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Gabelli Global Multimedia Trust’s Larry Haverty and First Asset Senior Vice President John Stephenson on how investors should position their portfol...
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Let's bring in our market panel we have John Stephenson he is the first asset senior vice president portfolio manager in Larry Aberdeen.
Again -- global multimedia trust associate portfolio manager and of course -- from West Newton Massachusetts and if you go to Boston College.
Which is in western you see -- -- belly name everywhere Gabelli has spent a lot of money in that college so.
Not surprising here in West Newton Larry but I I hope we didn't misrepresent your position your -- really not that concerned that.
About whether or not we go over the fiscal cliff you don't think it will affect the stock market specifically as much as some people say it will.
I think there may be short term effect but what you have to do is just look at it and in terms of basics.
What it is is contraction or fiscal policy we're we're going to -- incomes.
And that there it's gonna cause unemployment in that's gonna cause some political unrest.
But it's gonna have other effects probably as previous speakers have said cause the price of oil to go -- -- price of gasoline to go down.
But the one that is a sure thing and is very very important for the market.
Is that interest rates are just not going to go up.
And what we're saying if we we are not watching the magician doing fiscal cliff tricks is the the elephant in the room.
Is Smart companies are able to buy other companies with cash from -- a couple examples.
Of companies that are buying other companies with cash the best ones Disney.
Are they just bought Lucas films I four billion dollars they financed it with with with debt.
2% interest rate eighty million dollar pretax cost fifty million dollar after tax cost.
They pay that for three years -- here.
They get Star Wars and make a billion dollars and a tremendous deal from work forward for the shareholders it's free money and advancing essentially free money investing is what -- -- about your absolute absolutely and you you're going to see mergers done for cash.
The banks are being told by the Federal Reserve to while the basically get the money out they don't wanna seem to lend it to what.
Do mortgages although that's that's getting better but that corporations are buying stocks for cash.
And what's important is the market's kind of figuring this out and pushing them up John and gaming industry.
John consolidation I wanna I wanna jump in here because I had of sort of the it's happiness that we know is -- -- error.
But over the next few days hours -- mean it it -- anyone's guess.
There isn't positioning that I know that you're doing for different outcomes telling how you are preparing for what may or may not come out of Washington.
Well thanks to Bonnie I think the reality is we're gonna go over the cliffs.
The only issue is how long do we -- -- over the cliff.
And if it's sixty days ninety days that's going to be a big problem for the economy from the market and I think you wanna start raising cash and I would recommend starting with that.
The cast weight of at least 10% and then going up two and half percent.
Each week depending on whether or not and come to agreement Communists think ultimately it probably will come to agreement but let's face it Obama's not even get an operator until the 21.
And -- -- things that the real fiscal cliff deadline is late February early march so I think that's probably a realistic timeframe of what we're looking for.
And I think you know the reality is if you look at the markets over the last little while.
-- very correlated between both commodity markets oil.
Bonds stocks.
And that hasn't been the case for many many years and so it really is one trade this macro trade what's going on in the US with the fiscal cliff and then before that was although Europe.
Now Larry you mentioned some your picks of course you're big on Disney right now for their purchase and a lot of other things that they're doing right ruff DirecTV I know -- like that the Vegas stocks Las Vegas Sands.
Boy did -- like Boyd Gaming as well but.
What about John's point that -- just to -- thanks.
Because you never know -- the worst can happen it has happened before could happen again.
Those jokers -- about -- very often don't come to a conclusion.
Is would it be safe to put at least 10% of your portfolio in cash right now just in case.
I I just can't see it they -- that that the math is so compelling.
On the other side -- and you have this just incredible sentiment.
Thirty years now -- have not been able to lose money in bonds.
And a lot of people think that it's impossible to lose money in bonds.
And it is and you surely are not going to make any money in bonds -- than clip your coupons you're not going to make any money in.
Cash if you let it ladies are literally -- -- second about it lives here because it is not impossible lose money on bonds -- the companies they're based on go bankrupt.
Or the government's at their base on go bankrupt and so -- -- -- might happen here.
You could you could -- you could have a credit incident but we're we're not going to work.
Destroy the faith and credit of that of the US government we already asked are you kidding Larry we already happen.
I I doubt it because it really is if the credit were destroyed the cost of finance at the margin.
Would be going up and the cost of finance at the margin for the federal government is going -- scary are obviously the secret that finally -- -- that consumer.
That's pulling back and isn't spending as much that isn't bad going out in driving in consuming oil and that the confidence already -- to be eroded even before any decision has been made IDC and we don't even needed this -- And I know what you're saying I know what you're saying about that the free money and that interest rates -- -- overriding.
Factor when your thinking about investment how much cash but again.
Right -- now.
Our credit rating is the best in the world but it's a lousy world of credit that's the problem is that with all this money pretty going on around the world.
I'm wondering when that comes back to -- Yes.
Well that's why you don't want to be in bonds and you wanna be in stocks because stocks now when inflation accelerates our good good hedge against inflation and but the consumer being in the -- I just don't buy it here the consumers spent a billion dollars on call a duty to spend a billion dollars on -- -- they're gonna spend a billion dollars on the -- bit faster than you can shake its right.
The movie industry's booming the video -- game industries have -- real good time.
Hey look I -- -- -- -- retailers did depression John I gotta I gotta go to you because you you have had so little time here.
You have a couple of -- -- I wanna focus on Halliburton in Schaumburg get the -- Schlumberger.
I was trouble pronouncing that.
But Citibank or Citigroup is -- -- -- why a lot of -- would say it's doesn't.
Fixed up a lot of its -- -- -- I mean I think that's basically at the same with Halliburton Schlumberger Citigroup's trading at seven point seven times earnings it historically trades around ten times.
It's you know the the winding down of Citi holdings will be a benefit to the stock.
Historically.
It's the cheapest in the large cap universe.
On a price to book basis absent Bank of America.
Trading at 58% of price to book.
So I think this is what you want to go into things that have definable catalysts and anytime you have a stock rally the financials participate so.
In the history of markets so I think this is one you want -- hold on the energy side out clearly energy isn't growing in terms of demand in the US where it's growing as the rest of the world right and we don't have any.
Real OPEC and nonopec growth.
In terms of production and soul -- who's gonna get the call it's gonna be Halliburton Schlumberger the people who do the offshore and deep water drilling and all the down.
Who were global that we wanna be their global divert it didn't diversions here to some extent are all right thank you very much gentlemen GI --
