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I’ve never seen the market so disconnected from reality: Wealth Advisor

Ben Barzideh, Piershale Financial Group wealth advisor joins the On the Move panel to discuss the momentum of the market in the midst of coronavirus.

Video Transcript

- Let's get back to the markets now. We are seeing that mixed picture today, but tech is certainly on fire, with the records for the NASDAQ. Our next guest calls himself a fully invested bear. I like that. Ben Barzideh is Piershale Financial Group wealth advisor. He's joining us from Barrington, Illinois. Ben, it's good to see you. So if you're a fully invested bear, I mean, we are seeing more of this right now, right? We've just had a-- a lot of the bears on Wall Street kind of give up and shift to being more bullish. But when people like you are holding your nose and still buying, does that then raise concerns, from a contrarian perspective, that things are getting overheated?

BEN BARZIDEH: Well, first of all, thanks for having me, Julie. Definitely. My goodness, I've never seen such a more disconnected time, where the market is so disconnected from reality. And certainly, a lot of us have concerns on what we're seeing. I think certainly the recovery we've had since March, at least based on so many people I'm talking to, has greatly exceeded expectations.

You know, there's certainly factors in play with the Fed and stimulus. We are seeing some recovery. But by no means are we anywhere close to some of the economic activity levels before the pandemic hit.

So, oh, absolutely, you know, the market has gone straight up. And even our clients, you know, clearly they're happy they're making money, they're very happy that their portfolios are back, and you know, we are riding this momentum until-- if and when fundamentals do matter, and if it starts going the other way. But it's been pleasantly surprising to see what's been going on, and even though it, I think, defies a lot of what people were thinking.

- Ben, what's been fascinating during this time is that the so-called growth stocks are now the safety trades. And you know, even our own analysis of examining Tesla, examining a lot of these big tech stocks, previously they were unreliably-- you know, in the future perhaps they could be providing more value to the market, but now those seem to be the kind of go-to destinations. When you look at the small cap stocks, perhaps the ones that have seen a quick bump in the biotech space, in the health care space, do you see more opportunity that you're providing to your clients, or are there kind of no hidden secrets at this point?

BEN BARZIDEH: No, great point. I think there is considerable opportunity as long as we still see continued recovery in the economy. Certainly, some of those segments are a lot more economically sensitive, so it all depends on where this economy goes. And as long as we see a recovery, if it's better than we expect, I think what you'll quickly see is maybe a little bit of what we saw in July, which is that some of these overvalued tech behemoths and these growth sectors, people are going to start looking and shifting into some of the more undervalued area.

So certainly, I think small caps can outperform. Financials and banks would do real well. Industrials would do well due to economic growth, certainly energy because of the increased demand, consumer discretionary. And also, lastly, anything that is currently extremely beat up because of the pandemic. You're looking at airlines, cruise lines, hotels. I mean, those have the most to benefit from a rebounding economy.

So as long as we continue to see growth, I think that's exactly where the opportunity lies. And frankly, a lot of those areas are still negative for the year. So I think you will see a great rotation into those. Also, as we get towards the end of the year, as mutual fund managers, if they're kind of underperforming their benchmark, they may actually look to increase some risk and get into areas where they can make a quick buck.

So absolutely, those are the areas we see potential demand. We're not quite there yet. As we've seen just in the last couple of weeks, tech took a small breather, but now has jumped back into the lead again. And like you said earlier, who would have thought that the safest companies today that-- would be these big tech behemoths. But you know, what we saw from the quarantine and the downturn was some of those companies have the most steady cash flow. They got hit the least. And it's the new normal we're dealing with.

RICK NEWMAN: Hey, Ben. Rick Newman here. Given that so many investors are skittish and do think stocks are overvalued, if there is a selloff, do you think that could generate sort of a rush for the exits that would make a selloff even worse, or do you think investors will have faith in the Federal Reserve to basically step in and prop up stock values some more if there is a big selloff?

BEN BARZIDEH: Good question. I think certainly the Fed still has more bullets. It's not completely out of ammo. So I think what you'll see is there would be a downturn. It would be quick. I think it would be concerning. I think you'll see the Fed step up to the plate and do some more, and that would help recover. Until there is a flaw in that pillar, until people lose confidence in what the Fed can do, I think there's still going to be a lot of confidence in the Fed and they'll be able to support things.

But you know, one concern we have is that, when you're looking at previous bear markets, like, for instance, 2008, you know, the initial downturn started in October of '07, but in the spring of '08, we had a really nice recovery. And in May, I think like May 19th, the market was almost back to where it was in January, and only just a few percentage points down below the high in October. But by then, the economic reality had hit, and then we saw the carnage that happened for the next nine months after that, and the market lost about 50%.

So hopefully, there isn't a second leg to come. You know, this is a game-changing environment with all of the stimulus and the steroids the Fed has done. Listen, we all know steroids work. But the question is how much can you take before the marginal benefit starts wearing off, and what's it going to do to you in 10, 20 years. This is all uncharted territory, but I think the Fed can still do a lot to support confidence.

- Yeah, and I don't what the market analogy would be for roid rage in that situation. I do want to ask you, I mean, you were talking earlier about where there might be opportunity in the market. Where might people go for defense at this point? I mean, should you just buy treasuries, even though you don't getting much for your money there, as a place of safety? Do you buy gold, which is obviously quite popular right now? What are you looking at?

BEN BARZIDEH: Good question. I think it's a little bit of all of that. Unfortunately, treasuries, bonds really haven't done anything since March. They had a big downturn, but they've recovered that, but they've kind of been going sideways. We do see great opportunity in gold, especially if the dollar continues to decline. I think this might be kind of a multi-year run again for gold. Also, anytime, you know, there's a lot of QE and money printing going on, like we saw from like '09 to 2012, it did help gold. But certainly, just good old cash might be a little bit of a hedge against what we're seeing in the market.

But once again, it goes back to what we talked about before, which is that it seems like these behemoth growth tech companies are the safer areas of the market. So I certainly wouldn't limit my exposure too much to that, but I would just-- I would not want to be in this market right now without some type of hedge, some type of exit to get out if it starts going the other way, because there is a lot of best-case scenarios built in.

Everyone's hoping for a vaccine. Everyone's hoping that a lot of people will take it and we'll get back to life as normal, hopefully in the next year or so. But if that doesn't happen and we have a large segment of the population not going out, not spending money, not traveling, then that's a huge problem for the market and economy.

So we really are kind of at a fork in the road, I think. And over the next few months, you know, there's going to have to be some positive developments in a lot of different things to help prop up the market. But once again, like I said, the Fed can always step in and do some more, as well.

- We will see. All right, thanks so much, Ben. Ben Barzideh is Piershale Financial Group wealth advisor.