CIO Scott Martin Interviewed on Fox Business News 3.31.21 Part 1

Kingsview CIO Scott Martin discusses what an unwinding of the tax environment might mean as the economy reopens.

Program: Cavuto Coast to Coast
Date: 3/31/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: I want to go to D.R Barton on all of this, Scott Martin on all of this, D.R, it’s obviously what we’re trying to get back in the groove. Disney talking about expanding openings at Disneyland, Disney World, Universal Studios looking to get at least a partial reopening next month. You know, Broadway talking about shows resuming this fall. You know the drill more and more getting back to normal. And that might be behind a lot of the market advance. What do you think?

DR BARTON: Now, I think that’s a really a really strong reason, Neil, we’re seeing things over not just in the big states that have opened up, but you know that we’ve talked about Florida, Texas, but other states that are also seeing some uptick in restaurant revenues, in in tourism. So those things are starting to see that uptick. That was the thing we really needed to start flipping this thing was some of the businesses that were lagging to start picking up. And I think that’s what we’re seeing. Vaccines are working. It’s coming through pretty well right now.

CAVUTO: You know, Scott Martin, I want to echo something that Larry Kudlow was saying in the prior segment about the market’s behavior in the face of what’s going to be a lot of hikes in taxes for a lot of folks, not just rich folks, that maybe the markets are saying a lot of it’s not going to happen. What do you think of that, that because if the markets truly absorb the nature of all of the spending and the tax hikes to go with it, you could make a compelling argument that shouldn’t be happening. But what do you make of that, that this is the market’s way of saying some of this gets through, not all of it gets through. Do you buy that?

SCOTT MARTIN: Feels like a dangerous game to play, Neil, because we’ve been in such a conducive tax environment thanks to Donald Trump for the last several years. And it looks like there’s a general unwinding of that likely to happen one way or another. And I think anything that unwinds is going to be somewhat detrimental. And my concern and I agree with DR, I think this opening in this hope and the vaccination effectiveness certainly ramps up the markets into, let’s just say, Q3 or Q4 of this year. But then we stand around at that point and maybe it’s sitting around a fire talking or whatever we’re doing. And it’s like now what you know, now the economy is open. Now everybody’s supposed to be back to work. Now we’re supposed to go back to our jobs in these downtown urban areas. And we’ve done such damage to society, both kind of physically and I guess psychologically, that maybe some of that stuff doesn’t come back as fast. And so that’s when I think, to your point, the tax hikes kick in the jawboning with the two thousand twenty-two midterm elections come in and all the uncertainty and the fallout for paying for all these crazy stimulus packages, some of which we didn’t need, start to really take hold on the market and knock it down again.

CAVUTO: You know DR, talked to a number of prominent Democrats and Congressman Garamendi among them, that there is a long history of Republicans saying when taxes go up, stocks go down. But they went up, they say, during the Clinton administration hike the top rate for individuals. Now, he had lowered a lot of investment related taxes, but they went up from a really super meltdown lows. And the Obama administration when he, too, later raised the top rate. So, their argument is that that dog don’t hunt that argument, that in the face of higher taxes, the market suffered. It’s not borne out. What do you think of that?

BARTON: Well, I think that it’s very simple that we need to teach those folks that are saying that that correlation does not equal causation, if we look at both of those cases to anecdotal cases, those were coming off of all that really generational market lows. We had the huge market lows coming off of the blow up and 9/11. And then we had the twenty-seven twenty-eight real estate blow up and we recovered after those. Wow, what a surprise. So, I can’t think we would say raising taxes helped those. And I believe that a tax raise here that we’re looking at, I think I’m I’m a little bit different from Scott. I think it’s going to be tough to keep them away completely. And I am with him in that when it comes, the markets aren’t going to like it very much. And we’re going to have to see how that plays out. Tax tax hikes versus all the stimulus we’ve been getting. Who wins that little punching, punching war?

CAVUTO: All right, we’re going to spend a little bit more when I get you guys back.


CIO Scott Martin Interviewed on Fox Business News 3.31.21 Part 2

Kingsview CIO Scott Martin discusses Chipolte’s Bitcoin promotion and the rise of alternative currency.

Program: Cavuto Coast to Coast
Date: 3/31/2021
Station: Fox Business News
Time: 12:00PM

NEIL CAVUTO: Now that Chipotle is looking to give away up to a hundred thousand bucks in Bitcoin, which would be what not even, you know, to two of the coins. Right at the rate it’s going, nevertheless is getting enormous attention DR Barton is back with us – Woodshaw Financial Group principal there, Scott Martin, Kingview Asset Management CIO, Fox News contributor. Well, this is a little different. I mean, Chipotle does not join the normal crowd that we’ve seen of late, including Goldman kicking around the idea and Tesla with this sort of thing. I’m not quite sure what this means, though, for Chipotle. It’s an added boost, I guess, to get people in. But what do you make of it?

SCOTT MARTIN: Neil I love it. Why am I always the last one to know on Brito’s, though, that’s the question. I mean, look, Brito’s Taco’s, I love them all. Usually when Goldman gets involved in something like this, the funs over. But ironically, in this case, I think the fun just starting, you mentioned all the other companies that are talking about Bitcoin, even the PayPal’s, the Squares, the Visas, the MasterCard. So, what it means for Chipotle is they’re getting on that bandwagon to kind of catch that rise in the, let’s say, alternative currency. And it speaks to the fact that, you know, a lot of portfolio managers like ourselves, Neil, have bought gold in the past to hedge against, say, fixed income volatility or equity. Volatility in Bitcoin is becoming a real asset class for portfolios as far as choice.

CAVUTO: You know, for the time being, DR, they’re not saying you can buy your burritos with Bitcoin that might be coming down the pike. I know Tesla is offering that with the one and a half billion that a lot of us got, you know, bought of currency that buyers could do so. But where do you see this going?

DR BARTON: Well, I think it’s just really smart marketing, Neil, kind of pure and simple, if you look up if you look up Chipotle online, you’re going to find, you know, maybe 50 million hits, 50 million hits in Google. If you look up Bitcoin, you’re going to find six hundred and eighty-eight million. It is very hot. They want their name associated with something hot where they don’t have to pay royalties to the NFL or the NBA or someone like that to have a marketing campaign. So, they have an app that’s called Bitcoin or a burrito’s or Bitcoin. You play a game on there to see if you win some of the Bitcoin fractional Bitcoin or can win a burrito. And that’s and that’s it. So, it’s a really kind of interesting marketing ploy. I don’t think it has any legs in terms of Bitcoin being accepted at Chipotle any time soon.

CAVUTO: I’d probably still go for the burrito, but Scott, looking at this, bitcoin is serious now, isn’t it? It’s gone from now being, you know, sort of shunned, sort of like an odd investment to one being embraced by a lot of Main Street players. What do you make of that?

MARTIN: Bitcoin was a t shirt a few years ago of one which I bought, in fact, that I’m happy to wear out because people what’s so funny about that is like I mean, perfect example of the T-shirt. It’s an orange T-shirt has the Bitcoin symbol on it. Three or four years ago, Neil, nobody would stop and ask about it, but now they do. And it’s probably because they see me on the shows all the time. Right. But the reality is, and they watch Fox and everything like everybody else. But the reality is people want to talk about it and feel like they’re very interested in it. So, the fact that to the point where that’s at Chipotle or be able to use it on a Visa card or something like that, that’s making it part of society and part of society to come, I think.

CAVUTO: All right, gentlemen. Food for thought. See what I did there? Food for. OK, fine. It’s the best I could do on a whim. All right.


Nolte Notes 3.22.21

March 22, 2021

The days are longer than the nights and the weather is beginning to warm up. Baseball starts in 10 days! Summer is just around the corner. The economic “issue” is that inflation is beginning to heat up as well. Getting lumber or copper for homebuilding or gas for your car is costing a whole lot more than a year ago. As a result, interest rates are rising and pushing the Fed to recognize that an ill wind that blows does nobody good. Inflation, in the words of the Fed, may be transitory, but for how long? Expectations are for an economy to be blowing hot during the summer as economies open around the world. With all the stimulus and people going back to work with extra money in their wallets, inflation may be around for something more than a transitory period. To be fair, the Fed has pulled the punch bowl from the party well ahead of things getting out of hand, but this time wants to wait until they start seeing the party really rolling before raising rates.

Last week’s economic data was less than stellar, but the key report will not be showing up until April’s jobs report. The weekly jobless data is stuck in low gear, without much change since Halloween. However, the continuing claims are about double that of early 2019 and about two-thirds of the peak in 2008/09. Other data points are indicating the economy is healing, albeit very slowly. The coming jobs report will be informative as to the type of jobs coming back. In early March, the jobs report showed a large pick-up in hospitality jobs, restaurant, hotel, and bars. The trend is expected to continue as various states are loosening the restrictions of the past six months or so. Commodity prices are beginning to roll over a bit, energy prices have dropped from their recent highs and agriculture prices are down for March. So, while inflation indices could continue to rise in the months ahead, some prices are beginning to decline. As vaccinations increase and economies open, the main debate is how much pent-up demand is out there. Many are hungry to get out, others remain cautious. Trying to guess human behavior after this year is a fool’s errand. We will watch how things unfold rather than trying to guess.

The direction of interest rates has been the focus of investors over the past month as rates on the 10-year bond is now at the highest level in over a year. However, looking back at the 10-year yield, rates have been in a range between 1.50% and 3% since mid-2011. Before collapsing to under 0.60% last summer, the yield on 10-year bonds was near 2%. The concern today is that inflation is going to spike, and the Fed will have to step in to raise rates. The Fed has stepped in early, anticipating the inflation that never came. Today, they want to see inflation before beginning to tighten rates. They should be on the sidelines until sometime in 2022.

The battle between growth and value continues to rage during March and has been dependent upon the direction of interest rates. When rates rise, growth stocks falter. When rates ease, growth races higher. Growth stocks are all about future expectations for earnings that get discounted back to a price today. As rates increase, that discount rate also increases, pushing today’s value lower. More cyclical stocks that are tied to economic growth benefit from a better economy. They tend to be very leveraged to economic growth, doing very well as the economy recovers and booms, and collapsing when the economy hits a recession. We have been concerned that growth stocks have “discounted” every possible bit of good news in their price, so any change could mean much lower prices if those expectations are not met. While not necessarily as egregiously priced as the tech bubble in 2000, many growth stocks are still priced for perfection and could fall dramatically if those expectations are not met. Meanwhile, little is expected of the consumer related stocks in the face of the pandemic. As the economy opens, many will do very well as consumers return and spend money. That rotation from growth to value is likely to continue in the weeks/months ahead as people start to feel better about mingling with others.

Interest rates are likely to continue to rise as economic growth should also rise dramatically over the summer months. While that growth may be temporary, investors will still fret about potentially higher inflation and a Fed that may begin to tighten monetary policy and push interest rates higher still.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.


SVP Paul Nolte Interviewed on TD Ameritrade 3.12.21

SVP and Portfolio Manager Paul Nolte discusses futures movers, like crude oil and the major indices as well as expectations for the FOMC meeting scheduled for next week.

Click here to watch the video


Nolte Notes 3.15.21

May 15, 2021

As we “celebrate” the first anniversary of the “just two-week lockdown” to bend the curve, the economy remains a mess even though Wall Street is doing fine. Another $1.9 trillion will be doled out over the coming weeks and months to help the economy and those impacted by job loss recover. Until the economy opens fully, it will be hard to restore jobs, especially in the service sector. Market psychology has shifted from benefiting companies helped by working/staying at home to a hopeful reopening of the economy. The bond market is sniffing inflationary pressures and concerns about the time when the population is unleashed from a restricted lifestyle. Interest rates have increased significantly and this week we will hear from Fed Chair Powell regarding their position on keeping rates low for longer and when it will begin to shift. As the weather warms and vaccines find arms, the summer is expected to be “more normal”. Anything less will be a huge disappointment after the past year.

The economic damage of the past year is still very evident in the weekly jobless claims figures. The average of the past year is roughly 50% higher than the average during the financial crisis. The response from the government has been multiples more than during 2008-’09. Unlike that period, this one is completely health related and will take broader vaccination and local governments to relax restrictions on the service economy to realize a stronger recovery. The inflationary worries have not yet shown up in the “official” data, as both consumer and producer prices were as expected and are still well below the Fed’s 2% target. That will change in the coming months as commodity prices have jumped by over 20% since the end of last March. Even pulling out the usually volatile food and energy, prices are expected to soon be above that 2% level. If consumers have money to pay the higher prices, inflation can linger. The extension of various programs into fall may allow many to have money in their pockets and keep the pressure on prices. Once the economy fully recovers, wage growth will be the key driver for “durable” inflation. This dynamic will be under the microscope at the Fed meeting and the press conference that will follow. The markets are sure to react.

The bond market has been at the center of investor’s focus as longer-term bond yields have been rising in response to expectations for higher economic growth and inflation. The impact has been felt more in the treasury market and to a lesser extent the corporate bond. Corporate bond (and to a lesser extent) municipal bonds are dependent upon the health of the specific issuer. Better economic growth and higher local tax revenue will benefit these parts of the bond market. The huge issuance of treasury bonds to pay for the various pandemic programs will have a tougher time to be absorbed within the market, pushing rates up on government bonds.

After being neglected for the better part of 10 years, other parts of the markets are indeed waking up. Small stocks are up better than 20% just this year. Energy, the black gold variety, is up over 40%. While much of the attention has gone toward technology, this shift toward “everything else” has been picking up steam over the past six months. Some of this is due to expectations for better economic growth. Energy has been pushed down so far that it was impossible to find storage a year ago and you could get paid to hold it (assuming you had a few tankers in the backyard!). Today, pump prices are at or over $3/gal. Smaller stocks tend to be more domestic and do not have as much international exposure as their larger cousins. Many of these companies suffered in the early days of the pandemic and for those surviving, they are likely to thrive as growth picks up.

Interest rates and investor ebullience may be the only things to derail the markets over the long-term. Over the short-term, stocks may take a rest especially in front of the Fed meeting this week. Volatility has not subsided, but few notice it when stocks rise!

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions


Nolte Notes 3.8.21

March 8, 2021

“To everything there is a season… a time to gain and a time to lose.” Using a synonym for turn, Wall Street prefers “rotate, rotate, rotate”. Since the most recent “bottom” in the market just ahead of the election, there has been a rotation in the markets from technology toward more cyclical issues. Due in large part to the decline in COVID cases around the country and opening states like Texas and Mississippi, there is hope that summer will be full of concerts, ballgames, and movies. While maybe not at capacity, the expectations for “normal” has pushed investors toward companies that benefit from fully opening the economy. Inflationary worries have also crept back into investors’ minds, although Fed Chair Powell gave no indication of adjusting their low rates for a long-time policy. Commodity prices have picked up very noticeably as many indices tracking them are up over 15% from this point a year ago. If the economic expectations are indeed correct, it will be a time to build up and dance, rather than to mourn.

Expectations were high for the last chat by Fed Chair Powell before the Fed enters their “quiet” period ahead of their next meeting in mid-March to address the rise in rates. He basically said that there remains plenty of “slack” in the economy and any inflationary pressures are like to be “transitory”. To translate, with employment where it is today and the gains reported last Friday, were it to continue, it would take until late 2023 before the economy made it back to employment levels last seen just before the pandemic started. He (and the Fed) also believes that the rise in commodity prices will flatten out in the months ahead as supply and demand begin to balance out. There have been so many disruptions due to the virus, that getting goods into the economy has been tough, so what is available can be had at a high price. That should moderate as businesses open, and money begins to flow around the economy. The employment report on Friday showed the impact of businesses opening as many of the “new” jobs were in leisure and hospitality. As weather warms and (maybe?) restrictions eased, employment gains should be quite large in the months ahead. The bigger questions will be whether prices begin to moderate or will the Fed have to deal with rising inflationary pressures.

The excitement was not in stocks, but in the bond market last week and seemingly for the past month as investors wring their hands about incipient inflation. We have been down this road more than a few times over the past couple of decades. Commodity prices are up over 20% vs. a year ago, their fastest rate in 10 years. The steepening yield curve, or long rates rising fast than (the nailed down) short rates is a typical response. These bouts do not last long, a few months or so, before commodity prices begin to decline. What is normal too, is a steep yield curve. We have had more than 2 percentage point differences between short and long-term rates for years. Starting with 9/11/01, the next three years saw a very steep yield curve. Again, starting a year ahead of the stock market bottom in March of 2009 and for the next eight years the yield curve was steeper than today. What is less typical is the flat curve that we have had up until a year ago. During those periods, stock investors did just fine.

The death of technology has been called for quite often over the past few years. The rotation toward value and away from growth has had its moments before investors headed back to technology. Even international, where technology is a small portion of their economies is seeing investor interest pick up recently. The top stocks within the various popular averages are down an average of 10-13%, with the top 5 averaging a better than 20% drop. As we have highlighted often over the past few years, technology companies are selling at very high multiples given their recent earnings and sales. If the economy does indeed begin to re-open, people will be wanting to have “experiences” once again rather than be tied to a technology device. Just maybe this time we see the move toward other parts of the market as a lasting “thing”. Markets usually shift leadership coming out of recessions. This one has just taken longer than most.

We will be watching the yield curve and commodity prices to judge the staying power of any inflationary pressures. Bond investors are likely to suffer additional declines in value as yields rise. Finally, full passage of the stimulus package could be a signal to “sell the news” as investors have been buying the rumor for months.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions


Nolte Notes 3.2.21

Sign, sign, everywhere a sign. Yield is one sign that the equity markets were watching closely last week. As yields rose investors became cautious about adding to their equity exposures as there is now slowly becoming an alternative to stocks. Investors also stopped buying technology stocks as aggressively as they had been during the summer months and into early fall. Again, expectations for an economic re-opening are not only pushing yields up but stocks that will benefit from “going back to normal”. Merging has also been a favorite activity among the “SPACs”, or Specialty Acquisition Companies that are created with the express purpose of buying companies to list them directly on the US exchanges vs. going through an initial public offering. Many of these SPACs have increased in value, even though they have not yet bought another company. It is like spending two dollars to buy a dollar. Do all these signs point to the end of the 11-month rally? We will need to wait to see some more signs before making that final call.

The correction of the past two weeks has only hit the “normal” range of 3-5%, but already investors have begun panicking about the end of the rally. There are still over 70% of the stocks within the SP500 that are trading above their long-term average price. The net number of stocks rising to falling is still at a high level. Finally, the rotation to other parts of the market (other than technology) is a long-term healthy development for the market. Economically speaking, the data is decent. Retail sales continue to boom on the back of government checks sent out at the end of 2020. Real estate is doing very well due in part to historically low mortgage rates and a desire to move out of the big city as many companies are allowing working from home as a long-term proposition. Manufacturing is doing extremely well as companies work to supply all the goods that have been purchased over the past six months. There remain shortages of a variety of goods like semiconductors, that have been in high demand and supply is struggling to keep up. It is the imbalance between low supplies and higher demand that has given rise to the concern about higher inflation. So far, the reports of inflation are not (yet) high enough to warrant long-term concern.

The widening spread between short-term and long-term bond yields has been an indication of a return toward some stronger economic activity. Fed Chair Powell, in his testimony before Congress last week, reiterated their desire to keep interest rates lower for longer until the economy completely heals from COVID. Unfortunately, as we have repeated over the past six+ months, money is not going to make the economy better, until people are willing and able to go and do as they please as had been the case before the various state shutdowns. The seeds may be already sown for some unintended consequences of too much easy money for too long that will impact the financial markets in the future. For now, equities are living off the sugar high. The bond market is signaling that higher economic activity is already here and not really in need of additional stimulus. However, once the economy fully opens, many people will likely need additional aid until their prior jobs fully return.

Last week was a wild one for stocks, but in the end, saw a continuation of the rotation toward more cyclical parts of the market. There will be some corrections and short-term returns to what had been doing well, however, over the coming few years, the markets should be moving toward more cyclical companies and away from the technology favorites of the past 10 years. It is not that many of the technology companies are not good companies and have provided tremendous value to both shareholders and users alike, it is that these companies are selling at historically high multiples of earnings (and in some cases multiples of revenue) that it is unlikely for many of these company’s stock prices to continue their recent trajectory. There is a difference between buying a good company and buying a good company at a good price. Today, many good companies are selling at historically high prices to their underlying value.

The economy will continue to gradually and with many stops and starts along the way, demonstrate solid growth that should support stock prices and higher yields in the bond market. The Fed is not likely to move anytime soon and we will be watching the bond market for clues about an appropriate time to trim stock holdings.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.