Guggenheim’s Minerd Expects Stocks to Keep Going Higher

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Great to see you um especially since you’ve been fairly quiet on social media uh no post since late june when you observed that stocks have been priced for perfection but things remain far from perfect and since then we’ve seen the s p 500 gain about five and a half percent credit uh both high yield and investment grade have done better but still modest compared to the s p the 10-year yield kind of stuck in a range how do things look to you now well you know scarlett when you look at the market you consider that there are five stocks that represent almost 30 percent of the total valuation and we did an analysis that showed the relative pricings uh in terms of earnings yield versus the yield on their corporate bonds and so you just find that those prices of those stocks are largely being driven around by changes in bond yields now the same thing is true across the board but of course uh those five stocks uh have driven uh a lot of the appreciation while value and other sectors have lagged behind so you know it’s it’s clearly a function of federal reserve policy and for the near term i don’t think that there’s any end in sight in terms of the fed wishing to drive rates lower for corporate debt so you know we should probably expect that that stocks will continue to go higher but you know i am on record as saying that i thought this was a bubble right it looks like the bubble uh that we lived through in the late 90s and if we recall that in 1998 uh in the era of irrational exuberance according to then chairman allen greenspan and the rally went on for two more years so you know the nature of bubbles are that they go long and uh they’re hard to end up they’re hard to predict how they end but but ultimately um there’s probably money to be made in the stock market but i think risk adjusted returns you’re better off in high yield and corporate bonds now you just wrapped up a meeting with the new york federal reserve whom you would advise as a member of the advisory committee on financial markets if we can continue seeing stocks elevate for the next two years potentially how comfortable is the central bank with the optimism reflected in the stock market versus what’s happening in the real economy well you know the the fed is uh typically very tight-lipped in these conversations um you know i think that they want to understand it uh they’re not i don’t think they’re sure whether to think of it as a bubble or not a bubble but uh one of the comments that was made at the meeting i thought was very interesting is you know how will we know if this is a bubble and the answer is after the stock market crashes uh so i’m not to say that’s not to say that it implies that the stock market will crash but if the equity valuations remain high or go higher and then we get an abrupt setback then that in their mind would probably be the definition of a bubble all right well in terms of catalysts for that setback we have something coming up at the end of this month uh patrick harker talking about a fiscal cliff um of course he’s a philly fed president he made the comments to our mike mckee you talk to people in washington what’s the likelihood that this will get resolved in time to prevent that kind of catalyst for a setback that could potentially lead to a crash well you know washington is a hard animal to predict these days i do know that other than a payroll tax holiday you know there really isn’t much on the table coming out of the administration you know congress will be back for two weeks uh i think there’s a great risk uh that uh there will not be a deal uh and uh that uh you know unless perhaps we could extend unemployment benefits by a couple of more months but candidly a lot of congress or a lot of senators don’t you know republican senators don’t think that’s necessary so the risk is high and are in a seasonally weak time for risk assets so you know i think that the possibility of a severe setback between here and october is probably meaningful okay now one thing that you’ve been worried about and you’ve talked a lot about even when times are good is the over leveraged corporate sector we’re not in a typical recession right now it’s artificially induced and there’s a lot of stimulus here that’s pushing back delinquencies when things do start worsening what do you think the trajectory will look like will it be suddenly and then all at once well i mean scarlett that i think it’s hard to predict i think the we’re going to go through a continuing slow erosion one of the most troubling aspects uh over the last six months is that uh in order to stabilize the bond market and then subsequently also to lift asset prices like stocks um we’ve issued over one and a half trillion dollars worth of corporate debt and if you had talked to me in december i would have told you that we were already in a corporate debt bubble uh that was to me and i think it is very clear by every metric we have whether it’s actual total debt debt to gdp uh debt to free cash flow corporate america has never been this levered and that was true in december and a trillion and a half dollars later which is more than all the bonds issued in the prior year uh you know we’re we’re making i think a lot of companies even more vulnerable by lending them money when they ought to be trying to pay down their debts yeah so how do we get out of this cycle because typically when insolvency risk is rising companies should be trying to deleverage but we just keep getting more debt as you mentioned where do you break the cycle how do you get companies to start deleveraging well i think uh it will ultimately take some sort of uh severe setback you know a surgeon in defaults i mean that is one way to get debt down is just to default um and you know i’d like to remind people scarlett that the strongest economic expansion on record uh was between 1933 and 1936 but yet we never recovered back to the levels of 1929 and then ultimately there was a second setback uh that is what resulted in what we call the great depression so you know this artificial stimulus being created by the government by monetary policy uh in the near term you know is is lifting asset prices but when you look at main street you look at small businesses these are where you know the majority of american jobs reside uh the real economy is not uh improving at a pace uh that would support uh you know a continuation or cash flow growth which could support these companies yeah so whether that’s tomorrow uh that the chickens come home to roost or whether it’s three years from now uh the day of reckoning will come but for the moment my debt is that uh monetary policy will remain loose enough to continue to drive risk assets higher and it’s probably uh you know for people who are looking to maximize returns probably the best thing to remain so when it comes to the real economy and preparing for that wave of defaults we’ve heard from banks this week who have set aside a combined 28 billion dollars from citigroup jp morgan and wells fargo i want to get your read on these provisions are these carefully considered amounts or are they stabs in the dark as to what the potential damage could be i i think there’s stabs in the dark i mean it’s really interesting at the end of the first quarter when we you know we had pretty good visibility at the end of march into how severe the downturn was the banks didn’t take very high uh reserves at all uh now they’re taking reserves a lot of reserves and that’s telling me that they’re actually behind the curve uh and that they’re in a game of catch-up um i don’t think the reserving that occurred in this in the second quarter uh is adequate in terms of what ultimately will be needed so i think we’re going to probably continue to see uh lots of uh loan loss reserve provisions going forward for the rest of the year yeah we may just surpass the numbers seen in the great financial crisis now on the flip side of that of course you have the trading operations which have done very well notably goldman sachs today one analyst called goldman’s earnings too good almost indecent and could create a political backlash what do you think oh my look i think in this environment that’s a very very real risk um you know the banks have uh targets on their backs for the financial crisis uh you know they they are constantly being identified as the winners every time we have a bailout so you know easy monetary policy the bond purchase program which has just stimulated a huge amount of demand to issue bonds and to buy bonds uh you know is resulting in you know extraordinary uh trading profits and uh the uh uh you know the large profits in these financial institutions are you know a target uh especially by certain uh members of uh congress the more liberal members so i think the reality is that uh there is going to be a backlash for the banks and especially if there’s a democratic administration that comes to power and scott one final question i didn’t get a chance to congratulate you on guggenheim’s role in leading the funding for lebron james’s media company spring hill the story that jason kelly wrote for bloomberg really paints a picture of a lot of dramatic last-minute uh negotiations because the deal was closed the day before the nba had to suspend its season obviously the world has changed a lot since mid-march what do you think about the financials of the deal now and the prospects for it i think today scarlet they’re better than ever now obviously production is slowed down dramatically because of of the the quarantines but in terms of the backlog of business uh it’s growing rapidly uh the events of the prior six weeks or so uh in uh in the area of social justice uh are making people more sensitive and more aware and um you know it’s interesting that that transaction i was working on that transaction a year ago and guggenheim had the opportunity to be the lead investor and then we worked with uh main street advisors to bring in some other investors because of for strategic reasons but i i think that our investors today are better situated with the investment they’ve made with lebron and maverick than they were the day we closed and uh just one final quick question i lied earlier about letting you go very quickly do you see the prospect of a contested election in november and if so what would that mean for for markets and for the economy you know it’s interesting i think the risks of the contested election are high um i think that uh you know how that plays out uh will have uh impact uh you know negative impacts on the market but you know history shows that uh those experiences tend to be very transitory so i i wouldn’t necessarily be factoring that into my risk assessment for a long-term investor

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