In an interview to appear on FOX Business Network’s (FBN) Wall Street Week this Friday at 8PM/ET, hosts Anthony Scaramucci and Gary Kaminsky speak with President of the U.S. Trust Keith Banks and Managing Director of Neuberger Berman Rick Szelc in an extensive discussion on the financial crisis, the likeliness of another recession and how the 2016 presidential election is affecting people’s investments and the economy. When asked about the future of our economy Banks said, “We think we could be looking at another two or three years of continued expansion to both the economy and growth in the markets, because what you’re not seeing this far in are the typical excesses.” He added, “If we were to bet today, we think this could rival the longest expansion, which was ten years, in U.S. history.”

Keith Banks Economic Recovery lei1

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


On the Federal Reserve:

KEITH BANKS: I think it’s all about the Fed. I think it’s even more about earnings. We view it, Anthony, right now, that the PE multiple is around 17 times. They’re not going to expand much from here. So to make a case for higher levels in the market, you have to make a case for stronger earnings.

RICK SZELC: Gary, there are no lay ups. At the beginning of this year when the market dropped eight percent in the first two weeks, it was very frightening to investors. They were very concerned about what to do. Some even called and said, should we go to cash? You had a number of firms say that oil might go to $20 or $10 a barrel, a 40 percent chance of recession — there was a lot of anxiety. So today, the recovery from February 11 through the end of March, we had a positive return the S&P of almost one percent.

KEITH BANKS: Fed centric world.

On the pain of the financial crisis in 2008:

SZELC: It’s a scar, not a wound. It really is still there, and when you see the volatility which we had in January, we had almost 65 percent of the trading days that market moved plus or minus 1 percent, and when you see that visibly on all the shows throughout the day, clients, investors get concerned, especially when they invest irreplaceable wealth.

KEITH BANKS: It’s there. It’s not paralyzing them, but it’s there. And I think the way it’s manifested itself with our client base has been consistent with our strategy is you want to be fully diversified. We’ve seen a real increased interest in tangible assets, things like real estate, farmland, timber land.

On a likely recession in the near future:

KEITH BANKS: Well, we’re saying, actually, we think we could be looking at another two or three years of continued expansion to both the economy and growth in the markets, because what you’re not seeing this far in are the typical excesses. Interesting point, average hourly earnings, typically at this stage of the cycle, would be growing in excess of three percent — closer to two percent. We don’t see three percent average hourly earnings growth for another 12 months, and the danger zone typically has been four percent. We don’t see that happening out until probably 2018, 2019, which means the Fed doesn’t have to rear up and try to slow things down, and the big catalyst for all of that is, inflation this many years in is still being so low.

On comparing this time to 1980 where people have something to fear but they don’t really have something to fear:

KEITH BANKS: You know, it’s interesting — this has been — despite the fact that this economic expansion and the bull market has gone on for so long, it’s been the most joyless period of money making I’ve ever experienced, and it gets back a little bit to the question you two have asked, which is, is it 2008? People just keep worrying about the next thing that could come — there’s been a lot of things that people have been given to worry about. Fortunately, except for some brief pullbacks, we saw at the beginning of this year, it’s not been sustained and the rally continues.

On how the 2016 presidential election is affecting people’s thinking regarding their investments and the economy:

KEITH BANKS: Among business owners, the election was the number one concern on their minds as they think about the future. More generally, people are actually optimistic, thinking that the election would bring about positive change or positive outcomes.

On Jamie Dinan’s comments saying the election is not going to have any impact regardless if Hillary Clinton or Donald Trump being elected:

BANKS: Who am I to challenge Jamie Dimon (sic)? I respect him tremendously. I don’t know that I would agree with that comment. I do think elections have consequences. It’s going to modify behaviors, and from an investor standpoint, it’s going to make them either more nervous or actually more optimistic.

On a recession in 2017:

KEITH BANKS: As I said earlier, we think we could see another two, three years of growth. In fact, if we were to bet today, we think this could rival the longest expansion, which was ten years, in U.S. history.

On clients getting nervous and if there’s a message about being long-term and more patient:

KEITH BANKS: Yes, again, our view is, you cannot zig and zag and think you’re going to make money. It’s impossible. We have no insight into that. They have no insight. Our job is to keep them on a longer term course. We’re comfortable tactically reallocating. As I said, we just went to a more neutral stance versus equities, but if the market were to pull back this summer by five to seven percent, we would go back to an overweight position.

On the importance of viewers to understand we’re going to have volatility this summer:

ZELC: It’s huge. Emotional changes that clients feel or want to make usually end up not delivering in a positive way.

If you look at fund flows from the investors, there’s data out there that says that the S&P returned nine percent. Individual investors returned three because they usually make decisions at the wrong time, so I learned this from a colleague of mine. I have a three call rule. And by the time I get a third call, or the person’s really upset, then we make major changes.