In an interview to appear on FOX Business Network’s (FBN) Wall Street Week Friday at 8PM/ET host Anthony Scaramucci and Gary Kaminsky speak with two of the panelists from the original Wall Street Week, GAMCO Investor, Chairman and CEO Mario Gabelli, and Charles Schwab Chief Investment Strategist Liz Ann Sonders along with Vine Street Trading Head analyst Yra Harris about where to invest and the 2016 presidential election. When asked about China and the emerging markets Sonders said, “we’re, sort of, neutral on China” and that “We have a neutral rate into Emerging Markets.” Regarding the 2016 election and tax reform, Gabelli said, “I think both are going to do it, and that depends. I mean, you know, if Biden and Warren are the candidates on the Democratic side, I’m not as convinced.” Additionally, Gabelli discusses GOP frontrunner Donald Trump investing in one of GAMCO’s funds, saying “I can’t tell whether he picked it himself,” but it was an “options-writing program in the global fund that does gold and natural resources.”
Mario Gabelli on which one of GAMCO’s funds Donald Trump invests in:
“We don’t talk about any of our clients. We have many of them…But, to the degree that the press reported that he had invested in a options-writing program in the global fund that does gold and natural resources, that’s the one he invested in…I can’t tell whether he picked it himself or an intermediary picked it.”
Mario Gabelli on whether we will reform taxes on the republican or democratic side:
“I think both are going to do it, and that depends. I mean, you know, if Biden and Warren are the candidates on the Democratic side, I’m not as convinced. On the other side of the coin.”
Yra Harris on who the markets want to be President:
“Probably nobody. Nobody who we’re looking at. No, right now, it’s all the FED. So, is the FED keeping everything afloat on that sea of liquidity. They don’t care. I think, probably, from a who do we know that Hillary probably bears or that they feel more comfortable with that.”
Liz Ann Sonders on China:
“So, we’re, sort of, neutral on China. I agree that you have to do the full math and the numbers and that the growth rate is down, but it’s on a much larger base. They are also diversifying their economy, as well. Aside from just moving away from investment and more toward consumption, they are starting to make significant acquisitions outside of China, as well, particularly in the U.S. So, I think that’s a benefit to many U.S. companies too, and I think we’re in a better competitive situation relative to China. The total landed cost gap has narrowed significantly. And, back to the conversation we had earlier about manufacturing competitiveness, I think aside from the way politicians focus on it, I think that shift is coming back to the benefit of the U.S. because they’ve had to raise wages to support this consumer orientation.”
Liz Ann Sonders on whether investors should invest in emerging markets:
“We have a neutral rate into Emerging Markets, which just means you want to keep your normal long-term allocation to Emerging Markets, which is an important part of a portfolio from a diversification standpoint. I think what the activity in Emerging Markets this year reinforces to investors is not to make the mistake that they often do, which is not understanding the power of inflection points; that the markets of any variety care more about better or worse than they do good or bad and if you get that inflection point and things stop getting worse and they start to pick up or you get an inflection point in commodities, that’s really all you need to see a launch point for an asset class like Emerging Markets.”
Mario Gabelli: “I basically echo her comments, but I’m bottoms up, so when I look at something in Hong Kong, I’m excited when it’s called Mandarin Hotels because of the globalization of their brand. I like Peninsula Hotels, which is also located in Hong Kong, and there are companies in that market and we have an office in Shanghai, and we opened an office in Tokyo, and we had one in Hong Kong; we’re reestablishing that. So, we cover industries globally and they work.”
Mario Gabelli on his outlook on the economy:
“Well, as the corporate economy is going to do – the economy is going to do well in the United States. The Consumer Wealth, when it comes out at the end of March, will show it’s probably $104 trillion; debt is $14.3 trillion, jobs are plentiful, wages are rising, psychology is a little mixed because of what can happen at any time between San Bernardino, but I think the consumer sector is okay. More importantly, we, as a country, consume 20 million barrels of oil. The price is down $50 dollars and that means that somebody is saving one billion dollars a day and that is working its way through the system slowly. So, I’m thoroughly optimistic about the U.S. economy. Europe, under Draghi, it will do better in 2017 and I think that will help a lot of corporate profits, and it’ll also unfold in the second half of this year. So, all in all, a slow, but moderate recovery and sustainable one.”
Liz Ann Sonders on whether she thinks there is a recession on the horizon:
“No. In fact, to Mario’s point, I think the fact that some well-known analysts screamed “Fire” was a big part of it, but you have to think about which indicators were the ones flashing red, and they were only the market base indicators, so you saw in credit spreads, you saw it volatility, you saw it in the equity market. But, there’s a reason for the well-worn phrase that the market has declared nine out of the last five recessions because you do get a lot of false signals by the market, and unless they’re confirmed by the high-frequency leading indicators, which was not the case, economic indicators, then I think that that was, yet, another false signal. So, even at the time where the crescendo was greatest, we didn’t buy into the recession case.”
Liz Ann Sonders on not raising rates in the short-term, but maybe the long term:
“Well, what I think we’re in right now is what BCA coined the phrase “the stead policy loop,” which has at its basis the currency market, so it strengthened the dollar, which leads to a blowout in credit spreads, which leads to higher volatility in the equity market and weaker equity performance which has the effect of tightening financial conditions, effectively doing the job for the Fed. We’ve been in and out of that loop, really since about a year ago, where financial conditions loosened; it suggested the Fed was going to move in September, then they tightened in August, but then backed away from September, and they loosened again in October, November. It allowed them to tighten in December and then financial conditions tightened again and they backed away. And we’re in this back and forth mode, as it relates to Fed policy. A lot of people, I think, misinterpret it as the Fed, purely, reacting to market events. They’re reacting to conditions loosening and tightening, which is arguably an appropriate thing to do.”
Mario Gabelli: “Yeah, I could – there’s nothing for me to add to that, but going back to the global economy, that $76 billion dollars. The United States was at 24 percent, Europe was 24 percent, Japan and China are at 24 percent, so that’s what we focus on: How are these countries doing? How quickly can China go to a consumer-led economy? Forty percent of their economy is the consumer; that’s going to grow ten percent. “
Mario Gabelli on whether we’re in a Fed centric stock market:
“There’s an element that says, ‘If the ten-year bond, which is, today, 1.80 goes to 3 percent, that present value of future earnings will be hit, assuming earnings are not rising.’ So, how quickly will the ten-year bond adjust? At 180, I have – I margin the safety in the stock market at these levels.”
Mario Gabelli on where should we look:
“Well there’s several obvious areas. First of all, the U.S. military has underspent and when you have our allies in Japan and South Korea worrying about what’s going on in China, and then what’s going on in Europe, so I want to own companies that will benefit for basically, reconfirming America’s role in the global safety net. The second area – and there are stock-specifics in that. You know, you have the…Well, you have companies, obviously, like Honeywell, but I’m also looking at companies that are not as visible, like T, with $285 million shares; the stocks trading around 35/6, the guy that’s running it is doing a great job, but they’re more tied to helicopters, and Bell is important, whereas they have commercial aviation through citation and the assessment operations. Then you have companies like Command which make tapered rolling bearings and also make bomb fuses. So, those are the types of companies that one looks at. The second area is clear to me, and that is, we started this ten years ago: Health and Wellness. How do I as a consumer get rid of antibiotics and get rid of “I want organic and natural,” and which companies benefit from that and how do the big companies change their product mix?” – so, and water. So, healthcare, wellness, water, and defense. Nice mixture there.”
Liz Ann Sonders on what’s at stake for the markets for the next President:
“So, I’m not sure anything quite yet. There’s a perception that it has led to volatility and I think, in general, it has, but I looked at some recent data that looked at U.S. Stock Market correlations to poll numbers for all of the current candidates and two primary results of all the candidates, and there doesn’t seem to be any pattern. So, I think it’s been a peripheral contributor to volatility. But, when we actually have two candidate competing head-to-head that are putting more formal policy proposals, then I think it becomes a bigger needle-mover for the market, but at this point I think it’s more a distraction than it is an effect.”
Liz Ann Sonders on corporation nervous about the RNC convention:
“Maybe in the short-term in terms of volatility. We have had contested conventions in the past. We should really be calling them brokered conventions because of what that used to entail. We’ve gotten through it before. I’m a big believer in what Mario said, that I think a lot of this is just the near-term circus. Ultimately, I think, capitalism and capital allocation and the spirit of the U.S. is going to win over any of the near-term circus.”
Mario Gabelli on which one of GAMCO’s funds Donald Trump invests in:
“We don’t talk about any of our clients. We have many of them…But, to the degree that the press reported that he had invested in a options-writing program in the global fund that does gold and natural resources, that’s the one he invested in…I can’t tell whether he picked it himself or an intermediary picked it.”
Mario Gabelli on whether he wants to be Secretary of Treasury:
“You know, as Tecumseh Sherman said, “If nominated I will not run, if elected, I will not serve”…We haves a full-time opportunity to take care of our clients. We have – that is the most important job in terms of judgement and service and we have a great passion for our country and but we’re serving by paying a lot of taxes.”
