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A&G's Kramer: Bull Market To Continue, Stay Wary of Fed(Audio) · Bloomberg Intelligence

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  Speaker 1: ETF report. I'm Katherine Cowdery. You're listening to Taking Stock
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  Speaker 1: with Kathleen Hayes and Pim Box on Bloomberg Radio. So
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  Speaker 1: far this year, the SMP five hundred is up a
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  Speaker 1: little bit more than five and a half per cent,
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  Speaker 1: but it has been thirteen months since the SMP fire
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  Speaker 1: broke new records. Hillary Kramer, President, chief investment Officer A
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  Speaker 1: and G Capital Group that joins us now to tell
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  Speaker 1: us more about investments. Hillary, thank you very much for
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  Speaker 1: spending time coming in UM. What is it that makes
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  Speaker 1: you feel like this is a repeat of seven nineteen
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  Speaker 1: eighty nine. What what makes you feel it where you
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  Speaker 1: know deja vu all over again? Well, it's deja vu
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  Speaker 1: in terms of the movement of the market. The reasons
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  Speaker 1: are completely different. This is the first time that we
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  Speaker 1: really are seeing a FED driven um central bank policy market.
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  Speaker 1: That's that's just on fire. That's that's flying high, and
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  Speaker 1: I think this is going to end really badly ultimately.
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  Speaker 1: But for all those investors staying on the sidelines, just
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  Speaker 1: keep in mind, we can stay moving upwards for months
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  Speaker 1: like this, absolutely for months. The only thing that's going
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  Speaker 1: to throw a wrench into this bull market is if
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  Speaker 1: the FED realizes and gets a little hawkish and they
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  Speaker 1: start realizing that they need to tighten up rates because
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  Speaker 1: they have no excuse not to anymore, right they look
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  Speaker 1: at look at every employment report is an excuse to say, oh,
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  Speaker 1: we got to you, or maybe even foreign currency. They
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  Speaker 1: have no reason to do that anymore. And then, of
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  Speaker 1: course we have issues like Brexit or China. But otherwise,
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  Speaker 1: if there's no big black swan event, everyone should enjoy
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  Speaker 1: this party because it's gonna stay strong, all right, It's
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  Speaker 1: gonna stay strong. So what are some of the industry
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  Speaker 1: groups that you recommend people getting into. I mean, for example,
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  Speaker 1: you write tech is coming back and healthcare is rebounding. Yeah,
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  Speaker 1: they sure are. Some of the biotechs are looking a
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  Speaker 1: lot stronger now. You know, most of those companies were
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  Speaker 1: really knocked out because hedge funds unwound. You know, when
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  Speaker 1: when in June. We had some real blow ups that
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  Speaker 1: took place, so it wasn't really necessarily anything fundamental there.
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  Speaker 1: I do look also in terms of capitalization. I love
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  Speaker 1: some of these what are now called small caps, but
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  Speaker 1: in my mind, because I'm old school, they're still midcaps
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  Speaker 1: companies like Olden Dome tar So is a paper company.
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  Speaker 1: It's over a hundred years old, at two point two
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  Speaker 1: billion market cap, and you know, you get a really
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  Speaker 1: strong diven in yield here four point seven percent. And
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  Speaker 1: they're also in consumer products as well, absorbancy So paper products.
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  Speaker 1: This is a company that is going to be consolidated.
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  Speaker 1: Was the rest of the paper industry arc to consolidate
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  Speaker 1: a company like Olan Winchester Ammunition, um O l N
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  Speaker 1: divd in yield of three point one percent only a
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  Speaker 1: four point four billion dollar market cap. Again, a company
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  Speaker 1: that's over a hundred years old. There's something to be
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  Speaker 1: said for this. At the same time, Look, you could
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  Speaker 1: also ride, you know, you could ride, you could you
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  Speaker 1: could ride the roller coaster upwards before you head down
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  Speaker 1: and and jump on Facebook, Amazon, They're gonna go higher
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  Speaker 1: next week when they when they report earnings. You know,
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  Speaker 1: a company like Twitter, We're not so sure about. You
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  Speaker 1: know a lot of people who have loaded into Twitter
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  Speaker 1: thinking that they're gonna get acquired, and then keep averaging
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  Speaker 1: down as they buy into that. Um. Apple's one I
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  Speaker 1: think to be careful of. But companies like Amazon and Facebook,
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  Speaker 1: even though they trade like growth companies and they have
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  Speaker 1: three billion dollar market caps plus, uh, they could certainly
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  Speaker 1: go higher. Uh. Companies like McDonald's it's reporting next week,
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  Speaker 1: m c D. Again. You know, it's all about yield.
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  Speaker 1: Everyone's chasing yield, but there's not necessarily a good thing.
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  Speaker 1: Well that's the problem we're all. I mean, you're just
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  Speaker 1: really just a function of the price, right. I mean,
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  Speaker 1: you can payl can be the same, and if the
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  Speaker 1: stock price goes down, it's gonna look like the company's
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  Speaker 1: going gangbusters in terms of yield. But all you've really
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  Speaker 1: done has lost the percentage of your capital, right, and
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  Speaker 1: that and that could be the scenario that we start
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  Speaker 1: to see, which is why everyone gets scared. And when
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  Speaker 1: we screen for companies and dividen yeld, anytime we see
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  Speaker 1: a dividan yield above seven, you know we run because well,
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  Speaker 1: you want to know that the company has the money
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  Speaker 1: order the right, right. We know that they're going to
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  Speaker 1: be a cut coming soon. But the dividend yield scenario
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  Speaker 1: is such that every institutional and individual investor is forced
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  Speaker 1: into equities. It's become the bond equivalent. It's become the
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  Speaker 1: replacement for having c ds, for being able to get
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  Speaker 1: some kind of yield on cash. And that's why this
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  Speaker 1: ends badly. But for right now, there's a lot of
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  Speaker 1: cash still on the sidelines. I still look at the percentages.
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  Speaker 1: A lot of the managed funds have more than three
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  Speaker 1: percent cash, which is you know, pretty pretty high in
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  Speaker 1: terms of history oracle averages. That money can certainly be
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  Speaker 1: deployed and um, and there's room in the market to
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  Speaker 1: make money. You know, watch watch the watch the industrials,
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  Speaker 1: I mean psychologically, as I said, Amazon and Facebook, those
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  Speaker 1: are really big, those are really important, should go higher.
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  Speaker 1: The market as a whole, you know, is looking for those.
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  Speaker 1: But you know, take a look also and see what
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  Speaker 1: happens tomorrow with honeywell, you know next week with three M.
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  Speaker 1: You know, we already have Illinois tool Works behind us.
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  Speaker 1: Everyone should keep in mind though a little tool works.
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  Speaker 1: We all think they had great earnings, Yeah they had
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  Speaker 1: great earnings, but actual organic growth was only one to
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  Speaker 1: two percent, So keep an eye and C G G E.
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  Speaker 1: Of course General Electric, you know which is coming tomorrow, UM,
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  Speaker 1: United United Technologies. These are very important proxies for the
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  Speaker 1: market and it's an important message that we're looking for
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  Speaker 1: because economic growth UM is there, but it's still paltry,
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  Speaker 1: So pay attention. Does this underscore the issue that this
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  Speaker 1: is a market in which companies have been very challenged
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  Speaker 1: in growing their red and you but profits have increased
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  Speaker 1: for a variety of reasons, whether it's increased productivity, lower
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  Speaker 1: head count, or indeed just buying back the shares and
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  Speaker 1: making the numbers look great. Oh pim, I think when
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  Speaker 1: you talk about that, like lots of companies scream out
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  Speaker 1: in my mind. But Goldman Sacks would be an excellent
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  Speaker 1: example where the earnings I mean, sure the stock didn't
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  Speaker 1: do well when they when Goldman Sacks reported, but if
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  Speaker 1: you look at the revenues of Goldman Sacks versus the earnings,
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  Speaker 1: I mean, it's really pathetic. Now it's still one of
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  Speaker 1: my favorite companies, and i'd still put you know, if
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  Speaker 1: I had to choose one company to invest in and
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  Speaker 1: only one that I was allowed to put all my
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  Speaker 1: money in I'd still run into Goldman Sacks, you know,
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  Speaker 1: especially at a hundred and sixty dollars. But be careful there.
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  Speaker 1: Take a look at what the numbers really mean. You
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  Speaker 1: look at something like fixed income trading at Goldman Sacks,
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  Speaker 1: which revenue wise fixing the bond trading used to do
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  Speaker 1: about six billion in the first half of two thousand ten.
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  Speaker 1: You're talking about less than two billion in the first
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  Speaker 1: half of two thousand sixteen. Goldman Acts has made the
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  Speaker 1: numbers by really tightening up on the expense side. Well,
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  Speaker 1: you looked at the revenue as you just indicated, Goldman
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  Speaker 1: Sachs revenue for fiscal twenty fifteen, uh thirty three and
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  Speaker 1: a half billion. That's down from more than thirty four
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  Speaker 1: billion the previous year. Tell me a little bit about Amazon,
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  Speaker 1: because this is a stock that you know, has a
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  Speaker 1: lot of cheerleaders, but also has people scratching their heads
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  Speaker 1: thinking how does this company continue to grow and yet
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  Speaker 1: its bottom line is always being reinvested into new technologies
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  Speaker 1: and new ways to make money. Well, I've always been positive, optimistic,
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  Speaker 1: and very impressed with Amazon of all the tech, of
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  Speaker 1: all the tech internet based companies. The reason that Amazon
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  Speaker 1: continues to do well is because they have made that investment.
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  Speaker 1: There were years when everyone thought Amazon was making mistake
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  Speaker 1: investing in warehouses and building these large, these large warehouses
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  Speaker 1: on scale. But it's really paying off. And if you
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  Speaker 1: think about it, um, Amazon really owns retail online. I
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  Speaker 1: mean they really own it. And Amazon Prime has taken off,
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  Speaker 1: and now what Amazon has with with media and entering
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  Speaker 1: that that realm. I think that Amazon deserves to be
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  Speaker 1: where it is, regardless of the inflated multiples there. Well,
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  Speaker 1: the stock of Amazon, believe us up about ten percent
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  Speaker 1: so far this year. Compare that. I was just looking
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  Speaker 1: at JP Morgan up rather down about three and a
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  Speaker 1: half percent. But you know that Amazon has two thirty
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  Speaker 1: thousand employees and JP Morgan has just two hundred forty,
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  Speaker 1: so they are both you know, behemoth in their in
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  Speaker 1: their field. Last point to what what should people really
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  Speaker 1: be worried about? What the Federal Reserve is gonna do?
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  Speaker 1: Give about ten seconds, Yes, pim it really does matter.
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  Speaker 1: It can really hurt the market, but it will help
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  Speaker 1: financial stocks all right, by those banks, by those banks.
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  Speaker 1: As you said, to be careful though, be careful. Thank
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  Speaker 1: you very much, Hillary Kramer, always a pleasure, President, Chief
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  Speaker 1: Investment Officer a G Capital Group. This is taking Stock.
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  Speaker 1: I'm pim Fox. Coming up next the closing bell on
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