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Byron Wien: Profit Margins Have Peaked, ‘Trouble Ahead’ [VIDEO]

Byron Wien: Profit Margins Have Peaked, 'Trouble Ahead' [VIDEO]

The stock market is beginning to sense headwinds unrelated to quantitative easing, Byron Wien of Blackstone Advisory Partners says.

Byron Wien Expects ‘Trouble Ahead’

 Transcript:

i’m sure you were listening to the conversation. i was. you have seen the volatility sort of amp up in recent days. what do you think? well, i think that the market has come a long way. it was up 16% last year, more than 15% so far this year. we’re only less than six months through the year. i think while valuations are still fair, i think the market has made a lot of progress, and i think there’s some trouble ahead. what’s the trouble? the trouble is that profit margins in my o have peaked, and that earnings are going to be disappointing in the second half. and that’s what the market is beginning to sense. it isn’t so much the fed. the fed may taper, but if they taper from 85 to 60, that’s still an enormous amount of liquidity being poured into the market, and in my opinion three qun quarters of that liquidity goes into financial assets, not the real economy. how do you get the market to believe that? to believe that a taper is not such a bad thing that everybody thinks it may be? well, i don’t know. you know, i have trouble enough analyzing myself much less the market. but i think — the market is looking for certain kinds of reality. tapering is a negative. a disappointment in earning would be a negative. evidence that profit margins have peaked is a negative. and i think there’s some negatives ahead, and i think the market has done very well. do you realize that it’s been up four months without three down days in a row? yeah. i don’t think there have been three down days on the dow this year as a matter of fact. well, maybe not. but you have to go back to 1935 to find another period like that. well, what scares you most besides earnings? what’s the tell on what stocks are doing here? what do you make of the move in rates? how concerned should we be by 20 ten-year? 2.20ten-year is still very low yield. if you look at history, i have studied interest rates back to babylonian times. you look at history, the ten-year usually trades at about the nominal growth rate of the u.s. economy. that’s 2% real, 2% inflation. so the normalized rate for the ten-year should be 4%. so 2.20% is still a long way from 4%. there’s a lot of room for rates to rise and i think maybe we’ve seen the low in rates and one of the reasons the market is a little skittish here, it’s anticipating higher rates.

Profit Margins Have Peaked: Byron Wien

Paul Richards, UBS, discusses how to play the market’s volatility, with the FMHR traders. And, Byron Wien, Blackstone Advisory Partners, reveals where he sees trouble ahead in the markets.


Transcript:

four hours to go until the close. here is what we’re following. let’s get cyclical. for get dividend plays. one of our guests says it’s time to look elsewhere. still got game? it’s been a great year for shares of game stop but what’s the play with the big e3 event. our top story, playing the volatility. stocks up, stocks down, stocks all around today. another volatile session. the dow has had triple digit moves in 7 of the past 11 trading days and judging by today’s action, there looks to be no end in sight. the vix is also making big moves. we’re trading it al stephen weiss how do you play this volatility? this volatility is scary it seems to me just from my experience, and i’m going to do this from my normal state which is without any statistical backup. it seems to me that when you have this many triple digit moves, thi volatility in the markets, that it never ends well. so intermediate term, longer term, still bullish but we’re entering a summer of discontent. at least that will be june, possibly into july, until we get the next fed meeting and that will give us more clarity. you put out a note this morning that said you’re very bullish. why not use these dips because of the volatility to take advantage of that position? well, actually i’m going to accuse the producers of what i accuse a lot of the analysts of doing which is just reading the headline. it said’mlish but not bullish short term. taking off some risk. but i do still believe we’re on the cusp of one of the greatest bull markets ever. it’s just a question of where you pick your entry point. where do you pick that, simon? i think you have to be very much long the market, scott. to what weiss was saying, t summer of discontent, i’m not sure if i agree about that but you have to be concerned with yields up. but i still think the absolute trade, we’ll tal cyclicals, over the staples, is the way we go. we continue to buy the dips. what are you buying? what are you picking at? you continue to buy the names that continue to work. gm. in the housing market, wells far goes. the simpson strong ties of the world. when they’re dipping, buy them. what we’re seeing consistently, when the market recovers, it recovers really, really quickly. that’s where all the hedge funds really — they haven’t been long the market. financials, when you get a dip like you did yesterday, citi, that’s when you have to step up. still good groups. that leads me right to pete. you a buyer of the financials? i’m not. we’ve talked about the volatility indexes. five closes have been above the 200 day moving average and actually two of those have happened already in june. today i think we’ll set up for number three. what are we looking at the market in i think in the past it’s been an opportunity on the dips you want to buy. i don’k that’s the case anymore in the financials. i don’t think that’s the case in the market because of the fact take a look at the eem. yesterday we talked about the enormous put volume that’s been going on over the last month or so. but specifically thursday and friday last week and then when you look at the financials, first area today that turned he negative territory was the financials. it tells me right now that i don’t think we’re seeing that, a, let’s buy the dip each and every time we get down there and look at the way the volatility index has skyrocke over the last couple hours of trading. so your overall view of the market is trading? far more negative. i was a bull. we’re seeing bank of america on the dips people buying options, citi, jpmorgan, we aren’t seeing that same kind of activity. when you add the emerging markets and the volatility index. i think it’s reason to set yourself back, look for opportunities but i’m not seeing them right now in the financials. doc? to that eem trade, obviously some very smart money over the last let’s say week has been very aggressive. in fact, they started buying these the 24th, just into the memorial day holiday. then they rolled thim down. we talked about it here on the show. pete talked about the aity that accelerated this week and pushed out to september. now, that’s just the emerging et space, but volatility moving up like this, judge, when you’re getting let’s say 17 ndle move out of the s&p 500, 17 big points out of the s&p, that’s, of course, a 1%move. and that justifies a — what are you watching more than anything else? is it the vix? is it the dollar? is it the yen? is it rates? you have to be looking at the yields, right? you have to be looking at the rates going up. that’s really kind of spooking the market. i think the vix is an indicator. if you want to play that by the vxx, the etf, but i think the most concerning thing is the yields. i’m watching a market that’s had a huge, huge run, a lot of people are saying, you know what? summer is coming, it’s a s typically, we’ll get lesser volumes that rule. i don’t expect to pull money in here. here is what’smitigating. you’re going to go into earnings season where i believe expectationsl come down. that’s the buying opportunity. that’s why i have lower exposure than i did a month ago. people were saying sell in may, go away. i didn’t sell in june. sell in may is a couple years ago. now it’s the next phase where it’s not sell in may, it’s sell in june. welcome to 2013. that’s right. doc, you were going to say something before. i think a lot of it is — how much of it is directed by the fed.is it orchestrated they want somebody who is a hawk to come out and say we don’t think the economy will be impacted as much like greenspan said an our a we don’t think the economy will be impacted when we start tapering. they want to float these trial balloons and get people sort of numb to it. during that period when they’re doing that, that’s why the market is seeing the volatility. we’re testing the 50-day moving average. i think the yen is probably causing a lot of volatility. let’s bring in paul richards, runs fx distribution. welcome back. how are you? paul is joining us on the phone oby. is this how it is? is the yen the thing we should be watching most? a lot of people are fixated on rates. it’s not the yen. this is a mistake the markets making today. the problem is the dollar. the reason it’s the dollar, if you look at the dollar, the dollar has sold off in the last 24 hours against all emerging market currencies. it’s the first time in two weeks. it sold off against the gen yen, franc, euro, and sterling. that’s across the board. the market in my opinion further to our discussion last friday, they’re waking up to the fact that maybe it’s not goldilocks. maybe the fed does something next week at least in terms of signaling, so my sense here is that the market is pricing at least the possibility of the fed moving. now, whether they do it or not, a week is a long time in a market and i think the market has very, very spooked here with one week to go until the q & a with bernanke. but rates clearly seem to be grabbing attention of market watc and they should but i think rates are going to stabilize here. we went to 229, we’re back just under 220 now. i don’t think there’s any justion to takehat through 230. last year’s high was 240. until we know exactly the fed’s intention. i think rates stabilize around 220. i think you will get a lot of volatility in markets in general but also we could be starting to see here something of a cyclical move out of the dollar and more into say european — european markets are doing better when you look at some of the numbers. the uk is doing particularly well. people are establishing some value now in emerging markets. we’re seeing the big sell-off. so i think to an extent what we’re seeing is hedging out of the u.s. into other markets. paul, it’s steve. it’s a little counterintuitive to have a lower dollar hurting the equity markets because it helps your exports. partarly if you take a look at europe, europe came out and said — the ecb came out and said we have room to do more with rates. perhaps this is just a short-term ena. i don’t really think that’s what — i saw the correlation but the dollar was down big today anyway before the market started trading down. so i don’t think that’s the reason the market sold off this morning, late this morning. look at the charts though. i think the markets are just concerned in general. look, you know, there’s no question if the euro would get up near 1. i think somebody like draghi we start to hear a comment like negative rates. i don’t think europe wants to see the euro rally too much from here. i think this is general volatility as we approach a big event next week. the markets don’t like volatility. they don’t like uncertainty and i think you talk to a lot of clients the last ten days to two weeks have been pretty tough in terms of revenues. i think we’re going to see a lot of nervousness until we get direction and you’re not going to get direction for another week. and yon’t get it after that either i don’t believe. you may not. paul, good to talk to you as always. no wos. our next guest is an iconic market watcher who thinks the best opportunities may lay outside of the united states. byron wien is live now from new york ci good to be here. i’m sure you were listening to the conversation. i was. you have seen the volatility sort of amp up in recent days. what do you think? well, i think that the market has come a long way. it was up 16% last year, more than 15% so far this year. we’re only less than six months through the year. i think while valuations are still fair, i think the market has made a lot of progress, and i think there’s some trouble ahead. what’s the trouble? the trouble is that profit margins in my o have peaked, and that earnings are going to be disappointing in the second half. and that’s what the market is beginning to sense. it isn’t so much the fed. the fed may taper, but if they taper from 85 to 60, that’s still an enormous amount of liquidity being poured into the market, and in my opinion three qun quarters of that liquidity goes into financial assets, not the real economy. how do you get the market to believe that? to believe that a taper is not such a bad thing that everybody thinks it may be? well, i don’t know. you know, i have trouble enough analyzing myself much less the market. but i think — the market is looking for certain kinds of reality. tapering is a negative. a disappointment in earning would be a negative. evidence that profit margins have peaked is a negative. and i think there’s some negatives ahead, and i think the market has done very well. do you realize that it’s been up four months without three down days in a row? yeah. i don’t think there have been three down days on the dow this year as a matter of fact. well, maybe not. but you have to go back to 1935 to find another period like that. well, what scares you most besides earnings? what’s the tell on what stocks are doing here? what do you make of the move in rates? how concerned should we be by 20 ten-year? 2.20ten-year is still very low yield. if you look at history, i have studied interest rates back to babylonian times. you look at history, the ten-year usually trades at about the nominal growth rate of the u.s. economy. that’s 2% real, 2% inflation. so the normalized rate for the ten-year should be 4%. so 2.20% is still a long way from 4%. there’s a lot of room for rates to rise and i think maybe we’ve seen the low in rates and one of the reasons the market is a little skittish here, it’s anticipating higher rates. maybe it’s the velocity of the move higher that’s scares people the most. yeah. it’s — rates hav moved up very far very fast. so byron, if you have seen the bottom at rates and if you’re worried near term about the equity markets, where are you putting your money then? well, you know, there are places abroad. things are better in europe. that was a point madeer in the show. europe has clearly moved away from its austerity addiction and is focused now on trying to restore some growth. so i think there are a lot of cheap stocks there, and that’s one place i would look. i’m still positive on the emerging markets. but i think you have to be very careful in stock picking there. so i think there’s some places outside the u.s. i still think that some very high y securities are attractive, mortgages, leveraged loans, mezzanine financing. i think there are opportunities at the riskier end of the fixed income market but those instruments are equity-lik byron, the emerging market calls an interesting one. those markets are getting hit pretty hard. maybe it’s partly on the view that the fed is going to taper or step back some. why would you believe that any of those markets are the place to be and that the u.s. is time to move money away from? well, unfortunately, the emerging markets usually move in sympathy with the u.s. but i think valuations there are getting very attractive. byron, it’s got to have you on. good to be here. byron wien. coming up on the half, game on.

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