Kingsview CIO Scott Martin on Fox Business Cavuto Coast to Coast 6.14.23
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: Frances Newton Stacy is with us. Optimal capital director of strategy. We’ve also got Scott Martin with us, the Kingsview Asset Management CIO. Francis, if I could get your take on a couple of things. Steve just mentioned that the Federal Reserve might be between a rock and a hard place. Whatever it’s pausing and doing now, it might hike down the road, but it’s actually making things worse, whatever it does. And in this battle to fight inflation has put us in a precarious position. What do you think of that?
FRANCES NEWTON STACY: Well, Steve’s argument is the fact that all of the tightening that they’ve done so far hasn’t really worked its way through the market. And he is very right about the fact that we have a lot of problems ahead in commercial real estate. And about 50% over 50% of the $3 trillion in commercial real estate is coming up for a refinancing in the next couple of months. So if you’re Jay Powell and you know that if I know that he knows that, you know, you might not want to just edge these rates higher right in front of that refinancing because you don’t know where the threshold is, where you push that over the edge. If we make it through these next couple of months without a massive wave of defaults in commercial real estate that look like what happened with the mall in San Francisco further across the country, then. Okay, great. Maybe he’ll start hiking again because he hasn’t broken anything. But if that breaks, then he’ll be ready with his bailout.
CAVUTO: You know, I’ll flip it around and take the contrarian view here, Scott, that maybe everything he’s doing is working out just fine. If he if he pauses today and a couple of hours, we’ll know for sure. He’s watching to see what happens. We know inflation at the retail and wholesale level is running about half what it was a year ago. We’re a long way from the 2% target, I guess the Fed has been focused on. We’re a lot closer to it as well. And job growth is still pretty darn respectable as are most not all corporate earnings. What do you say?
SCOTT MARTIN: It’s going okay, Neil. Now, the Fed, I think, has gotten lucky with this AI boom and some of the rallies we’ve seen in tech stocks this year because of that chase that’s on there. But look, the reality is the Fed is not done yet, as Frances pointed out. So that’s what’s scary here. Even if they pause for, say, 1 or 2 months, what do they do afterwards in the face of, say, a weak economy, as Steve Forbes pointed out? So that’s really the concern for me, the troubles at the banks notwithstanding. But just the fact, too, Neil, we’ve got ten interest rate hikes in the books here and they have not stopped once over the course of that interest rate hiking cycle. So they need to take a step back and let things kind of permeate and see what the market does when they actually do stop and let interest rates kind of normalize.
CAVUTO: You know, guys, one of the things that amazed me and Scott, I want to pick up on this because it does sort of dovetail what you just said, the technology thing, the AI thing, and this notion that that is what sort of rebooted interest in technology stocks now, it seemed limited to 7 or 8 major players. I do notice that breadth is expanding to a number of small cap issues, not just technology. What do you make of that?
MARTIN: It’s probably just the craze that’s on. It’s the chase, Neal. What’ll happen is typically, as we saw, say, in the late 90s, early 2000s, you’ll see a few players really win and really win big. And some of the smaller players phase out. So the way we’re playing this is with the big guys. We’re playing it with Google, Apple, Microsoft and some of those other firms just because of the fact that they have the money to buy some of the smaller guys, they have the money to really ramp up the technology and they have the experience to do so as they’ve done with other products in their in their belt.
CAVUTO: By the way, we’ve temporarily lost, I hope, temporarily up Frances because of satellite connection. Hopefully we’ll get her back. But I do want to pursue UnitedHealth as sort of Debbie Downer in the Dow today. Now, UnitedHealth is dragging the Dow lower because it outlined it’s facing higher costs because of pent up demand for surgeries. I don’t know about that. I’m never in a demand for surgery myself. But I guess if you were and the costs were up, you’d be worried. And now United Health Care is worried. What do you make of all that?
MARTIN: Yes, according to them, Neal, everybody’s running out and getting these surgeries and whatever else they need to do to their bodies to get insurance, to cover them, which is shocking. But I guess maybe the sign that the recession is definitely not over and not coming, rather, and that Covid is definitely over. Maybe we’re getting out there and getting bigger and better. But the reality is this the P and C space to the property and casualty casualty space to Neil on the insurance side has been rough for the last few months as well, tied to the banks as well as some of the trouble they’ve had. So if you look at the insurance space, we actually don’t own it right now. But a pullback like this today and say that space would actually attract some of our dollars potentially if it bails out here.
CAVUTO: Well, Francis is back with us. And Francis, I’m glad to hear that. I did want to pick your brain a little bit on what you tell investors now in this environment. You know, we always get these exciting little teasers that mortgage demand has picked up as rates have come down a little bit since that print, though, mortgage rates have actually backed up a little bit. That aside, what do you tell investors who look at this rally are amazed by the growing still early but growing breadth of. That. What do you tell them they want in? What do you what do you say?
NEWTON: Right. So the bull argument is, is that all of the problems that all of the lagging effects and all of the stuff that we’re going to have to work through is priced into the market. And the bearish argument is, is that the market hasn’t priced in. How do you tell? We’re at a very key level on the Nasdaq 100. The Nasdaq 100 has to take out 15,000, which is where we were exactly in March of 22. If it takes it out, we’re off to the races and we don’t see a credit event in the economy. If it doesn’t take it out, you could fail here. And what viewers should be watching to know what direction we’re headed in is they should be watching headlines about defaults because any kind of a credit event is going to undo this market very quickly.
CAVUTO: So what we saw with the regional or the smaller banks, we’re not out of the woods there or are you looking elsewhere?
NEWTON: Well, we’re not out of the woods because we have 3 trillion in commercial real estate and we have no idea what percentage of that is going to default when these refinancing’s come due because they were paying three and a half to 4.5% on interest on the old mortgage. They’re going to be paying six and a half to seven and a half on the new mortgage. And many of these office buildings particularly only have about a 40% capacity. So they have less rental income and higher debt service. And to Steve’s point, you can take the money out of the economy as the Fed is doing, particularly via the the balance sheet. But you can’t take the debt out of the economy. So it’s all about the debt service.
CAVUTO: Got it. All right. On that toe tapping happy note, Frances, we shall leave. But Scott.
NEWTON: Always the optimist.
CAVUTO: No, no, no. That’s fine. Fair and balance. I want to thank you both