tv Wall Street Week FOX Business August 13, 2016 12:00am-12:31am EDT
it's coming up pretty quickly. that's it for tonight. thanks for joining us. ed rollins and ambassador john bolton among lou's guests coming up monday. good night from new york. >> announcer: this show has never been solely about investments. we talked about anything that affected people and their money. from fox business headquarters in new york city, the new "wall street week." anthony: welcome to "wall street week," the show of record for long-term investing. i'm carr. maria: i'm maria bartiromo. one analyst at s & p says we are
headed for a record high. anthony: bill miller is the chief financial and investment officer of lmm. bill will acquire all of legg mason's interest in lmm. he will own 100% of lmm. bill, welcome to the show. i want to talk about the macro economy. talk about what you are seeing for the u.s. economy and stocks in general. >> the u.s. economy has been broadly on an upward path since the financial crisis. we saw a payroll number that was strong. but when people look at it through the lens. they say payroll and unemployment are lagging indicators. but the leading indicators, stocks and credit are doing
good. we have low inflation and low unemployment. record household net worth and stock prices are stupidly cheap compared to bonds. anthony: we are litigating whether the fed's policies have been helping the economy. what is your report card for the obama economy? >> you can look at that in didn't ways. at a macro level when the administration came in, we had the worst financial crisis in history and the worst since the great depression. so if you look at it that way it would be considered a marvelous record. but a lash poring of the population has not benefited from that. one of the issues that would be helpful in this elect and future elections, if people got away
from gd psh growth and corporate profits growth and focused on the median wage. if they made that their objective, thible person would give us a better way to evaluate the success of those administrations. maria: bill miller leaving legg mason after 35 years. people want to know what this means and how it will change your business. >> technically i haven't been a legg mason employee for a couple of years. they merged into clear bridge as part of a broader strategy to get the equity businesses consolidated. when that happened, the on subsidiary that wasn't under their control was lmm. it's been a publicly stated goal of joe sullivan the ceo to clean up some of those loose ends. this represents that.
maria: when you look at the market, i'm struck by what you just said. you said the market is cheap. we have seen a good rally in stock prices. you still see value? >> the market has -- there are parts of the market that are expensive and part that are cheap. you talk about the market as a whole, you are amalgamating the market as a hole. i think consumer staples are overpriced. but cyclical names are very, very cheap. so you have a bifurcated market. but more broadly if you think about the fed model that allen greenspan used to talk about and compare it to the earnings yield on the market, and it was thought that if the 10-year treasury was higher than the earnings yield and stocks were
cheap, then the lower stocks were expensive. the 10-year is 1%. so call it a% earnings yield on the market. 1 times earnings yield on the market opposed to 70 times earnings on bonds. that's a spread i think will be resolved in favor of equities. anthony: you took the reciprocal of those two to make a comparison of future cash flows. >> the dividend yield on the -- on the a & p 500 is higher. anthony: historically when that happens you get a rise in stock. >> or decline in bonds or both. maria: nobody expected telecom
utility to be the leader of this market. anthony: and we are seeing very lax monetary policy. do you think there is a likelihood there will be negative rates in the united states? >> i think the u.s. economic growth is slower than history but it's not so slow we would see negative rates. we would need a bad situation. maria: we are just getting started. more to come. >> announcer: bill miller once beat the s & p benchmark index five years in a row. how kid he do that? bill miller pulls babt curtain
five years out, how do you want to allocate money. >> we are look at trading discount to what we believe their intrinsic value is. airlines, housing, financials, and scattered tech. but there is a wide variety of names. it's more important in this kind of market what you want to avoid, utilities, telecom and bonds proxies that are perceived to be safe because we had a 30-year bull market in bonds. i believe we are at the end of that bull market in bonds and the trends of rates will be higher which will be very bad for those perceived safe things. anthony: what are some of the things others like warren buffet don't looks like amazon.
>> probably the biggest decision i made was to buy amazon and the worst was to sell it. maria: what a score. >> it wasn't smart to sell it. amazon would be bigger than the entire funds. with respect to warren somebody asked him a few weeks ago about this. and he said i can't out bezos, bezos. they were asking about walmart versus amazon. people have misunderstood it for most of its history. claiming it didn't make any money. one of the things compared to facebook and google is that amazon's addressable market is so much bigger than google. and amazon is attacking the global retail market which is trillions of dollars as well as the corporate and interest prize
computation market in the cloud. so even with a $360 billion market cap. anthony: what is the unique thing about jeff bezos' management style? >> he's relentslessly rational. everything is dat driven. and he deliver dozen value to the customers. one of the things jeff did even with amazon prime. start out with amazon prime and you keep giving more and more things to the prime customers, then you raise the price after you deliver a lot of value. anthony: maria, you are an amazon user? maria: i am. it's a vast usable market. they are all scrambling to compete with amazon. but a lot of the things you are invested in are economically sensitive.
you are talking about the airlines and amazon, and that's a retail play. does that change if the economy does take a downturn? what if we do see a recession. does that dictate how you will invest? >> not really. we are not reasoning from the macro to the micro. part of what we like to do, the airlines already discounting a recession. we think that industry is fundamentally and permanently changed. that's a minority opinion right now. but clearly evidence supports the fact that the company's economics are radically different than what they used to be. if you had a recession equal to the recession we had last time around. with delta airlines it would still be profitable. consolidation, so prior to the early consolidation of delta and northwest. the largest market share of a
domestic carry was 12%. now the top 48 carriers have 48% of the business. airlines were the worst industry to try into vest in. there unionized. fuel intensive. half live regulated. they have high operational and financial leverage. so when you have that and have small market shares it's a recipe for serial bankruptcies and price wars. second the compensation systems for all the major airlines are focused on return on invested capital. you see much more discipline in capital than you used to see. >> let's talk financials. we know they have been hammered. regulatory environment going to get worse. how do you make the case to buy a financial? >> financials are very, very broad category. >> let's talk banks. >> we have jp more dan and city.
they have been laggards in this market for the reasons you mention. 90% of the time when they outperformed maybe even more importantly if you take something like a jpmorgan, what those banks can do is adapt. they can use technology and cut their costs. the capital positions are the strongest they have ever been. i expect jpmorgan will continue to cut costs. and if rates do go up because of the new requirements and liquidity requirements. the federal funds rate of 1% would generate 1.4 billion to pre-tax profits. >> that's incredible. >> you always have a few esoteric names in your portfolio. anything out there you could suggest to us?
>> we have that and we have names people want to throw up when they hear we own them. valeant is down 90% from the peak. we didn't own it then. but we own it now. maria: you are not worried about a criminal investigation? >> i'm always worried about a criminal investigation. but companies have been investigated criminally for a long time. it looks like if there was any issue there, it was more on the philador side than the valeant side. if they could figure out the relationship between valiant and philador, so cot insurance companies. but the stock is too cheap in the low to mid-20s. we think both of those could
double in the next two to three years. the second largest holding we have is atr earks xon which is a leader in synthetic biology at the cusp of revolutionizing the entire globe. so what synthetic biology is, we discovered the ability to rewrite and edit dna. dna is in essence to living things what software is to computers. so theoretically by editing dna you could cure any disease. it's all about the instruction set and what happens. and trexon operates across a wide variety of different industries so they have the only approved genetically approved.
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the cash carry hoop hole. anthony: both candidates are trying to champion themselves as candidates of change. clinton is pushing tuition-free calendar for the middle class and debt-free calendar for all as well as forcing the wealthy wall streeters and wealthy to pay their fair share. maria: who has the better plan? charles: i'm a pro growth supply cider. so i'll go with donald trump's plan. but having said that. in this particularrian it will be interesting to see who the american people have the best plan.
all things being equal, i have the opportunity to do better on my own or the opticals so amazing i need the help of government to help me along and make things quote fair. >> i would say this. you know, there is no doubt that if you are a free market person and you like donald trump's plan better. but you are comparing it to a low bar here. hillary clinton wants to expand the size of government, donald trump is doing nothing to address the size of government. he's actually going to spend $500 million. i'm going to say, he should roll back some of the regs on a massive government george w. bush created. he's also -- he's got -- he's got -- anthony: he's slowing down the spending and eliminating all those adjustments, the bun terry
adjustments. charlie: there is not one -- point out where entitlement reform is in donald trump's bun the plan. when you are comparing it to a low bar. anthony: i think he's a super compassionate person. charlie: we had 8 years of compassion and look where it got us. maria: entitlements -- anthony: 4% growth, you will double the economy in four years. charlie: and you can bankrupt us. the sly-side sip plus when you cut taxes doesn't occur for a couple years. there is a lag. it happened on reagan and everybody else. you will be facing massive budget deficits. what is she going to do? she'll reduce the growth.
your guy -- maria: having said that. should we talk about what happened during the commercial break? we were talking about these plans with bill miller during the commercial break. i said what do you think happens when the market start figuring out a 15% corporate tax rate can actually materialize. he said it would be huge for the market. they would be buying the market with both hands. charles: again, we are talking market, and to most americans i don't think the market will help them make their mind up in november. >> we'll see what he actually does. [all speaking at once]
anthony: heavy unionization. extra environmental regulation. charlie: your candidate got up there in that speech and you didn't blin when he said nafta is the reason detroit is hollowed out. that's absurd. anthony: i'm going to hold my breath until charlie says something positive about the trump campaign. charlie: nafta did not cause detroit's demise. charles: there is a mindset in this country that's shifting. 55% of millennials have a positive view of socialism. and 55% of democrats have a positive view of socialism. we may be going down a didn't path as a country.
bolton among lou's guests coming up monday. good night from new york. >> announcer: this show has never been solely about investments. we talked about anything that affected people and their money. from fox business headquarters in new york city, the new "wall street week." anthony: welcome to "wall street week," the show of record for long-term investing. i'm carr. maria: i'm maria bartiromo. one