Munson Interview on Inflation and Oil

Maria Bartiromo and her co-hosts asked my opinion and strategy regarding inflation and oil, and why not gold while we are at it. As I expected, the CPI prints are still coming in hot. This dashes hope of of Fed cuts earlier in the year. Why investors think this was going to be easy is beyond my understanding. Shelter is high, services inflation is sticky, and let's not get into food and fuel.

My prediction since nobody really knows, is that the current inflation scare could be the trigger for a mild selloff in stocks to what should be a pretty decent year of earnings in the US. Time will tell.

Munson on OXY and GOATs

I used to own OXY for myself and a few clients who like to have some individual stock exposure. My thesis was in part based on the ownership of Berkshire Hathaway and Warren Buffet's strong opinions on the management skills of CEO Vicki Hollub. But, I do my own research and like when management is clear on strategic direction.

In the end, I didn't like that management said they had no need to do more acquisitions and several weeks later they did the opposite. On top of that, I'm unclear on the strategy on carbon capture and it's lack of profits. For my money and the money of those I represent, I saw a glimpse of what Peter Lynch might call "diwrosification." I'm no expert on everything relating to gas and oil - I'm an expert on people who do what they say they will do. When they don't, it's time to consider moving on.

Most people are afraid of doing something they think is against the grain or selling a position that famous billionaire owns. But let me tell you - you never really know why a legendary investor owns something - or really, if they own it that day. You get a 13F from the SEC that tells you what a big manager owned at the last day of the quarter. You don't know if they have side deals, own derivatives, own debt, have other reasons for owning beyond just the stock going up. No great investor is going to call you to tell you when they buy or sell or why.

The point of keeping an eye on the GOATs is simply for idea generation. But I find in general that GOATs are just that - people who made a lot of good decisions in the past, when they were younger, more aggressive, and now have a lot of money they don't want to lose.

Retail Stocks: Just Peter Lynch It

I was asked my opinion about Burlington Stores, American Eagle, and Victoria's Secret. Dom Chu ended the segment with "harsh." But retail has stiff competition.

Burlington's story is about opening up 500 new stores - a 50% increase over five years partially based on taking over the stores of Bed Bath & Beyond. What a great example of creative destruction. What I don't have an opinion on is if management can pull it off. Time will tell.

Then we get to American Eagle. Teenagers love it. Stock has been sideways for 10 years. They really execute well and raising guidance, but it takes more than that to make profits that will move the needle. I suggest listening to the investor conference the next day that management said would lay out the strategic plans going forward.

We end with Victoria's Secret. Dead and dying. New stores with a make-up counter isn't going to change a waning brand.

The big picture is that a great firm doesn't always translate to a stocks that go up.

Observations on the Yield Curve, and Term Structure of Breakeven Inflation Rates

In this research piece, Jesus discovers more questions than answers. “If anything, this highlights the volatility of investors’ expectations on short term inflation over the last year.” Volatility in expectations is an understatement. This is why we only take the long end of the curve during melt-downs in yields, and we don’t pin our hopes for stocks solely based on Fed rate hikes.

Observations on the Yield Curve, and Term Structure of Breakeven Inflation Rates

CNBC The Exchange Asks Lee Munson: Homes, Hackers, Hot Wings

I love the tag line to this segment. We cover TOL - a luxury homebuilder that is making a structural shift to what they call affordable luxury - what I call building a McMansion on a cheaper lot with less upgrades to undercut custom builds. And, really, just selling more affordable homes. The lesson is about how you have to be flexible and change with the prevailing economics.

Then we talk hackers with Palo Alto Networks. It's the even of earnings and the next day the stock would drop over 20%. I mention that any small issues in billing could put pressure on the stock - wow, was I right about that one - it's a lesson about stocks priced for perfection and anything that can double in a year can see some big volatility up and down.

Lastly is Wing Stop. As a vegan I don't eat the product, but my analyst does and explained why it has a competitive advantage. They are cheap to franchise, they require three locations per franchisee, and almost half of the sales are coming from delivery partners like Uber Eats and Door Dash. The unknown question is: can they keep opening 250-300 stores a year for a few more years before saturating the market and seeing less growth? Let me know if you have a crystal ball - outside of that, you need a wing and a prayer...

Inflation Bites Again

Fun morning hit with Maria Bartiromo asking me about my thoughts on the hot CPI print along with the recent announcement of job cuts from Cisco and Morgan Stanley.

I have been saying for months to expect some hot CPI prints and this week it happened. But let's look at some positives. Investors know that the Fed will be cutting less and later. I suggest looking at the shelter component of CPI, as it's a large part of why the estimates where off. When you look at the current inflation rates in rents, it's a lot lower than 6%. Perhaps investors are seeing through the numbers and looking ahead.

Same with job cuts. I saw this back in 2003 as we were exiting a horrible bear market, firms started cutting and laying people off. It take about 6 months to get those cuts to hit the bottom line. This will add some tail wind to earnings. If rates moderate and we escape a recession, it sets up for higher earnings a better times ahead.

Biden or Trump? What is Better for the Market?

The focus on this interview is more about China and the impact of either administration going forward. Neither is going to be good for firms that sell to China. Both have had hard positions for China. Would there be a more measured approach with Biden? Perhaps, but we are already seen the current administration limit what Nvidia can sell. For instance, they can only sell slower, watered down chips as of last year.

We have to remember that China has been in crisis for almost three years when in August of 2021, their lifetime leader first started speaking about “common prosperity.” Companies that rely on China for sales, supply chain, and manufacturing are going to have elevated risks. Just remember, a Trump administration will cause a greater variability of outcomes with our relations with China.

CNBC The Exchange asks Lee Munson to talk semiconductors to blue jeans

Today we had earnings on two companies that are household names, but are they good stocks to own?

Certainly, everyone knows Intel. They make more chips that any other company for year. But we also know that selling chips for PCs is dead weight. What Wall Street really cares about is growth in data centers. Remember, right now data centers is basically like saying Artificial Intelligence because that is the initial economic activity being done right now to provide the computing speed on the cloud to run all this new AI stuff. So, if you are not in the lead in replacing those chips, nobody cares. Let's just say earning the next day saw a massive decline in Intel's price for this very reason.

Next (well, I touched on banks, but let's just move on), we talked about Levi Strauss. Tyler mentioned an analyst that said it was second only to Nike as a brand. I totally disagreed. Sure, everyone knows Levi's and their iconic 501 blue jeans. We get it. You invest in a companies earnings, not how people see your iconic brand. Levi has issues growing. They made a huge blunder and a 90 million write of investing in yoga pants. Management claims they want to be a global denim lifestyle brand. But do kids really want a blue denim handbag with Levi written on it? Nope. Do they want to buy their big bagging jeans with holes in it from Levi? Nope. Does my sone want more Nikes or 501s? He doesn't even know what 501 is, but he knows every variation of Air Jordans.

Value and Growth Investing in Footware

In the 1984 rock mockumentary, Spinal Tap, bass player David St. Hubbins claims his namesake is the Saint of quality footwear. I channeled my inner Spinal Tap in this Friday afternoon, fun interview about how to look at value and growth stocks. I use Croc's and Ugg's as an example.

One firm had a line of shoes that are getting more popular with kids, but with 30% of the revenues coming from a “Sad Dad” line of poorly selling shoes, you end up with a classic value company that is selling cheap for a reason. On the other hand, we have Ugg’s, owned by Decker Outdoor, that is selling a big premium to earnings for the simple reason that everything they are doing is working right now. So, which stock to buy? Really, that isn’t the question at all - nor the point I’m really trying to make about investing.

You see, I find the hard part in portfolio construction is often when investors don't realize they have their own biases and preferences when it comes to how to invest. There is no right or wrong, there is only a consistint process and self-examination.

First interview of 2024 Powell's Tombstone

Okay, there is nothing better than being asked to do the first interview of the year - January 1st, 2024. Nobody really knows what is going to happen, so you can have a little artistic creativity in your prognostications. My core thesis, the one thing I think I know (wow, that is dangerous!), is that Powell will not be that quick to lower rates, and inflation will surprise to the upside. So far, so good. While I totally get the points of the other guest, and think she has a more rational approach to monetary policy, nothing is rational about the Fed that is preoccupied with taking inflation to the mat, slaying it, and spitting on it's grave.