27 Mar Caution Ahead, Says Steve Blumenthal on Fox Business
Caution ahead, says Steve Blumenthal, CEO of CMG Capital Management Group on “Countdown to the Closing Bell” on Fox Business. Steve was interviewed by Ashley Webster, filling in for Liz Claman. Steve said that as a momentum investor, CMG is bullish BUT cautious, as many signals point to weakened economies, and crushing debt worldwide.
“The trend right now is positive,” says Blumenthal. “I think that’s a plus. In the back of my mind is the 200 day stop/loss moving average rule. When the markets are stretching, richly priced, the greatest risk comes in those periods of time. Unfortunately, we’re in the most expensively priced area of the last 100 years with valuations. So, risk is there. I would follow trend, but do something to make sure we have protection in place against downside.”
See the entire transcript of the interview below the video.
Ashley Webster (AW): Today’s “Closer” says that investors are missing some key points in an environment where interest rates are going up and some big bubbles are about to burst. CMG Capital Management Group CEO Steve Blumenthal is here to explain.
Steve Blumenthal (SB): The biggest bubble is in the bond market. The biggest bubble of all time is government debt. And we have issues in government promises – pension plans under funded, missing actuarial return targets. These are challenges.
AW: So, what does it mean for an investor? Can I jump in now? Where would you put your money?
SB: The great Sir John Templeton once said “You want to be a seller when everyone else is a buyer, and you want to be a buyer when everyone else is a seller.” Everybody’s flooding money into passive index funds, passive ETFs. I think this is the wrong time for that. It’s very similar to 1999 and the tech craze, when everybody poured into technology.
AW: That much? That extreme? Are we overvalued right now?
SB: Yes, we are. There are several measures you can look at. Price-to-book, price-to-sales, P/E, median P/E. By all those measures we are at higher levels than we were in 2007. There’s only one time in history when those valuations were higher, and that was at the top of the bubble in 2000. So, it’s richly priced. What’s interesting is that it can tell us an awful lot about what the next 7 – 10 year returns are going to look like.
AW: What are they going to look like?
SB: Not so good.
AW: You’re full of fun today.
SB: Let me say, we’re bullish on the market. The trend tends to be favorable. That’s where the asset flows are. But, I don’t know where the market’s going to be in the next year or two, but for the next 10 years returns are somewhere in the zero to 2% range based on historically high valuations.
AW: It feels like we’re moving sideways now as the exuberance and optimism of President Trump coming in – promising corporate tax cuts, individual tax cuts, de-regulation, massive infrastructure spending, all very positive. Now, let’s see if it becomes reality. The market appears to be just waiting. Is that an accurate description?
SB: I think that’s very fair to say. On the other side of this, you have the Fed raising interest rates three times. There’s an old rule that Marty Zweig came out with, called three steps and a stumble. Three rates increases and the markets run into challenges. I think we’re facing some of that.
AW: We spoke to one of the voting members of the FOMC earlier in the show, Kashkari. He said, look, I voted no to raise rates because core inflation is not at the 2% level. There’s still room and slack in the labor market. There’s no need to raise rates. What’s your thoughts? Given the fact that the markets seem to expect another two rate hikes from the Fed.
SB: Globally, there’s no sign of recession. Domestically, there’s no sign of recession. So, we are seeing periods of growth that’s stronger. If we are able to repatriate $2 trillion in cash, that’s bullish. If we get tax cuts, that’s bullish. And I think the Fed is kind of counting that. Ten of the thirteen recessions have started after the Fed has raised in their rate cycle.
AW: A lot of the stocks we follow, the big, sexy stocks if you will, Apple, Facebook, Netflix, Alphabet. Is that a good place to put money? I know that some of the prices are high but it seems like those are the stocks that drive the market.
SB: The trend right now is positive. I think that’s a plus. In the back of my mind is the 200 day stop/loss moving average rule. When the markets are stretching, richly priced, the greatest risk comes in those periods of time. Unfortunately, we’re in the most expensively priced area of the last 100 years with valuations. So, risk is there. I would follow trend, but do something to make sure we have protection in place against downside.
AW: What’s one place you wouldn’t put your money right now?
SB: Bonds.
AW: They’re about to burst?
SB: Right.
AW: We have been warned.
