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.

Yahoo! Finance Asks Munson to Riff on Inflation

Post-Christmas interview on December 27th, 2023 where I was asked to share my thoughts on inflation and how that will effect Fed decisions.

Let me just cut to the chase. The Fed will not lower rates until they destroy inflation. This is not about economic numbers, it’s about ego. Until we see something close to 2% core inflation for 3-6 months, it’s unclear to me why the Fed would cut and run.

Yes, I get into the whole Arthur Burns versus Paul Volker thing. Enjoy!

Munson Invited On Mornings With Maria Bartiromo Dashing Hopes for Fast Fed Cuts

I get right into the two big points of this early morning hit.

First off, we have a math problem. When earnings on the SP500 are expected to be under 240 per share, even at a 20 multiple, we are already near the high end of the range. It's going to take several quarters just to prove 240 per share is possible (it's high, but can happen). Then at 10% earnings growth I'm only getting around 5200 on the SP500 at 2025 earnings with a 20 multiple. Don't expect overnight success in 2024.

Second, I keep saying it. The Fed wants inflation dead, really dead, before cutting. Right now they say 75bps of cuts by end of next year. Why does everyone thing it will be much sooner and with larger cuts? If you think that growth will get that depressed that quickly to force the Fed's hand, then tell me how stocks are going much higher than today? In the end, bulls are betting that cutting costs over top line revenue growth and a Fed that buckles is the macro case. I find that very optimistic. Don't count it out, but don't bet the ranch on it.

Munson Defines What Is a Value Stock

On December 15th, 2023 I was asked to discuss value stocks with Oliver today. He was generous with time and allowed me to really get into what value means. First is the more common idea of value that has to do with the price of the stock compared to its book value, or Price to Book. You know, mostly sectors that are old economy, slow growers like energy, materials, banks, industrials. Most value ETFs are doing this. This is helpful when you want to get broad exposure to cheaper, lower valuation, more established stocks that pay dividends.

Then you have what I consider true value investing, which is looking for a dollar you can buy for 50 cents. You could say today that Google is an example of mega cap growth stock that some may say is a value stock today. What about Apple back in 2013 when it hit the bricks on slow iPhone sales? A true value stock is a great company that has for some reason fallen out of favor with investors but can turn around.

My point is to always ask the question, is this stock or ETF claiming to be a value investment just a slow growing, mature dividend payer (of which the valuation could be quite high), or is this a great company that has fallen on hard times that can be an outperformer in the future? It’s an important distinction.

CNBC The Exchange Lee Munson talks dog food and doggy stocks

Such a fun hit with Kelly Evans. Chewy, GameStop, Dollar General. Each one tells a larger story about the zeitgeist of our time.

The millenial firm that thinks any retail niche can be sold like SAAS. The meme stop with negative growth on about everything but Pokemon cards. The poverty trade Wall Street doesn't get. I even drop a few parting thoughts on Disney - and I'll let you know when I fall back in love with the Mouse.

Talking Buffet's 13F with Seana Smith

Chatting it up on the 13F Berkshire released this week.

Bottom line, I'm more interested in what wasn't in the 13F - Japan stocks. You see, a 13F shows the stocks the firm owns inside the US, not international. It's not just the trading houses, or Soga Shosha, that are interesting, it's the valuations, cash flow, decreasing debt, and pure earnings after a 30 year recession that Japan may be getting out of.

Also, when asked what I "liked" in his top 5 holdings, I summed it up from the high level, Apple represents the big US growth sector, BAC the value arena, and OXY the energy/commodity/beat up value arena. Why not buy some index funds instead and make it easy on yourself? Individual stocks take patience and nerves of steel.