You must hand it over to UBS’ Art Cashin. He likes to play with the crowd.
“Cashin the Contrarian” has a lot of evidence in my annual interview with the NYSE legend. We met at the same place we’d known for 15 years: Bobby Van’s steakhouse across from the Big Board in lower Manhattan.
As he wouldn’t, Art went against consensus thinking on many topics for 2022, including the idea that the Federal Reserve would increasingly aggressively raise rates next year and that inflation would drag on. how long.
Interest rates: Not as high as people think?
“The headline one year from now is that rates aren’t going to rise as much as people think,” Art told me, suggesting that Fed Chairman Jerome Powell and others haven’t given up on high interest rate sensitivities. and impact on the economy.
“I suggest to viewers, don’t pay too much attention to the meetings and what’s been said about them. Remember that Powell has to be reconfirmed mid to late January. So if they move too fast, if somehow the market goes bad, he has to allow a pullout.”
“And if our stock market suddenly plummets, I think you’ll see the Fed turn around. And I think the reality is, this economy is more dependent on the stock market. People’s wealth. Back to consumers, their household wealth has increased – some of which is measured by what the stock market does.”
Inflation Surprise: Not What You Think
Surprise! Art argues that true inflation will only be temporary when the Fed abandons the word. He said many companies have ordered double the supply, and after the holiday season, supplies will start piling up on the docks. He believes inflation will start to ease in the first quarter and points to some key dates in China.
“I think product inflation will start to fall sharply [in early 2022]. I will suggest to you that there are two dates that viewers should pay attention to. One is the Lunar New Year, okay, and its celebration in Asia. And second, the Winter Olympics, which will take place in China. I think China is an important function in the demand cycle here, in the supply cycle. And once President Xi gets over those two things, he worries about food shortages, he worries about energy shortages. He worries about all the other things. They should salute the crest on the lunar new year and the beginning of the Winter Olympics. And then I think you will see the price start to trend down and I think that will be a major headline. People will say wait a minute, doesn’t the Fed suddenly cut prices in December? “
Covid has the potential to become a ‘controllable’ disease
Art is optimistic about the ultimate impact of Covid and its many variations. By this time next year, he believes vaccines and antiviral drugs will have made significant progress against the disease.
“I think the headline will be that it looks somewhat manageable. We’ll have to keep an eye on revisions and variations. There are still some who believe this is less accident-prone and more design-driven. man-made has gone. And if that happens that will present problems because that will make countries a lot more defensive and it will limit things like corporate travel and whenever we we look at airlines today as we move into this year and travel domestically.Yes, everyone is going home to see family on Thanksgiving and no.International travel is not back yet. So the marker is that it’s going to affect the whole world economy unless it becomes much more manageable. I think the big hope here is less vaccinations and more treatments. rather, the pill. If these appear to work well then I think we’ll be able to manage Covid – not like the smallpox vaccine, but the flu and many other things – they’re much managed than with therapies. “
The key to stocks and the economy: the consumer
Cashin is bullish on stocks, at least for the first half of this year, for one reason: consumer health.
While many see 2021 as part of a massive spending boom, Art believes the real consumer spending boom will continue into 2022.
“If Covid is so frugal that people can go out, then all of that money is ready to be spent. And that’s why we have a pretty good economy because people save with there’s never been more money in the US before, in the family, and that money is available to spend. people go out and start spending – almost like the baby boom days after World War II, they’re going to go out and spend. People talk about the buzzing 20s – in fact, we can understand that again.”
A big boost for stocks: the return of buybacks
Another reason Art is upbeat: record buybacks are back.
“We’re going back to near-normal now, believe it or not, corporate buybacks are back to pre-outbreak highs. Now what caused that I’m not entirely sure, But it’s been a big boost to the stock market. And if it continues, we’ll, you know, you and I will discuss it and look at earnings and other things. had seen. ”
Technology Valuation
Art believes megacap tech stocks (Apple, Microsoft, Nvidia, etc.) will continue to be a major player in the market in the first half, but a reassessment is imminent.
“They’re a factor – I think that could start to change and we’re going to have to find a pretty broader spillover into the economy. I don’t really believe 20 or 30 companies are going to give that.” we know what happens in America or even around the world, as we’ve been doing for the past few years.”
Another problem for large-cap technology is the increasing number of regulatory restrictions.
“Look at Facebook. Facebook became so powerful that he had to change its name because it seemed deformed. It’s ruling our children’s lives, it’s ruling over what they’re doing, and suddenly unlike Jack Ma in China, suddenly there’s one or two people, one or two corporations that look too big. . So I think you’ll see that kind of social pressure come back and so the influence of those big corporations will be challenged in terms of government and vice versa. I like them to be challenged by new inventors, but that doesn’t happen. “
Earnings: analysts underestimate power
That’s one of the big stories of 2021: analysts have underestimated the strength of the economy and underestimated earnings growth of 10% or more. Cashin believes it will happen again, at least in the first six months of 2022.
“I think in the near term, analysts are once again underestimating, and as I told you before, what’s going to be forgotten is money accumulating in the household, it’s accumulating in the public sector. The business will acquire a market-based bid over the next six months, in a way that will surprise many.”
How much higher could incomes be in 2022? Currently, the analyst estimates S&P 500 earnings will grow 10% next year. Cashin believes it will be “Definitely 15 and maybe 20” [percent higher]. “
China: difficult brewing?
Art believes that China’s potential problems in the coming year in terms of food and energy could expose the country’s leader Xi Jinping to certain geopolitical risks.
“That’s because if I’m the autocratic leader of a country, and I start seeing political polls. It’s not that I’m running, it’s that my people are upset. They’re out of office. food, they’re having a hard time here. What do you do? You need to do something to get their attention. If I can’t get you the food and the energy you need, I have and that means a geopolitical surprise. know how bad the food shortage will be.You tell me how bad the energy shortage will be and I’ll tell you how far we go, when we worry about Taiwan, or Ukraine? We’re in a time when autocratic rulers want to divert people’s attention.”
When to buy and when to sell? A parable about the cashier
As he often does, Art closed our discussion with an allegory about when to buy and when to sell. It involved one of his early mentors, Professor Jack, who had been trading silver stocks over the counter in the early 1960s. A very young Art Cashin used to meet Professor Jack at various bars. bar around the NYSE.
This particular story revolves around the dark days of the Cuban Missile Crisis in late 1962, when it momentarily appeared as if nuclear war was about to break out between Russia and the US. place a stock, bet the market will fall.
He ran to the bar where Professor Jack was drinking, and told him what he had done.
“And he said to me, ‘Kid, sit down and buy me a drink. “It was school money. I paid for the tuition by buying Jack Scotch Old Fashioneds and the class lasted as long as I could afford them, or as long as Jack could talk after drinking.”
“I offered him a drink. And he said, ‘Now, sit down and listen to me.” And I said, ‘yes?’ And he said, ‘When you hear rockets flying, you buy them, you don’t sell them.’
“And I said, ‘You buy them? Why would you buy them if rockets are flying? “
He said, “You buy them because if you’re wrong, the transaction will never be clear. We’ll all die!”
“I love him, I told you never learn that at the Wharton School or the Stern School. The man in this bar just gave me an insight into Wall Street that will live with me forever. it’s not as often as they are. be direct and think about the end result and that’s the action you take.”
Art’s wish for 2022: “Keep the rockets from flying.”
