, you know, based on macro broad trends and the likelihood of success that they're good names and for different industry groups that that may be good bets for investors. We don't know.,right? But, but there would be, you know, that's, that's how we run our portfolio. So there's more where those came from I guess. But those are four good examples.

katherine Ross: 05:12 Why do you like golden commodities in this market?

Michael Cuggino: 05:16 Well, we, we use gold, um, generally as part of our strategy as well. It's an alternative currency. It's a hedge against inflation and monetary reactions based on inflation. Um, you know, lack of faith in the political system or the monetary system, et Cetera, uncertainty. So for a lot of those reasons, and it's held value as the unit value of currencies around the world have declined. So it's a stabilizer, right? Um, it obviously pays no dividends and so that's a negative to it. But we think a portion of gold and everybody's portfolio at some level makes a lot of sense as an alternative currency with respect to commodities, generally in gold as a commodity, it's mostly an alternative currency versus silver, which has, you know, literally almost half of silvers industrial production versus an alternative currency.

Michael Cuggino: 06:05 So it's a little bit more cyclical in nature sometimes and how it trades. Um, we're at the lower end of a longer commodity cycle, whether it's industrial metals, silver, nickel, you know, whatever, iron ore. Prices have been down for multiple years. Global growth has been weak. The US dollar has been strong. All of those are headwinds. We think that over time that's probably going to change. And so if you're a patient investor with a strong stomach, then this is a time to get in a longterm investment in some of these areas. And, wait it out and grow with it over time. I think that'll be a very successful trade, but you're going to have to wait and be patient on it.

katherine Ross: 06:42 Thank you for joining me.

Michael Cuggino: 06:42 Thanks for having me.

Ready to start adding to your portfolio?

Michael Cuggino, CEO of The Permanent Portfolio, has some stock picks for investors attempting to get into this market. 

"I mean I think we look for value all the time. A relative value. So some things that come to mind in our portfolio would be something like a British Petroleum or (BP) on the energy side. Energy's been a beaten down sector as of commodities. Um, great dividend yield. I think oil prices are going to trend up. So big macro bet there, but it makes sense. A similar name would be a Freeport McMoRan (FCX) , copper prices are improving. There's going to be demand for copper with technology, with, building and construction, et cetera. Uh, a dividend yield, I think one and a half percent roughly, but a lot of room for improvement of coffer prices do improve. Um, I would include Facebook (FB) , which is you don't think of Facebook and value per se, but a on a relative valuation basis, Facebook's trading roughly to market multiple and we still think the growth rates are going to well exceed that," Cuggino said.

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"So, if you're patient and can ride out the headline risk, that's not a bad bet in a high growth area. Um, and then probably another name and a similar bed, but a different company altogether would be Intel (INTC) . Um, a lot of resources, a lot of demand for technology and chips and devices all over the place and they've got the capital, the broad base to take advantage of that over time," he continued. "I think they've got some new issuances coming out. They've got a brand new CEO, they've, they've gotten that issue off the table. Also a good dividend, I think access to 2%, um, and room for growth there with good earnings and I do think the semiconductor, and we've seen a lot of bounce in semiconductors so far this year and I think one reason is that from a macro longer term standpoint, semiconductors with are going to be there as an industry group that, you know, I was just going to be a demand for a while and so the bed beaten down, it's good chance to pick some up and kind of ride with it for the long term."

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