Sanders Morris Harris CEO George Ball joins Yahoo Finance Live to discuss the latest market action.
ZACK GUZMAN: George, appreciate you coming on. As I, said credit's due here. I mean, I have your note here in front of me. You've been talking about buying the VIX here. So explain to me how much more volatility we could see as the S&P is now off more than 2% here in the first trading day of 2021.
GEORGE BALL: There is an interesting and somewhat disconcerting phenomenon, which is called all of life is after tax. If, as Lanhee said, there's now a fairly distinct possibility that the Senate will be Democratic, then there is a high likelihood that the corporate tax rate will go from 21% to 28%. That's either a 25% or a 33% increase, depending how you want to parse it. All of life is after tax. And logically, therefore, there could be as much as a 25% to 33% risk factor in the market after January 5 that was thought to be unlikely up to this point.
I don't think it will be that bad. It's not certain the Democrats will win both of the Senate seats. But there is a greater vulnerability. And probably, therefore, the thing to do is not to sell your equity positions, but to buy insurance. When you buy the VIX, you're buying insurance. And that's something that the prudent investor might want to do in the here and now.
AKIKO FUJITA: George, is that what the market's selling off on today, though? I mean, if you look at the Dow, that's a huge swing after hitting a record in the session, now down about 650 points. Are there increasing concerns, you think, among investors about the president's behavior, how that could tip the control of the Senate? Or is there something more that's underlying the sell-off tonight?
GEORGE BALL: I think there are two points to the sell-off today. And they're both fairly temporal. They're in the here and now. President Trump's erratic or calculated behavior-- pick you pick your adjective-- is disconcerting to investors, no question about that. Secondly, you do have a faltering rollout of the vaccination.
The product is being prepared. It's being shipped. But it's not getting in the people's sleeves as rapidly as expected. And I think, just psychologically, that's rattling investors and causing half of the 600-point Dow decline, 300 points being a Trump reaction, 300 points being we aren't really ready to put the vaccines into people's shoulders as quickly as we thought was possible. And that's a very rational reason for the market to sell off the way it has this morning.
ZACK GUZMAN: And George, aside from buying insurance and playing the VIX that you're talking about there, I'm curious to know if maybe that second point you're discussing, that delay of vaccine rollout, could impact maybe the idea that you would have wanted to rotate into some more cyclical stocks here, particularly cruise lines, one of those players that some investors were gambling on. If we were to see a quicker opening up in 2021, how does it maybe change the breakdown between growth, cyclicals, the way you'd be advising people to play?
GEORGE BALL: Well, one of the good things about a stock that you don't own is you don't have to buy it. If you already own it, then you either hold it, or you sell it, or buy more. But the high-probability stocks for 2021 on the plus side are first going to be your infrastructure stocks, because I think there is some degree of commonality between the Democrats and the Republicans that rebuilding the infrastructure is good for stimulus, as well as being something that we probably need to do.
Secondly, I think there's going to be, and is already under way, a major rotation out of the fairly dated hoary-- H-O-A-R-Y, hoary-- FANG stocks into the next gen of technology. And I think that, if you look at what's happening, even in the markets today, it's the new wave of establishment of smaller technology stocks that are performing well. And they and the infrastructure stocks have the highest probabilities of doing well, regardless.
AKIKO FUJITA: And George, I'm looking ahead to your outlook, at least in the second half of the year. It's only January 4, so maybe too early to talk about it. But you've talked about the China risk here. That could be something investors need to consider. We had a conversation with our guest earlier who said, look, in many ways, China has been in this position to make more deals ahead of a Biden administration because of their economic position coming back from the virus. How significant a risk is the US-China tensions right now, or a flare-up of that, as you look ahead to the year?
GEORGE BALL: It's a gigantic risk, without a certainty of outcome. I happen to be somewhat more optimistic and think that a Biden administration and Trump will find a way to work together constructively with a greater probability than was true with the Trump administration on a lasting basis. So I think there is cause for optimism.
But there is a great deal of risk, because China is the strongest non-US political and military force in the world. So if there were to be a confrontation of a major nature with China, it would be very difficult, not only for all of us personally, but for the marketplace. So China is a big wild card in the second half of the year.
I tend to think it will work out well. And that'll be good for investors, and people, broadly. But it's an unknown.