Game plan for an encore in 2014

Feb 14, 2014 @ 12:00 am

Runtime: 9:24

In part two of the interview with Ed Hyman of ISI Group and Bill Miller of Legg Mason Opportunity Trust, they forecast where they see big wins in the market this year following last year's winning streak.

Video Transcript

This week on WealthTrack Part 2 of our exclusive interview with two financial champions after last year's winning performance. What are they doing for an encore in 2014. Wall Street's recognized "King of Economist" Ed Hyman joins the Investment Superstar Bill Miller to discuss their game plan next on Consuelo Mack, WealthTrack. So what's your analysis now of China, which a lot of people are worried about? -We're pretty grumpy on China. The economy is doing well by any Western standards. -Uh-hmm. -It's going 7 percent. The economy has doubled in the past seven years. So, 7 percent a day is as same as 14 percent seven years ago in terms of the basis effect on growth. But we've tried to move on. The three areas I wanted to mention to, first, I've mentioned last year I thought it was a free pass on the US market 'cause of the Fed doing queuing. -Right. -This year is Japan. The Japanese markets have 50 percent last year. And I think Japan is definitely gonna increase their balance sheet a trillion dollars. The second space I like is a synchronized global economy, as I mentioned last show. And I think Citibank is a way to play that. And the third space I like-- -Really big positions Citi by the way, as well. -Oh, you do? Uh-hmm. And they offer you any trust fund? -Yes. -Uh-huh. -And like our sister to Apple. But I like the technology sector and I think Amazon is a very exciting play on that. So those are the three areas that I'm looking for right now. -Yeah. So let me dive a little bit deeper into each one of those. So, let me ask you about China. When you say you're grumpy on China, what does that mean? -We're just not sure if the transparency is there and what the leadership wants to do and there's been a transition in the leadership. -Right. -And they're trying to feel what their new priorities are, growth versus environmental issues, growth versus income disparities, growth versus getting the mix between consumption and investment change-around. So we're just sort of waiting on those for now and I'm more interested in the US and in Japan and in the companies that benefit from a synchronized global expansion. China is gonna grow. -Right. -Japan's gonna grow. US is gonna grow. Europe's gonna grow and it's been a while since you could look at around the world and see that every place is gonna be green, be a little bit of a plus. -Right. So-- and, forgive me for doing this but I know that China has been such a focus of conversation and consternation that, you know, for a couple of years ago only, people were talking about China as being the driver of global growth and that it was surpassing the US, and you know, it was-- you know, certainly economies surpassed Japan a couple of years ago and it's the GDP and contribution to world growth. So what's China's, you know, role now as in global growth? -It's still-- as I mentioned, it's doubled in the past seven years. -Right. -So when it grows 7 percent, it's like growing 14 percent back then in terms of, you know, the amount of-- I don't know where it uses or energy it uses or cotton it uses. So it's still a major force but we're waiting for this sort of clarity in terms of what their goals are and also to say the stock market acts like debt and so-- -Right. -I'm just sort of waiting until it looks a little clearer and it contrast, Japan looks like a very clear shot. -So, let-- you know, so let's-- you said you get a free pass with Japan. So what kind of a free pass are we getting? -Is that they're gonna-- they're gonna increase their balance sheet by trillion dollars back what we did last year. -The Bank of Japan. -The Bank of Japan. -Right. -But their stock market is a quarter the size of the US. -Uh-hmm. -So they're really, they're really putting it on. And the market is acting pretty well and the Yen is weakening like today it was weaker, which means it's more attractive to buy their goods. -Right. -So that looks like a good shot. -So from an investment point of view, I mean should I be buying, you know, a Japan fund or an ETF, you know-- -Yes. And you have to be short the Yen and long the stock market. -And this-- you think that this is, the [unk] transformation has legs and that this is not just a short-term phenomenon. -Like Bill here always looking for the easier shot and the easy shot is that the Bank of Japan will give [unk] the financial cover to try and get these third-arrow initiatives in place. And if the economy weakens in the spring when they increase the VAT, then he'll-- the Bank of Japan will accelerate their buying. It's a little bit like the government shutdown here in 13, when it kinda looks like it might weaken the Fed kept doing queue. So I'm really focused more on what the Bank of Japan is doing and its impact in the stock market but-- -I see-- -And then I'll see how the [unk] thing works out. I've been to Tokyo 41 times so I-- I'll show you my-- I can't. But I know it pretty well. -Right. -Not knowing much about it. But they're pretty excited and they have the Olympics coming up and so we'll-- but in the meantime you have a free pass. -Bill, one of the hallmarks of your approach that you've written about us that, you know, you've looked from where you're seeing inefficiencies in the market that you are taking advantage of that stand most from, you know, human behavior. I mean from institutional investors and individual investors. Where you're seeing the biggest inefficiencies on the market right now? -We touched on earlier the asset allocation on individuals and institution is extra ordinarily conservative this far into a bull market with an economic-- current economic situation, economic outlook being quite positive. So the lingering effects, the fear that was engendered and the fear of loss was engendered by the 2008 collapse is still with us. Michael Goldstein, one of our-- one of the better quantitative people, one of the best quantitative analyst out there said that the public as information-centric and volatility phobic to a manic degree, meaning that they're worried about the next lose item that might caused their-- whatever they own to get down a little bit. -Right. -And I think that's the biggest inefficiency in the market today-- and again, we're talking earlier, you know, the hedge fund business back in the old days when we were younger was, you know, people like Mike Steinhardt and George Soros and Stanley Druckenmiller-- and their job was to make money. And now the job of the hedge fund is not to lose money. -Right. -And the institution is what-- -It's the hedge. Right. -They want low volatility and they don't want to take much risk so the hedge funds ended up 30 percent in the market. They're up five or six or seven. And so I think that's again a very important change in the way that institutions are behaving, individuals are behaving. And so I think it opens up an opportunity, you know for people to actually trying to make money. Our fund was up 68 percent last year not because we did something wild and crazy. We were just right down in the middle of the fairway looking at really cheap stocks. So I think that's the thing which is unusual, is that you can get at least you could have got in the last couple of years really good results by doing nothing terribly outside of the consensus. -I need to ask you one investment for long-term [unk] portfolio. Ed Hyman, what would you have us all on some of? -Amazon. -Amazon. And the reason is-- -I think this tech thing is really a big deal. There are two billion people on the internet today and four years it will be four billion people, I think globally. And I'm reading the book by Bezos, about Bezos on Amazon right now and I just got a feeling-- -It's a great book even though Jeff really doesn't like that book so I can see what-- but I'm reading this book and then, you know, the presents didn't come to Christmas. -Right. And-- -This thing is really taken off. -Okay. And one minute, Bill, what's your one investment for long term [unk] portfolio? -Well, I wouldn't do one if I have to do one I'll only do one any time. But so, you know, housing, financials, and airlines would be three things that having their portfolio. -Okay. -We talk about housing, financials, I mean Citibank reached below tangible but they're one of the great franchises in the world. [unk] is good for banks. The regulatory environment, we kinda know what that is, the banks started out the year strong. Airlines have consolidated. They had a great year last year. Delta was the leader but United Airlines has the same rough of revenues as we on Delta United and-- -Okay. -American. But as the same rough revenues as Delta does. But Delta has got a 10 billion more market cap because United has 1,400 more employees and 500 more planes. They will get that rationalized over the next several years. We think there's a lot of more money to make in the airlines.


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