Mornings with Maria

Mornings with Maria

On Friday October 21st I was on set with Maria Bartiromo, Kat Timpf and Dagen McDowell with a variety of guests. Here are a few clips from those three hours on set… with only one bathroom break… starting at 6am… and a lot of coffee…know my pain.

We spoke with JMP Securities President Mark Lehmann on the stocks to watch in the tech sector and the election’s impact on the markets.

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We also spoke with Alan Dershowitz, author of ‘Electile Dysfunction,’ on the impact of WikiLeaks on Hillary Clinton’s campaign. While I’m not a fan of lawbreakers, and hackers certainly count amongst those, these days the electorate is reasonably mistrustful of those in power and these hackers are giving us confirmation that we are correct to mistrust …which is one of the reasons I am in favor of smaller government. The more power government has, the more opportunities there are for graft, and the bigger the temptation to give into such. I prefer smaller government out of respect for the frailties of human nature. I’m in good company here with James Madison who explained it best in Federalist Paper #51.

It was a long chat with Mr. Dershowitz…

As a proponent of the free markets, which also means free trade, I’m a fan of Donald Trump’s plans to reduce taxes, but not a fan of his threats to significantly reduce free trade and to use the power of the presidency to force private companies to bend to his will. As the second largest exporter in the world, our economy needs a healthy level of international trade. We spoke with political economist Andy Busch on Donald Trump’s and Hillary Clinton’s competing plans.

Finally we spoke with S&P Global Market Intelligence’s Rich Peterson concerning the outlook for M&A activity, particularly given the current political environment. As we discussed earnings results so far, I brought up my concerns that the improvement in earnings per share really doesn’t tell the whole story, as companies have been buying back their own shares at record levels. This means the denominator, shares outstanding, keeps falling which makes EPS look artificially stronger than it actually is. I call this the spanx-and-push-up-bra strategy, whereby things may look better from afar, but fundamentally they really haven’t improved.

Clinton good for stocks?

Clinton good for stocks?

On October 14th I spoke with Stuart Varney concerning the impact on investors of a Hillary Clinton win coupled with a Democrat sweep of the House and Senate. While the market index moves so far have indicated a preference for Clinton over Trump, investors aren’t likely to benefit from a Clinton presidency.

A Clinton presidency would mean higher taxes, which is a headwind to growth. She has expressed a desire to increase taxes on investments, which makes them less attractive relative to other options. She’s also discussed increased regulations, which is already considered by the C suite folks to be one of the biggest challenges facing companies today. While the stock market indices have so far been more bullish when Hillary has a solid lead in the polls, investors should think through what her plans would mean for their bottom line as well as the bottom line of the companies in which they invest.


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Market Highs Again – Where Next?

Markets are at all time highs, what is an investor to do? On August 13th I had the pleasure of speaking with Stuart Varney on Fox Business concerning the sky high valuations in the stock market amid contracting earnings, earnings which are also highly deceptive given the level of financial engineering management has used to artificially boost earnings per share through share-buybacks, which are often debt funded!

We’ve yet to see the economy return to pre-crisis normal growth rates and businesses around the country consistently site government red tape as one of if not their biggest burden. Meanwhile the markets wait breathlessly to dissect the latest words out of a Fed officials mouth. We now live in a world in which the asset prices are heavily dependent on commentary from unelected bureaucrats. Me thinks it unlikely that this all ends well!

Not entirely sure why I was smiling that much… I suspect I may have had just a tad too much coffee. Apologies for the dental display!

Italian Bank Stress Test Results

On July 29th I spoke with David Asman on Fox Business concerning the results of the Italian Bank stress tests along with Adam Shapiro, Charles Payne and Steve Forbes. The recent vote in the UK to leave the European Union put a good deal of pressure on the banks in the remaining European Union, with the banks in Italy struggling the most.  Like any good Italian drama, this is likely to be a tight ride until the very end… at which point tutti bene, at least for the next few months!

Foreign Leaders Nervous About Trump

On March 8th I spoke with Neil Cavuto about how many foreign leaders, particularly those in Europe, are getting nervous about Donald Trump’s statements. Living a good portion of my time in Italy I am able to have a richer perspective on how the rest of the world views what is happening in the U.S., and while I agree that the U.S. ought not chose its policies based on the preferences of other nations, it is always a good idea to at least listen to our friends and neighbors, just as we do in our personal lives.

The United States has the largest economy in the world and the most powerful military, so naturally the rest of the world has a vested interest in what happens here. Our entertainment industry is also the most impactful in the world, so that American cultural shifts are often rippled throughout the globe. What happens here, doesn’t stay here.

For most Americans alive today, World War II is something we read about in the history books. We don’t sense that it impacted our culture in any meaningful way, at least nothing like the way 9/11 has. In Europe there is a very different memory, one filled with great trepidation over those leaders that seek to use the military in ways that are outside of the law. Donald Trump’s repeated comments concerning how he is confident that the members of the military would defy their oath to uphold the law in order to obey his demands strike an alarming cord in Europe, where leaders in the past who used the military that way brought devastation to a continent.

Perhaps Trump is simply using the type of hyperbole that he found worked so well to garner attention for his reality TV show, but hyperbole of that nature on the global political stage, from a man who could be the commander-in-chief of the largest military in the world, in understandably cause for concern.

Market Movement, Candid on the Candidates & Immigration Crisis

Yes, you read that right! In less than five minutes on with Stuart Varney I managed to discuss the likely next moves for the market, which candidates I think would be best for economic growth and the European immigration crisis… and that was on less than three cups of coffee. Although, to be fair, the sheer terror of making an absolute ass out of myself on national television does provide just a wee bit of adrenaline to put it mildly!

So market moves… S&P 500 went on a tear during the early part of March, but it looks to me to be mostly a momentum move with those stocks that got hit hardest performing the best, all the while earnings expectations keep getting lowered. Think about that for a moment, earnings expectations are lower in early March than at the end of January but stocks are moving higher? Companies are telling us their performance will be weaker than previously thought, yet investors are paying more for their shares? Yes, we’ve gotten a reprieve from crashing oil prices and that is certainly a welcome relief, but we are still facing a strong dollar headwind, as other nations continue to try to stimulate their domestic economies by devaluing their currencies, which regardless of what the Fed does, will strengthen the dollar. That makes U.S. exports less competitive. So while we could see this move up continue for a bit, when I look at all the data, I think it is more likely that this will be a bounce that won’t take us to new highs and the overall downtrend we’ve been seeing in equities since last May will eventually resume.

As for the candidates, I like to keep it simple. The bigger the government, the more opinions you get. The more opinions you have, the more the government gets involved in how businesses from the startup to the gargantuan are run. That makes it more expensive to run a business and makes businesses in aggregate less likely to expand as bigger government means more rules that they have to try and not break or offer the lovely little campaign donation here or there – still more expense. Given the headwinds the U.S. is already facing, more government red tape means less growth.

Next on to minimum wage, just look at what has happened in those cities that have significantly pushed up the minimum wage, such as Seattle. Many smaller businesses have shut down and unemployment for the lower paid wage earners has risen. That is not an improvement for the economy.

Next I look at the tax code. That thing is way too damn big and complex which means way too much time and effort is spent trying to figure out how to pay taxes and how to not pay more than necessary. That is time companies and individuals should be spending on doing what they do better, doing it more efficiently and doing it with a higher level of quality. Instead we have an enormous industry built up around figuring out how to dot i’s and cross t’s to satisfy a monstrously sized IRS. All that is money, time and effort NOT going into growing the economy.

As for the immigrant crisis, this is truly a humanitarian crisis of epic proportions, complicated by understandable fears of terrorism and violence. No nation, no leader has yet to get a handle on a productive way to manage this horrific problem, meanwhile innocent people are dying. They are dying when they try to escape their war-ravaged homes for a better life and they are dying when they stay home and try to fight to protect the land of their birth. There are no easy answers here and the strain of it all is putting enormous pressure on the european union, which is already wobbly with all sorts of debt-induced cracks.


Freeze in Oil Production? Not buying it.

While on Mornings with Maria, we talked about the agreement between members of OPEC and Saudi Arabia to freeze oil production at January 2016 levels.

First off, I am highly skeptical that this freeze will stick. Historically any cuts, and this isn’t even a cut, have been rather notoriously violated, with quite a few such “cut” announcements necessary to get anywhere near stability in oil prices.

With the proxy war between Saudi Arabia and Russian ongoing in Syria and OPEC’s understandable desire to significantly knock back production by frackers, coupled with Iran’s new ability to sell on the global markets, there are entirely too many reason to keep pumping. I suspect we won’t see much stability in prices until a materially amount of production capacity is taken offline with the associated defaults and bankruptcies.

Have We Seen the Worst of 2016

On February 16th, I was on Maria Bartiromo’s show on Fox Business and spoke with PNC Wealth Management Chief Investment Strategist Bill Stone on the state of the markets.

We are in relatively unchartered territory with a roughly $9.5 trillion USD carry trade being unwound and enormous over-investment in commodity/oil production, driven in no small part by expansionary monetary policies in the U.S., Europe and Japan.

Crashing oil prices are pushing the majority of sovereign wealth funds into being sellers of assets in order to make up for budget shortfalls.

Suppressed yields have pushed pension funds and insurance companies into excessive risk-taking and forced selling in order to meet distribution demands.

Individual investors are reasonably nervous about stocks…who is left to buy?

Santa Rally on Its Way?

On December 17th, I appeared on air with Stuart Varney to discuss a potential year-end rally in the stock market after the Fed’s rate hike came in around what was expected. I think a year-end rally is unlikely, and expect to see weakness in the stock markets as we move into 2016. We’ve already had three quarters in which revenues for the S&P 500 have declined and two quarters in which earnings have declined. We are seeing signs of weakness in the economy and the Fed’s rate hike impacts interest rates going forward.

One of the biggest factor pushing stock prices higher has been corporate buy backs, in which companies buy back their own shares, often issuing debt to do so. Think of just how destructive it is for a company to borrow money to buy back shares that then fall BELOW the price at which the company bought them! We are also seeing companies buy back shares while executives are selling their personal holdings – always something to look at if you are considering buying shares in a company. Higher interest rates make it more difficult for companies to issue debt in order to buy back shares and without corporate buy backs, we would have seen a net outflow from the equity markets. Tough to have prices go up when more people are leaving the stock market than buying into it!

Neil Cavuto: Fed Policy is the Problem

Neil Cavuto: Fed Policy is the Problem

This morning I spoke with Neil Cavuto on Fox Business about the Fed’s decision to not raise rates earlier this week; my view, Fed policy is the problem!

An economy grows when good ideas are able to get funding, find talented people to work on them and are able to operate in an environment that is conducive to their success; that means limited laws, regulations, and a tax code that are all easy to understand and not costly to follow. 

All the QE (Quantitative Easing) and ZIRP (Zero Interest Rate Policy) have kept interest rates super low. That forces people to put their money into riskier investments than they’d like. Riskier investments by definition have to generate higher rates of return to compensate for their higher level of risk. High levels of risk are also associated with ideas, that normally wouldn’t get funding, but manage to get it by promising really high rates of return. If investors are pushed into more higher risk/higher potential return investments than they’d normally like, that means more of these potentially bad ideas get funding.

This means the economy experiences a higher failure rate than would normally be the case. That means more investors lose their money and more resources get wasted, draining the economy. Add in that the U.S. economy is getting more and more complicated with respect to legislation, regulation and a tax code that even the IRS doesn’t understand and ever great ideas struggle under the burden of trying to jump through all those extra government hoops that just make it that much harder to be successful.

In my discussion with Neil I refer to how we have a record high level of job openings. The chart below is from the Federal Reserve, but can be researched in depth by looking up the JOLTS report from the Bureau of Labor Statistics.

2015-09-18 Cavuto - Job Openings

I also mentioned how the percent of the population actually employed is where it was nearly 40 years ago.  This data is also from the Federal Reserve.

2015-09-18 Cavuto Employment Population