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Lee Munson on recent market weakness

Lee Munson of Portfolio Wealth Advisors on recent market weakness, and what trades he likes in this environment

Video Transcript

ADAM SHAPIRO: Lee Munson is the Portfolio Wealth Advisors President and CIO. It's good to have you here. And we were joking before we came into the stream about the Federal Reserve's BS, the balance sheet. No taper in sight. That's what they keep telling us. And one of the things in your notes to us that you said, OK, pay attention to-- because I think a lot of investors are trying to find, OK, where do I go right now-- you said pay attention to gold, to silver. Why?

LEE MUNSON: Well, if I had 100 bucks for every CIO that comes on and says it's not a good investment or they would stay away from it, but they're not really experts, I'd be moderately wealthy right now. I think that you have to understand that what moved gold in the past is not what's moving it now. We've had a regime change. So generally what-- how I see gold is something that tends to go up when the Fed's balance sheet expands. And I get it. Some people think that balance sheet cannot expand anymore, and that's what I think is BS.

The second thing is the amount of energy it takes to actually produce gold. Remember, we can only get a little less than 1% a year in new gold coming out of the ground, and that type of discovery is going to be limited going forward. Anybody in the gold markets know it's getting harder and harder to discover. So it has kind of that appeal to people who want something that has a limited amount of production going forward. So as energy prices ramp up and the Fed balance sheet continues to spiral out of control, that's why you see gold getting a bid.

Some technical traders say, well, it was just a double bottom, and it's just having a surge up. I think that there's a fundamental reason why. And I think a lot of millennials eventually-- they're interested in what money is, and gold is eventually-- you know, everybody turns into their parents. I think even the crypto people are eventually going to look at gold as an alternative to the debasement of the dollar that we're going to continue to see because the Fed is not going to stop the purchases, like the ECB or England or Canada. They're going to keep going. They got to steepen the yield curve.

SEANA SMITH: Well, Lee, I mean, help us make sense of the action that we're seeing today, for example, because we started the day with the NASDAQ off just around 2%. Everyone was talking about that inflation was to blame. But now we're seeing the NASDAQ, what, not too far from the flat line with less than an hour to go. Is there other dynamics at play in the market today and over the last several trading days?

LEE MUNSON: Well, I think today's noise-- you know, a big hat tip to JC over at All-Star Charts, a buddy of mine. He sent out some notes today and said, the NASDAQ are the bag holders, and his notes were that, you know, we want to thank those people for being the bag holders. And I think you're seeing that today. A lot of people-- I remember back 21 years ago when the NASDAQ kind of peaked at 5,000, it'd go down. Everybody just thought, hey, this is the time to buy. It's going to keep rolling. So I think that's all we're seeing today.

Yet, right, the market action is weird. Jared was saying if rates are going up, why is small cap off? You know, if the procyclical stuff is happening, you know, you're seeing materials do well. So I think today is a non-event. I do think it's weird today, and I'm using this as an opportunity to do a little buying for some clients that, you know, have some cash to invest. So I would be a general buyer here of, you know, my usual reflation suspects. I don't think today's movement in the NASDAQ tells us anything.

And again, the NASDAQ had a big correction in March. It's down 6%, you know, over the last few weeks. So it's natural that people are going to try to keep feeding the beast, and we need those people to sell into. But I don't think this tells you anything other than maybe some relative outperformance in growth maybe for a few weeks. But between here and the end of the year, you better be long in cyclicals. You better be long in industrials, financials, materials. Just buy a small cap value basket. You'll be fine. It goes higher.

ADAM SHAPIRO: Listen, we hear you loud and clear about being long on those that you just said. But what-- when you say about cheap tech, that if you want to go in, you know, to this and deal with commodity inflation-- as we know, copper, we're going to be talking about this with the guest coming up. Copper prices at all-time highs. What is cheap tech? And where would I find it? I'd have to go overseas for that, wouldn't I?

LEE MUNSON: Oh, you got to go way overseas. And please do not go across the pond to Europe. It just is a value trap, OK? You need to get over to where you have e-commerce four times the size booming, young people, some GDP growth. And so I like to go to China for that. And I understand that we got a trade war and we got all this stuff. It just backs up.

When you have a market that size and you have this wall between Amazon and Google versus, say, Alibaba and Baidu and Tencent and all those things, you can go to China. And not only does it give you, you know, a fraction of the multiple in the big name tech stocks, but you also have a country that is growing not necessarily with the same type of largesse that the Fed and Congress is doing the fiscal and monetary supply.

Also, you have to remember that when you're putting money over there, when people start talking about diversifying against the dollar, I'm not talking about against the euro. I want to own that Chinese currency. And that's a natural way if you're doing EM, if you just want to, you know you want a value trap-- I'm being self-effacing. But if you want a value trap and just go straight Chinese index-- I like MCHI-- then that's a way that you get some currency diversification. That's where you can get some good dividend yield that's higher than the S&P.

And that's also where you can get some big tech names that, you know, are always going to be a little discounted to the US, but there are a lot discounted to the US on a relative basis. That's where I think that you should put the marginal dollar, not necessarily into NASDAQ or growth. I think the days are numbered. I think February was the top.

SEANA SMITH: Hey, Lee, help us make sense of what's going on in the energy market. It's one of the worst performers sector-wise today. We haven't really seen that big of a bump in gasoline yet. The Colonial Pipeline remains shut down. How is the market looking at this? And I guess at what point do you expect to see a larger reaction in gasoline and crude prices?

LEE MUNSON: I think this is going to be transitory. Of course, you know, the Fed likes that word too. What do we know, right? I understand what's at stake here. Ever since 9/11, we've been talking about the integrity of pipelines, chemical companies. And so now our worst fear is here. We always think it's going to be a bomb. It's not. It's the hacking. So as long as we don't see more of this, I think this is going to be sort of a one-off event.

I think if you're looking at energy names and you're looking to add to them, I think you can can do that here. But all in all, I think that this is-- we're hyping this up. And it's important to talk about national security and how it relates to cyber hacking and so on, but I think that this is generally a non-event. I'll eat my words if over the next couple of weeks all these other pipelines start getting shut down. But I think it only goes to say, if you want some yield in this market and you're willing to take some risk, I think master limited partnerships-- I like AMLP. That's a little ETF you can buy. Everybody has their own way. I'm not saying to buy that or not. That's just what I like to do.

But I think that those pipelines, it's very clear we don't have enough of them, and they've got to push through. I like toll roads when the toll roads are limited. The government is going to regulate them so they're very hard to build more of, and we absolutely need them. So I think it's a place where I like to have a small amount of my bond money to hop up the yield. I mean, what am I supposed to do? Lose money in a 10-year? I still own those, but less these days.