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BTIG Chief Global Strategist Dan Greenhaus explains why cyclicals present the best opportunity in the markets right now.
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Thank you.
Let's bring -- greenhouse BT IG chief global strategist in Dan.
I do want to start with this new news with if you don't mind about this about that is downgrade of Spain and Italy were you surprised at all.
Well -- I mean they're just playing catch up to the other rating agencies and again to to actually is earlier point there there just basically telling us what we already know that that Italy's finances are constrained.
I'm -- and the course that they're on right now doesn't necessarily get them out of the predicament in which they find themselves.
Excellent and I do wanna say you've been fairly bearish I read your your -- every morning you've been fairly fairly bearish on the economy you do think still.
That this country is on its way to a recession it's very possible you said I'm wondering if when you look at the employment report today.
At that may be changed your thinking this little bit there were private sector jobs added.
Well yeah I mean yes but but that what you just said sort of speaks to how lower expectations.
Have actually fallen that you would say -- -- there were jobs added guest there were jobs added but.
We're adding an anemic number of jobs -- over the last three months the average private sector job growth has been about a 100000.
In virtually any other recovery a 100000 jobs added per month would be enough to have people talking about a recession.
Unfortunately in the current environment we find ourselves a 100000 is cause for celebration and and that's really more about diminished expectations and anything else.
-- -- you wanna get to something that you you said you liked the cyclicals I was to -- at at in a third person as weakness that the that like cyclicals may see buying opportunities in that sector.
I was just showing our viewers that airlines is an example of maybe where we should be looking to maybe make some money here maybe -- -- mind.
I -- -- be really clear I mean the cyclicals would benefit in the near term sense to the degree that you expect the recent fall in the stock market to reverse.
In a secular sense there's no reason to believe that cyclicals are gonna outperform market that's likely to be troubled for another let's say twelve to eighteen months.
You know so again this is very much AA trading up call with respect to the cyclicals and to to a larger point to be clear.
The utilities get.
-- or sort of defensive sectors in general get a very bad rap from the investment standpoint but.
At the end of the day if I told you that -- expansion utilities were among the top performers.
When the market went up by a 100% you price there was lying in yet indeed that was the case.
-- very quickly acting back to the jobs numbers and your outlook for the economy over the next year they may not be great but perhaps they suggest we're avoiding recession do you still think we're on -- -- a recession over the next year.
Well yeah I mean there's two things in play there one is whether we're in a recession right now and I was one of the relative minority that was saying there was no shot of recession in the third quarter.
And indeed that is now pretty clearly the case case and it's probably not a recession in the fourth quarter -- But when you -- start getting into the middle of next year you have a whole host of problems that are facing the US economy.
Specifically.
You have the Euro zone which is probably going to be in a recession next year you have government austerity measures here in the United States.
And just generally speaking history would suggest that a recession in.
The middle of 2012 the early part of 2013 is -- who wouldn't necessarily be out of line.
With what history would suggest -- -- I'm basically saying with respect to that call is is this time is not different it's likely to be the same.
A lot of rain Constance and this discussion day and it a bear with me just for a moment bit of a one a -- you kind of agree with that talk about the recession and if it does indeed happened yet -- want as a business cycle.
-- so factors I usually when you're in when you have that aspect of the this cycle and being in a recession by 2012 early 2013.
You would need to have seen more of a pick up the new party scene right so we still don't have.
We -- don't have inflation really pushing down.
You know pushing down growth.
We have unfortunately high oil prices which is pushing on growth but it's not leading to capacity constraints of these aren't.
These aren't demand pull their cost push and -- and that's a very different sort of thing.
And I think that what you're gonna see is the oil prices gonna continue to come off because demand is weakening.
Which is actually ironically going to be supportive now I'm content.
I can jump in real data partly to -- point.
You know this is obviously -- that the the economist responses that you know that to to take -- she's argument one step further.
That we haven't really had a meaningful rebound so this sort of what would become recessionary hasn't really been put in place and I.
I agree with that and to be clear I don't know that the recession that's that I believe very well may be coming has to be some huge.
Of recession in the economy on the order three or 4% that the stock market needs to declined by 50% from current levels it could be fairly mild and indeed I think it might be very mild.
But at the same time all you really need is just a shutdown and whatever it is that's working.
To go from plus 1% to minus 1% and this is the old adage that even if you're growing 1% it feels like a recession to a lot of people don't technical differential between minus 1% plus 1% is.
Basically irrelevant.
You're act Dan I have to linger with you a -- that -- it's apples and -- but it's who -- -- 1% up -- down as -- -- Lisa -- feels like a recession I know exactly you're saying.
Obvious and we do not every morning -- in common then -- mean CAD cheap levels that is great to see it.
