- 7 weeks ago
George Seay, Founder And Chairman of Annandale Capital, joins TheStreet to discuss what the markets are paying attention to.
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00:00Joining me now is George C., founder and chairman of Annandale Capital.
00:05George, great to have you on.
00:07Thank you, Caroline. Great to be here.
00:09All right. First, I want to get your reaction to the latest inflation data.
00:13July CPI came in tamer than expected, although core did come in slightly hot.
00:18The market seems to be taking it as good news.
00:20What do you make of it? Are you looking at it as glass half full as well?
00:25I am. I think that when the market's priced for perfection,
00:28a lot of these obscure economic statistics that most people don't pay a whole lot of attention to,
00:33except for the professionals, start really splitting hairs and getting into granular analysis.
00:38And, you know, the result we got was not too far off what was expected,
00:42except for the core, as you mentioned.
00:43But I think it was just right for Wall Street.
00:45It was it was the porridge that was just right.
00:48Not too hot, not too cold.
00:49Basically, you still have inflationary pressures to a small degree.
00:53But there's no evidence that tariffs are really jacking up inflation yet.
00:57But it's not so extreme that people worry about the Fed not cutting in September and for the rest of the year.
01:03It shows a strong economy, shows a healthy economy,
01:06but inflation not too hot so the Fed can continue to cut.
01:09And the market loves that.
01:11Not feeling the impact of tariffs yet.
01:14This feels reminiscent of a few years ago when we kept hearing calls of a recession and it never actually came.
01:19Will we eventually feel the impact of these tariffs?
01:25I think we will if they're across the board and they stick around a long time.
01:29I feel like this has been such an ad hoc exercise.
01:32And the president gives all these draconian issuances about tariffs related to our major trading partners.
01:38And he has brought the hammer down on India, for instance.
01:40But he has it on China and he just extended them for another 90 days.
01:45And you look at this and think it's very ad hoc.
01:47And you wonder about the efficacy of singling out one country and not singling out another country.
01:53And then we've got the Russia talks coming up and he hasn't brought the hammer down on Russia like he threatened to do as well.
01:58So it seems very arbitrary.
01:59But as long as it's kind of isolated and not across the board in the 20 to 30 percent range, it may not have as big an impact as people have been anticipating.
02:09But if he eventually brings the hammer down on Mexico and China and some of the largest trading partners, it will have an impact for sure.
02:16So given that there's still some uncertainty on that front, how do you think this report and then eventually PPI later this week will shape the Fed's thinking heading into Jackson Hole and, of course, the September meeting?
02:28Because I was taking a look at the CME FedWatch tool and I'm seeing 94 percent chance of a rate cut next month.
02:34Yeah, I think that these inflation numbers aren't enough to spook the Fed.
02:37I think that the employment number we got a week ago, week and a half ago, was enough to give the Fed a green light to go ahead and cut in September and probably cut later in the year at least once or twice, too.
02:47But the data will tell the tale on that.
02:49But I would bet a whole lot of money we get a rate cut in September.
02:52It's a little bit overdue, I think, as well.
02:54OK, and you talked about the stock market being priced for perfection at the top of this interview.
03:02I'm curious about how you're approaching the market right now, given the impressive run up that we've seen.
03:07Well, I think it's a very interesting time when you look at millennials and Gen Z, young professionals who've been in the market for anywhere from 15 down to very few years.
03:17They didn't live through the Great Recession and they didn't live through the tech bubble.
03:21And unfortunately, I'm old enough to have started my company right before the tech bubble popped.
03:25And I remember that market extremely well.
03:27And luckily, I'm more of a GARP investor, so we lost about half as much money as the market did during that tech bubble popping.
03:33But everybody lost money during that period of time.
03:36It was a two-year, horrible, grinding bear market.
03:38And this market is eerily reminiscent of that.
03:41It's not as extreme as it was back then.
03:44But at the same time, value stocks and GARP stocks are much pricier than they were in 2000.
03:49It's only the tech bubble stocks that are not quite as expensive as they were back then.
03:54But they're still wildly expensive related to historical measures.
03:58And it's just hard to get excited about making double-digit returns every year for the next three or four years as long as prices are this high.
04:05Now, having said that, there's more margin out there than has ever been in history.
04:09And there's been quite a bit of short selling related on these high prices.
04:12So speculation is everywhere.
04:14But just because the market is expensive doesn't mean it's about to go down.
04:17It can stay expensive a lot longer than you can, say, solvent if you're investing on margin.
04:22So it's a great time to be careful on both ends, the bullish end and the bearish end.
04:27So if you're buying stocks, what are you buying right now?
04:30Because I understand there are still some unloved areas of the market that you like.
04:37Yeah, I think that that's the key thing that people who are trying to put fresh money in the market need to really think hard about.
04:43If you look at Microsoft, their earnings were just spectacular.
04:45But the stock's kind of planed out since that happened.
04:49And then Google is kind of planed out after a big run right after earnings as well.
04:53And NVIDIA seems to be kind of capping out too.
04:55So when you talk about the Mag 7 or AI stocks or things that have been the most rampant with speculation and hot money coming in,
05:03I think it's kind of a tough time to get into them until the run-up to the next earnings season in Q3.
05:09So I'd be looking at some things, and I'd say over the next two to three months, not necessarily right now,
05:14that will be victims of tax loss selling and that are significantly out of favor currently in the market.
05:19And I would put in that category United Healthcare, which has had all sorts of trouble this year,
05:23and it's down about 50%, but is a blue-chip, gigantic mega stock.
05:27And I would also point people to UPS, which is trading at a very small price-to-earnings ratio
05:32and has a huge dividend and is a great franchise that's really having a hard time right now.
05:37And I'd also point people to oil and gas stocks.
05:40They are, again, tremendously out of favor.
05:42Commodity prices have come off significantly with the rush of peace talks
05:46and with the Saudis and OPEC Plus pumping a whole lot of supply into the marketplace.
05:50And you can pick up especially upstream natural gas stocks at a time when LNG and AI demand for data centers
05:57is going to push demand in natural gas tremendously for pretty cheap prices.
06:01But I would have a two- to four-month perspective on that.
06:04I would take my time and be patient about buying in
06:06because tax loss selling season is about to probably drive some of these even lower in the near term.
06:12George, you were talking about MAG-7 earnings.
06:15When we last spoke ahead of earnings season,
06:17you said it could really have a dramatic impact on whether we have,
06:20I think you said, a soggy fall or if the market could continue to march higher.
06:24Now that we've seen so many of these reports come in,
06:28what's your update here?
06:29What's fall going to look like?
06:32Yeah, Amazon got crushed after they announced earnings.
06:35And Microsoft soared.
06:36And it's been a wide variety of meta soared.
06:39So it's been kind of a mixed bag.
06:40But if you average it all out, I think the market got about what it wanted.
06:43It didn't get the euphoric, over-the-top earnings increase above expectations
06:48that it would take for the market to go up another 5% or 10% in the short term.
06:52But the markets remained stable.
06:53And it's probably about a point or two higher than before earnings season's really kicked off.
06:58So it's hung in there really well.
06:59So I think it was good, but not great.
07:04Meanwhile, we did see the tariff deadline for China get extended once again.
07:09And now I think we're looking at early November until we might have an update there.
07:14Does that change your market view at all?
07:16I'm really just trying to get a better sense of if you think this rally is sustainable
07:20or if you think that we're due for a correction.
07:25Well, I think we're due for a correction.
07:27But I've been wrong for the last month or month and a half on that.
07:30And trying to gauge the market and when it's going to correct
07:32or whether it's going to keep going up is a fool's game.
07:34It's impossible to discern that.
07:36I think it's ripe for a correction, but that doesn't mean it's going to happen.
07:39The market could rally into the end of the year as long as we don't get excessive tariffs
07:42or some geopolitical disruption like Israel bombing Iran's oil and gas infrastructure
07:48like they were held off on by the U.S. back when they were fighting just a month ago.
07:52I mean, you think about how quickly all these things change
07:55or something dramatic happening in Ukraine and Russia.
07:58I don't see a whole lot of catalytic influences that would take the market heavily up or heavily down.
08:04I think we'll probably just continue to churn up and to the right in a very measured small way
08:08unless something really disruptive happens.
08:11And part of that would probably be in the short term.
08:14And this is where it gets really nuanced and difficult to predict.
08:16You get economic statistics that show that we're slowing down dramatically.
08:21The market would probably take a short term 5% to 7% hit.
08:25But then eventually the players in the market will come back around to the Fed
08:28probably will cut more aggressively if that happens.
08:31And that's bullish.
08:32So in the short term, it's really hard to trade a market like this.
08:36You kind of want to just have conviction about long-term investments
08:39that are anywhere from six months to three or four years
08:43and stick with them and add to them if they get weaker.
08:47Okay, George.
08:48Finally, just quickly, you talk about potentially this 5% to 7% pullback.
08:52Would that be enough of a pullback for you to feel comfortable putting fresh money to work
08:56in areas of the market that aren't some of the unloved, beaten down areas that you mentioned?
09:02A very small amount.
09:03We tend to layer in over time.
09:05And I get really, like Warren Buffett, the old Warren Buffett cliche,
09:09be greedy when people are fearful and fearful when they are greedy.
09:12And I get really greedy when the market goes down 15%, 20%, 25%
09:16and use all my excess cash by the time the market's down 30%.
09:20I just don't see anything that would send it down that much.
09:22So if we go down 5% to 7%, I might put another 5% or 10% on, but that's about it.
09:27Okay, we'll leave it there.
09:28George C., founder and chairman, Annandale Capital.
09:31Always appreciate your insights, and thanks so much for your picks.
09:35Glad to be here.
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