Michael Price of MFP Investors conducted an interview with Bloomberg Television on Friday. The interview was over-shadowed by Ray Dalio’s well publicized CNBC interview. Michael Price does not look for much press. When he does speak, it is truly worth a listen. Seth Klarman, the founder of the Baupost Group, considers Michael Price to be his mentor. Seth Klarman is considered one of best investors and among the top three according to Warren Buffett. That speaks for itself.
Michael Price talked about a variety of topics, which I expand upon below.
Michael Price is bullish on J.C. Penney Company, Inc.(NYSE:JCP), echoing similar remarks which he made several months ago. Michael Price thinks that CEO Ron Johnson, is doing the best job possible. Michael Price made fun of Apple Inc. (NASDAQ:AAPL) (Ron Johnson used to be in charge of Apple Inc. (NASDAQ:AAPL) stores, before coming to J.C. Penney Company, Inc.(NYSE:JCP)). Price believes that the catalyst could be when the uncertainty from China or the election fades. He notes that the discount retailer has real estate assets worth a significant amount of money. Retailers can come in with an extremely cheap lease and sell products for high margins. J.C. Penney Company, Inc.(NYSE:JCP) is still in its early phases.
Price expands on the point of consumer uncertainty. Price was recently at a show where people were waiting to buy million dollar machine tools. These are not multi-billion dollar companies like Caterpillar Inc. (NYSE:CAT) or Deere & Company (NYSE:DE). Most of the potential buyers were small business owners. They told Price that owners are not buying because they are scared of the wrong tax policy coming in and creating a double dip recession. Price did not get into politics, but seemed to be hinting at Barack Obama’s plans to let the Bush tax cuts expire at the end of this year. Price believes that the election will relieve this uncertainty. He thinks the real unemployment rate is 18%.
Overall the stock market is cheap. Interest rates are low, price earnings ratio is low, and companies have extra cash on their balance sheets. Additionally, it is ‘early to invest in market’ in Europe, and there is no better place than America to investor.
Price reiterates that he is a bottom up investor who does not invest based on the macro picture. Price is heavily invested in the stock market/ The market might be volatile with the coming fiscal cliff, but if someone stays with a a money manager with a good long term record (10 years) and low expenses, they should do well. He mentions Franklin Resources, Inc. (NYSE:BEN) and Mario Gabelli‘s Gamco Investors Inc. (NYSE:GBL), as two examples. Gabelli ‘knows his stocks.’ Price takes a swipe at Morgan Stanley (NYSE:MS) funds in particular for investing in Facebook Inc (NASDAQ:FB).
Price likes Citigroup Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) , he thinks that MTB is overpaying for HCBK at three times book value. JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C) are trading at half of book, and Price thinks Pandit and Dimon were the right CEOs to lead their respective banks. Price states that the banks are more transparent and thinks the international exposure is well contained.
On high frequency trading, Price criticizes the SEC and the NYSE Euronext (NYSE:NYX) for inaction. Price states that the ‘NYSE lost their way’, and ‘sold their soul to the devil.’ The NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) also ‘sold themselves out.’ Price thinks that the NYSE Euronext (NYSE:NYX) sold itself out because it makes so much money from high frequency trading. It is too late for the NYSE Euronext (NYSE:NYX) to reverse course. Price states that his firm also gets ‘ripped’ off from these trades. It does not make trading any more liquid. The SEC should really be more on top of this.
There will be more layoffs on Wall Street. Morgan Stanley (NYSE:MS) and other firms have no tasks to give to their employees.
(Disclosure: Long JCP, no other positions in other securities mentioned.)