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CONCERNED, ELECTION UNCERTAINTY REMOVED, MORE FRIENDLY GROWTH ENVIRONMENT FROM THE S.E.C., ET CETERA.
>> OH, MAN, THERE'S SO MUCH TO TALK ABOUT. LET'S GET TO THE MARKETS HERE, BRING IN TOM LEE AT POST NINE, OF COURSE, FUND STRAT GLOBAL ADVISORS MANAGING PARTNER, HEAD OF RESEARCH. S&P TARGET FOR YEAR-END, 6,300. GREAT TO SEE YOU, TOM. YOU LIKE TO CALL THEM GRANNY SHOTS, EASY PLAYS, IN YOUR VIEW. I HAVE TO IMAGINE THAT LIST HAS GOTTEN LONGER.
>> YES. IT HAS, BUT IT'S STAYED AROUND 35 NAMES. BUT JUST HIGH-QUALITY NAMES THAT ARE IN THE RIGHT SORT OF THEME. WE HAVE SEVEN THEMES AND AS LONG AS THEY'RE IN MORE THAN ONE THEME, THEY BECOME A GRANNY SHOT.
>> HIGHER CONVICTION, I IMAGINE.
>> YES, AND THESE ARE NAMES THAT MOST PEOPLE ARE GOING TO BE FAMILIAR WITH, BECAUSE THEY'RE LARGE CAP STOCKS.
>> THERE'S SOME DISCUSSION ABOUT CYCLICALS TODAY, THAT THEY MAKE SENSE, AND PEOPLE ARE LOOKING TO 2016 FOR ANALOGS, BUT SOME ARGUE THERE'S NOT THE COMMODITY PRICE SUPPORT THAT YOU MIGHT HAVE HAD IN A PRIOR CYCLE. YOU BUY THAT?
>> YOU DON'T NECESSARILY NEED COMMODITY PRICES TO HELP CYCLICALS.
>> ENERGY, BUT EVEN MATERIALS TO SOME DEGREE.
>> THAT'S RIGHT. SO, FOR THOSE, I WOULD SAY, YES. I WOULD SAY THE OUTLOOK FOR ENERGY STOCKS ISN'T GREAT, AS GOOD AS PEOPLE MIGHT EXPECT UNDER A TRUMP PRESIDENCY, JUST BECAUSE EXPANDED DRILLING HAS LOWERED OIL PRICES, BUT FOR CYCLICALS LIKE INDUSTRIALS AND FINANCIALS, FOR ALL THE THINGS YOU GUYS WERE DISCUSSING, A GREAT ENVIRONMENT, INCLUDING M&A AND DEREGULATION.
>> DO YOU THINK THERE IS REAL REFLATION RISK IN THE NEXT, SAY, SIX MONTHS?
>> THAT IS SOMETHING THAT WE CAN SEE HOW MARKETS ARE REPRICING AND THERE'S A MEASURE CALLED ONE-YEAR INFLATION, ONE-YEAR FORWARD, SO -- WHICH IS, MARKETS THINK ONE-YEAR INFLATION IS A YEAR FROM NOW. THAT HAS BEEN CREEPING UP. IT'S ACTUALLY NOW AT 3.6. IT'S BEEN A TRIGGER POINT IN THE PAST WHERE THE MARKET STARTS TO WORRY, SO WHETHER IT'S THE, YOU KNOW, THE DEPORTATION THAT'S CAUSING THAT OR A FISCAL, YOU KNOW, FISCAL SPEND, I'M NOT SURE, BUT IT IS -- MARKETS ARE STARTING TO THINK ABOUT IT.
>> OR MORE JUST BETTER GROWTH OUTLOOK COULD HELP INFLATION EXPECTATIONS RISE. I GUESS WHERE TRUMP TRADE 1.0 RAN INTO TROUBLE WAS AROUND TRADE POLICY, AND ONCE WE SEE WHAT HE DELIVERS THERE IN TERMS OF TARIFFS, SOMETHING HE'S BEEN VERY, VERY CONSISTENT ON, DO YOU THINK THE MARKET IS LOOKING PAST THAT, OR EVERYTHING ELSE, THE DEREGULATION, THE LOWER CORPORATE TAXES, IS GOING TO OFFSET ANY WEAKNESS ON TRADE?
>> I MEAN, I THINK THAT IF SOMEONE WAS TRYING TO PAINT A NEGATIVE PICTURE, THAT'S THE TARIFFS AND THE TRADE IS WHAT'S ON PEOPLE'S MINDS, BUT OF COURSE, THAT'S THE ONE WHERE WE DON'T KNOW WHAT THE ULTIMATE SORT OF POLICIES WILL BE. I'M SURE MARKETS WILL ACTUALLY PROVIDE A LOT OF REALTIME FEEDBACK, AND I THINK THAT'S GOING TO HELP SHAPE WHAT THE POLICY IS, SO I THINK IN GENERAL, WE SHOULD EXPECT A PRO BUSINESS ENVIRONMENT, ONE THAT'S PROBABLY EQUITY FRIENDLY AS WELL.
>> WHERE ARE WE ON FUNDAMENTALS AND JUST, YOU KNOW, IN TERMS OF THIS RECENT RALLY IN TERMS OF MULTIPLES AND YOUR EXPECTATIONS ON EARNINGS AS WE HEAD INTO NEXT YEAR?
>> I MEAN, EARNINGS SEASON, I THINK, ACTUALLY, AS WE'RE WRAPPING UP, HAS STILL BEEN VERY SOLID. AS YOU KNOW, THE DRAG ON EARNINGS HAD BEEN ENERGY AND SOME OF THE COMMODITY GROUPS, BUT GROUPS LIKE INDUSTRIALS AND TECH ARE PRODUCING GOOD NUMBERS. I THINK NEXT YEAR, THE OUTLOOK SHOULD BE GOOD BECAUSE THE COST OF MONEY IS COMING DOWN, WE'RE SEEING HOUSING ACTIVITY PICK UP, AND IF THERE'S MERGERS, THIS IS MUCH BETTER FOR SMALL CAPS, AND SMALL CAP EARNINGS GROWTH HAS BEEN AROUND 40%, SO I THINK IT STILL SORT OF GUIDES US TO THE SAME TRADES, WHICH IS WE WANT TO BE MORE CYCLICAL AND THEN ALSO LOOK AT THINGS LIKE SMALL CAPS AND BITCOIN.
>> SMALL CAPS. MERGERS -- JUST GIVE ME A LITTLE BIT MORE ON WHY SMALL CAPS ARE GOING TO BE A BIGGER BENEFICIARY.
>> PART OF IT IS THE BACKDROP. SMALL CAPS HAVE UNDERPERFORMED, BUT REALLY THE LARGEST MARGIN IN 25 YEARS. THEY'RE NOW TRADING AT 10 TIMES MEDIAN PE AND FOR THE S&P, THAT'S ALMOST 18 TIMES, SO A 7 PE DISCOUNT. SMALL CAP EARNINGS GROWTH IS FASTER, AND NOT ONLY THAT, BUT ROUGHLY 44% OF IT IS WHAT I WOULD CALL VERY CYCLICAL, AND THAT'S THINGS LIKE REGIONAL BANKS AND INDUSTRIALS. THAT'S GOING TO -- THAT'S A BIGGER WEIGHT THAN IN THE S&P, AND THEN FINALLY, YOU KNOW, THERE'S A LOT OF CASH ON THE SIDELINES, AND I THINK IF PEOPLE ARE LOOKING FOR BREADTH EXPANSION, THAT'S SMALL CAPS.
>> THEY ALSO DON'T HAVE THE TRADE EXPOSURE. THEY GET THE BENEFIT FROM LOWER TAXES AND REGULATION WITHOUT THE TARIFFS ALSO. FEELS LIKE THEY'RE IN THE SWEET SPOT.
>> THAT'S RIGHT, AND THE MARGIN OF OUTPERFORMANCE COULD BE SIZABLE. THEY'VE UNDERPERFORMED BY ALMOST 100 PERCENTAGE POINTS, SO I THINK YOU COULD RECOVER THAT OVER THE NEXT FEW YEARS.
>> WE WERE MENTIONING ELON MUSK A MOMENT AGO, AND OVER THE WEEKEND, HE ENDORSED THIS NOTION FROM SENATOR LEE ABOUT END THE FED, ESSENTIALLY. "JOURNAL" OVER THE WEEKEND WITH A PIECE ABOUT POWELL PREPARING OR BEING READY TO DEFEND A REMOVAL IF, IN FACT, HE'S ASKED TO LEAVE. DO YOU THINK THE BOND MARKET WOULD REVOLT AT ANY KIND OF ATTEMPTS TO INFLUENCE THE FED OR RE-EXECUTIVIZE THE FED?
>> ABSOLUTELY. THE FED IS THE MOST POWERFUL ENTITY IN THE WORLD AND PART OF IT IS ITS INDEPENDENCE AND IT'S SOMETHING THAT EVEN THE BOND MARKET IS SCARED OF. I TH