Kingsview CIO Scott Martin discusses the twenty-five-billion-dollar railway merger that will link Canada, the U.S. and Mexico, and its economic effects.
Program: Mornings with Maria
Station: Fox Business News
MARIA BARTIROMO: Time for the word on Wall Street. Top investors watching your money this week. Joining me right now is Kingsview Wealth Management Chief Investment Officer and Fox News contributor Scott Martin, Michael Lee Strategy founder Michael Lee and Bulltick Capital Markets Chief Strategist Kathryn Rooney Vera. Great to see everybody this morning. Thank you so much for being here, Kathryn, kicking it off with you. Markets are mixed this morning, but the Nasdaq on track for gains. The tech sector certainly has been very volatile lately, with Treasury yields backing up bond rates amid ongoing fears of inflation. This morning, we’ve got the 10-year yield pulling back from the one-point seven percent number we saw last week. What’s your take on where we are with tech stocks, which seem to be much more sensitive to this move in interest rates than any other area?
KATHRYN ROONEY VERA: Absolutely, I think that tech, especially the Nasdaq, when we get a 10 percent pullback, Maria, as an opportunity to accumulate positions in the sector that is fundamentally strong and going to be going forward in terms of interest rates and inflation. Inflation is an inevitability. It’s part of the equation of exchange and economics that we all learned about. If we study economics 101 a nominal GDP equals money supply 10 times the velocity of demand over the past year, 12 months, 40 percent of end one which is base money, just all the money circulating in the system has been created, 40 percent has been created. And velocity of money, which is simply the number of transactions in the system, has collapsed. So, one of the two has to change. More likely than not, Maria, given the amount of deficit spending, higher, higher employment and improvement in the economy and higher leverage people taking on more debt and spending, we’re going to get more velocity of money, which means inflation is going to increase. So, what I’m recommending to clients is, yes, they want to stay long, the benchmark indices, because the Fed and the federal government and the Federal Reserve are going to continue to juice markets, but protect yourself, protect yourself with Treasury inflation protected instruments, protect yourself with gold, protect yourself with sectors and with companies that will benefit from a certain inflation, which I see over the 18 to 24 months rise. It may be sooner, Maria.
BARTIROMO: Yeah, well, we’ll certainly be seeing moves in a number of commodities prices, so you could expect that we are going to see some threat here, although the Fed doesn’t seem worried at all. Look, we’ve got a couple of things happening this morning, Michael. You’ve got a twenty-five-billion-dollar rail deal. And then global markets are also watching Turkey. The Turkish lira plunged 10 percent after President Erdogan replaced the country’s top central banker with a vocal critic of higher interest rates. Your reaction to the Turkish story and how that may impact markets today?
MICHAEL LEE: Well, it’ll be interesting to see the effect on other emerging markets, but this is big news for Turkey. This is the third central banker in the last five years. Erdogan looking, always looking to consolidate power and running the government as he sees fit. And so, society general called this the point of no return. Turkey’s running at about a 15 percent inflation rate right now. And after printing increasing loan growth by 50 percent last year to combat the coronavirus, their foreign reserves are dwindling. Their GDP’s about seven hundred and sixty billion dollars in us, and they owe about four hundred and sixty billion dollars’ worth of US denominated debt. The problem when you owe debt in another currency is you can’t print your way out of it the way that the US is doing right now. So, it seems the walls are starting to come in on the Turkish economy. Therefore, the way out of this for a company or for a country like Turkey is foreign direct investment. Foreign direct investment peaked in 2010 and now we’re at levels below that a decade later. And that’s what happens when you have leadership that’s essentially a puppet dictator looking to remake the Ottoman Empire. So, I’m definitely in sojourns camp here thinking that this is the point of no return. It’ll be interesting to see these knock-on effects of the money printing and a lot of these other emerging markets, a lot of countries that simply do not have the balance sheet strength of the United States to be able to stimulate their way out of this. Hopefully the United States economy can lead the rest of the world out of this recession, as it has done many times before. But that remains to be seen.
BARTIROMO: So, so you don’t so you don’t see the Turkey story, though, having an impact on US markets?
LEE: Well, look, there definitely is a knock-on effect on all the other emerging markets. So, you know, that’s going to create some additional volatility. But I don’t think it’s going to affect the U.S. GDP growth one iota.
BARTIROMO: Well, you also have some pretty good deals to talk about this morning, Scott, railroad giant Canadian Pacific and Kansas City Southern announced a twenty-five-billion-dollar merger. This is going to create the first railroad freight line that links Canada, the US and Mexico. Scott, the implications here, how do you how do you invest around this one?
SCOTT MARTIN: Love it. Merger Monday seems to be back, Maria, and full disclosure, I’m a huge trains fans played with model trains as a kid and actually chased them as an adult. And, yes, that is a real thing. So, this is a great deal for us. We own railroads. That’s a really, really real thing. So, here’s the thing, though. If you look at you mentioned USCA, hey, we talked about it a couple of years ago, passage of that, the revamp of NAFTA starting to show its fruition with respect to what it’s doing for businesses and generation of new, say, rail lines in this case. So, if you look going forward, though, look at how the merger Monday kind of thing could start going. I mean, look at hospitality, look at some other areas, hotels, restaurants, things like that that are depressed in value. You could start to see a lot more companies kind of getting together and putting together forces to take advantage of the current economic environment.
BARTIROMO: Yeah, you make a good point, because there’s also Crown, the Blackstone Group making a bid for the gaming business. And now this deal in railroads. Anything to say about policy with regard to its impact on the rail business, Scott? Because we know that the Biden administration cancelled the XL pipeline. Does that ultimately become a positive for the railroad sector?
MARTIN: It does in the case of, say, this merger, because, as you mentioned, it’s Canada, US and Mexico, the first railroad line that will have all three countries in concert there. But also, Maria, to look at this Green new effect that say the administration is trying to have on the economy, trying to clean up and green up some of our highways, take some of those same fuel, non-fuel-efficient trucks off the highways. The railroads should benefit from that transportation as far as freight.
BARTIROMO: All right, great to see everybody this morning, Scott Martin, Michael Lee, Kathryn Rooney, Vera, always a pleasure. Have a great Monday. We’ll see you soon. Thanks so much. Much more ahead this morning.