Hank Smith doesn't particularly care about the debt ceiling debate. It bores him and he tries to ignore politicians the way one would a yappy dog. The affably unflappable CIO of Haverford Investments isn't unaware of the disgrace being brought upon our nation, he just doesn't think it screws up his investment thesis regardless of which side "wins." DC is going to work this out and that's pretty much all you need to know on the issue.
Smith sees stocks as being cheap and nothing I threw at him could convince him otherwise. Speaking to Breakout at the lows of the day, Smith pitched me his themes and let me swing away with abandon. He likes Multi-nationals and Cyclicals. He's telling clients to buy them both now, in size. He thinks gold and silver are fad investments to be avoided. He believes stocks are cheap by any historical measure and cheaper now than they were a year ago, thanks to growing earnings.
Much of his work seems to hinge on the U.S. Dollar staying in its market friendly mode of declining against global currencies at a steady pace. Acknowledging occasional hiccups higher, Smith cites generations of intentional dollar neglect on the part of our officials as more than likely to continue. Not fast enough to make gold a screaming buy and certainly not a greenback rally which would batter the Multi-national's greatest earnings driver. Just a gentle decline as the Fed cranks out stimulus like a drug dealer who's high on his own supply.
Obviously there are cases to be made for both a dollar becoming worthless and a dollar going higher relative to the rest of the world's fundamentally flawed paper money. But we've been abusing our dollar for years and started really smacking it around in 2008. Moral hazard or not, the greenback abuse has only resulted in higher prices for Multi-national stocks. Shoot against Smith's theme if you'd like, but the macro trend is on his side.
Smith is buying Industrials and Materials here, and makes specific mention of Caterpillar (CAT). He notes the traditionally cyclical concern hasn't posted a serious decline in earnings or revenue for years, despite all the economic noise. I threw the business cycle concept at him as a sort of jab, then cracked him with the fact that cyclicals always look cheapest at the top. He didn't flinch, counter-punching with the notion that globalization has minimized fluctuations of the cycle. Caterpillar just has too many ways to win.
The interview stayed in that thrust and parry groove for the duration, no matter what I tried. Margins are peaking? He says they haven't peaked yet. Companies beating means nothing because the outlooks are soft? The tape seems to be swallowing the reports in stride and 70% of companies are beating estimates. Hiring and corporate investment on hold now and for the foreseeable future? A coiled spring of growth.
Watch the video and feel free to pick him apart yourself. As you do it's important to note this: Hank Smith is sharp enough to know McDonald's (MCD), which I own, is a buy. You argue with a man demonstrating that type of brilliance at your own peril.