Munson on the driving force of the market


Lee Munson, CIO and Chairman of Portfolio Wealth Advisors, joins Adam Shapiro and Seana Smith of Yahoo Finance to discuss his thoughts on the current state of the economy and why everyone seems to be bearish in the markets.

Video transcript

SEANA SMITH: Here we want to focus on the markets. We have the Dow Jones, S&P and NASDAQ holding their gains, it seems, with just under an hour to go. You can see the Dow Jones up to 29 points. The S&P rose only about a tenth of a percent. The NASDAQ once again outperformed today. Let’s bring in Lee Munson. He is Chief Investment Officer and President of Portfolio Wealth Advisors. And Lee, starting with the stock that we’re seeing not only today, but also, I guess, recently we’ve seen this outperformance here from the NASDAQ. Is it something – is it a momentum that you think is going to continue for a while now?

LEE MUNSON: I think it will be the NASDAQ summer countertrend which will not perform as well as some other places like the old economy and value. You know, probably about four or five weeks ago it was becoming obvious to me that NASDAQ was getting really oversold relative to value. And remember, for context, for anyone looking at this, since really September of last year, we’ve been in either a market or either, which means you either have the NASDAQ raging in the lineup. expectation, which is going well, or you have things like the heaviest banks, materials, energy, financials are doing well.

And so it’s a continuation of that. Overall, though, I think it’s going to be an opportunity for people – like, listen, if you really think NASDAQ is that wonderful, you really like those valuations, and you really think the rate, this 10- the year will go below 1.5, so go ahead, right?

All the folks on my side, because we’re looking at reflation trade, reopening trade, we’re looking at dividend payers, again, valuing old economy stuff, that’s what really did. rage post.com. And that’s what went relatively well this year. Then what’s not going to be in my favor is seeing that 10 years drop below 1.5. So remember, the more you see this drift down over 10 years, the stronger the NASDAQ trade will be. This is a very simple question. Give way down–

ADAM SHAPIRO: So Lee …

LEE MUNSON: –NASDAQ up.

ADAM SHAPIRO: Lee–

LEE MUNSON: Yields increase–

ADAM SHAPIRO: And Lee, now I have to tell you, as I’m interrupting you, that 10 years is 1.52, so you’re going to make your wish come true, it looks like, maybe. But you also point out that there are a lot of self-fulfilling prophecies, that people just can’t get enough of the bear talk. What are we missing?

LEE MUNSON: Well, you are missing accelerated gains. You are missing the acceleration of inflation. I think there is this general idea that income cannot be revised higher at this time. This is not true. Remember what was going on in the summer of 2009. Every day people said it had to come down. You have to start selling. And every day it got higher. And it was just, like, 10 days, 20 days, 30 days, 40 days. This summer of 2009 has been relentless. We see something a little weaker but similar here.

So I think overall what people are missing is that they believe the Fed, they believe in fairy tales that inflation is transient. Higher inflation and higher rates don’t serve long-lived assets, which is a goofy way of saying technology, biotech, unprofitable technology. And so we could have a summer lull in rates and we could have some commodity sag, it’s softened a little bit. I think the ultimate game by the end of the year won’t be at NASDAQ. But it will be in what are called asset classes that are economically sensitive to reflation. And so, that’s all I have to say about it. But again, you have to take a break. This is what we are seeing.

SEANA SMITH: Lee, if you had to limit yourself to just one thing, what is the biggest driving force in the market right now? Is it the Fed? Or is it something else that we may not be looking so closely at?

LEE MUNSON: I think the most important thing you are looking for right now is the 10 Year Treasury. Because it’s about the Fed and how much control it can control the yield curve. Again, the only thing that really interests me right now is really the 10-year period. Because the 10-year will tell me if my old value positions are paying off. Or this will tell me if some sort of larger S&P and the NASDAQ 100 pays off.

And that will continue to be the case for the rest of the year. Because we already know that profits will improve further and that they will revise upwards. We already know the main things that could cause a correction. The Fed says something that someone thinks they are typing or something like that. They don’t do anything until the first half of 2023 with the rates. I don’t care about taper, unless you’re trading bonds, right? I don’t care if Biden says we’re going to start taxing at 28%.

You know, my mate Tony Dwyer already showed me the information. It’s like, come on. They save – the total gains are – there are 20% savings on interest charges. So how – you know, we’re still going to revise S&P aggregate earnings upwards, even with the 28% tax rate. I don’t think that now that we have signed this great national global thing. So I think all you’re looking at are interest rates. It’s a market either or. I think NASDAQ could continue to operate for maybe 6 to 12 more months. I don’t know if February was the best. But that’s not the market I’m betting on. I bet against that, right?

ADAM SHAPIRO: Yeah and–

LEE MUNSON: So I think that’s all you have to watch.

ADAM SHAPIRO: And when you talk about taxes, you should read Seana’s latest article on Kevin Hassett and taxes. He told us yesterday that is not going to happen. So, all of that being said, you also say, go, go. You’d want a VIX around 30. It’s far from that. So that kind of … I made your face smile. We’re not going to see VIX here unless there’s this black swan event, are we?

LEE MUNSON: Absoutely. I mean, here’s the thing. There’s always something we don’t know, isn’t there? But you’re not going to make me sell more bonds now to buy more stocks in this market until I see some type of slowdown or pullback. Again, by misreading the Fed to say something, I think this is your most likely way to bring the VIX up and the market down. But everyone on Wall Street is expecting this. We’re all looking for that. So every time we all wait for the same thing to happen, it probably isn’t.

The second thing is the tax code. But I think it’s a bit cooked. You know, what, the Wuhan virus came from Wuhan. I don’t think that will be it. So for me, I’ll give you my internal numbers. Because that’s what everyone wants to hear. I think the S&P for me is viable around 4000. Don’t panic if it drops below 4000. And you have a lot of Quant machines trying to do that. But I think right now it’s been a 4,200 magnet, no interest. So 5% down, I’m in it.

Small cap, I only buy small cap value because it’s moving this year because it’s a reflation trade. But I have to see that go down at least 7% or 8% or see the larger Russell 2000 come back about 7%, 8%. I use graphics on this, of course. And I think that’s where you can buy it. I think emerging markets is viable here, because, folks, the slow rollout of vaccines in emerging markets is news that’s going to happen. And as more and more people get vaccinated in those areas, I think you’re going to have a story that is going to expand into emerging markets. And they got beaten up. I do not know. See why they are so beaten when the dollars continue and the cyclical cycle down.

And then on the gold side, you know, I have a target of 2,200 an ounce up to maybe where I want to get out of this trade and go. But I think gold, silver, I think they have legs. I’m just warning everyone. There isn’t as much benefit as you might think in precious metals if you watch these gold buying ads today. I think it’s much more discreet. But I think it can give a race for the money against, like, investing money in a 10 year treasury today.

SEANA SMITH: Alright, Lee Munson, we still love your energy. Thank you very much for joining us. Again, Portfolio Wealth Advisors Chief Investment Officer and President. We will bring you back. We will check some of your calls here in a few weeks.

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