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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot Com, the radio plus mobile act and on your radio.

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Speaker 1: This is a Bloomberg Business Flag from Bloomberg World Headquarters.

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Speaker 1: I'm Charlie Pellett. Stocks are advancing the SMP five hundred index,

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Speaker 1: snapping a two day losing streak. We have got the

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Speaker 1: SMP up nine points now to fifty nine, a gain

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Speaker 1: of four tenths of one percent. Down Industrial is up

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Speaker 1: a hundred and fourteen points, up six tenths of one percent,

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Speaker 1: and has stack up twenty six, a gain of five

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Speaker 1: tenths of one percent. The tenure down nine thirty seconds,

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Speaker 1: the old one point seven two percent. Gold is down

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Speaker 1: twenty cents, the ounce to twelve sixty nine. Little chains

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Speaker 1: their crude oil forty nine seventy four for a barrel

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Speaker 1: of West Texas Intermediate crude. It is up now by

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Speaker 1: two point two percent. I'm Charlie Pellett. Thatat's of Bloomberg

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Speaker 1: Business Flash. You're listening to Taking Stock with Pin Box

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Speaker 1: and Kathleen Hays on blue Bird Radio. Let's take Stock

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Speaker 1: of Global markets with Hugh Johnson. He is the chairman

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Speaker 1: and the chief investment Officer for Hugh Johnson Advisors, helping

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Speaker 1: to manage more than one point to billion dollars in

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Speaker 1: customer assets based in all the New York Hugh Johnson,

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Speaker 1: welcome to the program, to be with you, Tim. All right,

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Speaker 1: so are you gonna make some rational sense about what's

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Speaker 1: going on in the stock market. I understand that earnings

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Speaker 1: are not great, So why would stocks be moving consistently higher? Well,

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Speaker 1: they're not really moving consistently higher. That's one one observation

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Speaker 1: I would make you know, if you look back about

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Speaker 1: the last eight eight to ten weeks and they look

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Speaker 1: at the S and P five, it seems to be

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Speaker 1: really stuck in this sort of fifty on the low side,

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Speaker 1: maybe ninety on the high side. We're not making much progress.

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Speaker 1: We have good days, utter point days on the upside,

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Speaker 1: hotter point days on the down side, but we're really

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Speaker 1: not making any progress. And I would say that the

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Speaker 1: reason for that, PIM is the only explanation I can give,

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Speaker 1: is that we've hit the hit the wall of overvaluation,

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Speaker 1: and a lot of investors, especially sophisticated investors, are saying,

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Speaker 1: under the current earning scenario, it's really hard to make

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Speaker 1: the case for a significant move up in stock prices,

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Speaker 1: So something's got to give. Something's got to give. On

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Speaker 1: the earning side, prospects for earnings have got to get

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Speaker 1: a lot better before people will really step up to

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Speaker 1: the plate at this level unless we get that outbreak

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Speaker 1: of speculation. Is it because h that there's just not

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Speaker 1: broadly speaking enough growth for earnings to be stronger? Now

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Speaker 1: we know, of course, in any economy, in any industry

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Speaker 1: or sector, there are there are companies that grow regardless, right,

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Speaker 1: but if you look at the fact that the economy

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Speaker 1: in the first half grew went just over one GDP,

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Speaker 1: that's not so hot. Uh, the second quarters a third

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Speaker 1: quarter now, corny Atlanta fan is looking like just over

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Speaker 1: two percent. If you have age those three quarters, you know,

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Speaker 1: what do you have? Not a lot of GDP growth?

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Speaker 1: What is that? Macro kind of fundamental fact mean for

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Speaker 1: companies were trying to make money and grow those earnings

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Speaker 1: just exactly what you suspect. It's awfully hard. You know,

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Speaker 1: we've had real good earnings growth until recently, and we've

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Speaker 1: had real good economic growth, but everything is slowed down there.

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Speaker 1: There are a lot of reasons for it. Number one,

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Speaker 1: of course, is that the labor force is not is

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Speaker 1: really anemic. The growth rate of the labor force simply

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Speaker 1: isn't there. Participation rate down, productivity is not doing what

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Speaker 1: it should do. It's hard to make the case quite frankly, Kathleen,

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Speaker 1: none of these conditions for anything but two and a

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Speaker 1: half percent growth on the high side, as I look

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Speaker 1: at it, we're looking at one and a half percent

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Speaker 1: in the two thousand and sixteen and at best in

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Speaker 1: two thousand and seventeen and eighteen two point three percent growth.

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Speaker 1: And so under those conditions, any any company that's trying

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Speaker 1: to do business, uh, domestically, and there's not much going

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Speaker 1: on elsewhere in the world either. Uh, it's really hard

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Speaker 1: to make the case for strong revenue growth and strong

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Speaker 1: earnings growth. It's just really tough to do that. You

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Speaker 1: you mentioned valuation, and I'm wondering if you could just

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Speaker 1: off for a little bit of detail, maybe even an anecdote,

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Speaker 1: because you know, the concept of valuation can be very

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Speaker 1: amorphous when it comes to stocks. I mean, if I,

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Speaker 1: you know, you went into a store and saw a

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Speaker 1: banana and it was priced at twenty bucks, you you know,

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Speaker 1: you'd recoil and you'd say, wow, that's that's just too

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Speaker 1: expensive unless it's a I don't know, Golden Banan or something.

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Speaker 1: But you know, like for example, Goldman Sacks. The stock

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Speaker 1: is of four dollars today, a hundred and sixty six

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Speaker 1: bucks to share. Uh, it's trading at a pe of

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Speaker 1: about eleven and a half. Tell people what that means

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Speaker 1: in terms of valuation and how you view that, Well,

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Speaker 1: you gotta look at it historically, and you have to

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Speaker 1: if you look at the overall market. Uh. You there

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Speaker 1: are two things that really make make the case for valuation,

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Speaker 1: and one is earnings. And of course there we're talking

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Speaker 1: about you know, as we've just been talking slow earnings growth.

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Speaker 1: In fact, it will be down in two thousand and

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Speaker 1: sixteen up maybe at best something like oh say one

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Speaker 1: and a half percent in two thousand seventeen. That's not

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Speaker 1: much growth for the market or that. You can't really

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Speaker 1: hang your head on that. So you just hope that

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Speaker 1: the other side of the equation is for that given

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Speaker 1: level of earnings, even though it's not very high, that

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Speaker 1: investors will pay a high price for it. Tho those

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Speaker 1: price earnings ratios will go up. While price earnings ratios unfortunately,

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Speaker 1: our function of interest rates and we know the FED

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Speaker 1: and we think, we suspect very strongly the Fed is

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Speaker 1: going to be raising rates. Other interest rates will be

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Speaker 1: going up. Well, if interest rates are going up, price

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Speaker 1: earnings ratios will come down a little bit. So you

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Speaker 1: put those two things together. Earnings on the one side,

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Speaker 1: you don't get much there. Price earnings ratios on the

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Speaker 1: other side, you don't get anything there, and it might

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Speaker 1: even go down. And you ask yourself the question. You

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Speaker 1: scratch your head, what is it? Where's the beef? What's

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Speaker 1: going to drive this market higher? And unless it's speculation,

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Speaker 1: you know, I'm I'm very puzzled, and I'm hoping for

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Speaker 1: that I'm wrong. I'm hoping something happens and I can

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Speaker 1: make the case for stronger earnings growth, but I can't

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Speaker 1: do it yet, and I've been trying for three or

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Speaker 1: four months to do it. And then, of course you

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Speaker 1: have the Federal Reservice is going to probably raise the

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Speaker 1: key rate once for the rest of the year, and

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Speaker 1: then maybe a couple of times next year. It doesn't

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Speaker 1: really slow things down much. ECB may buy some fewer bonds.

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Speaker 1: I guess here's the question. People say, OK, here's what

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Speaker 1: twenty bases points fifty basis point. It's not going to

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Speaker 1: make that much difference. But I guess maybe the again,

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Speaker 1: if you think the fundamental changes, two big central banks

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Speaker 1: becoming a little less stimulus. How much difference does that

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Speaker 1: make to companies to investors? Not a lot at this level, Kathleen.

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Speaker 1: I think you understand that. You know, interest rates are

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Speaker 1: banned at a lot historically low level for such a

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Speaker 1: long period of time, and it's not going to make

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Speaker 1: a big difference. It makes a little bit of a difference,

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Speaker 1: a little incremental difference. I mean, there's just sort of

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Speaker 1: a little bit less appetite or willingness or even ability

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Speaker 1: to borrow money. But it's not going to be all

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Speaker 1: that significant. It will slow a little bit, but not significantly.

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Speaker 1: But we're slowing from an already slow rate. And so

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Speaker 1: how do you make the case first stronger earnings growth,

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Speaker 1: stronger revenue growth under these conditions with interest rates rising, Well,

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Speaker 1: it's it's it's it's hard to do. That's not good

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Speaker 1: news that interest rates would be going up a little bit.

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Speaker 1: It's not all that bad news, incidentally, but it's it's

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Speaker 1: not particularly good news. And then, of course, on the

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Speaker 1: fiscal side of things. Everybody's very worried about the deficit

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Speaker 1: and how big it's going to be. You know, every

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Speaker 1: politicians talking about twenty tillion dollar deficits. If they start

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Speaker 1: to move towards restraint, start to reduce spending, and you've

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Speaker 1: got the Federal Reserve raising interest rates. Well, on a

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Speaker 1: big picture basis, you've got a little bit to be

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Speaker 1: concerned about. And let's let's keep in mind that this

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Speaker 1: is that we're not in the early stages of this cycle.

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Speaker 1: We're in the later stages this cycle, or at least

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Speaker 1: the cycle is well along. I mean ninety one months

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Speaker 1: in the averages fifty seven months. So you know, um,

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Speaker 1: it's just I'm a big buyer stocks. I'm a ball

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Speaker 1: on stocks. I've been that way all my life. But

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Speaker 1: right now I'm having a little bit tougher time making

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Speaker 1: the case. Can you make the case from buying an

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Speaker 1: energy stock like Exxon Mobile. I was looking at your

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Speaker 1: comments about commodity prices. They have certainly risen consistently this year. Well,

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Speaker 1: now that now you're getting right at it, which is

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Speaker 1: you've got to find things that you know really haven't

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Speaker 1: done that well. If we take a look at the

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Speaker 1: last two or three years. And obviously energy prices are

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Speaker 1: oil prices being down, energy stocks not having performed well,

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Speaker 1: they're catching up now, you bet. The question really is

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Speaker 1: when we get to the energy sector of a portfolio.

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Speaker 1: First of all, you've got good valuation metrics there uh,

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Speaker 1: it's it's not overvalued. Other parts of the market may

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Speaker 1: be overvalued. It's not overvalued. It's undervalued. That's number one.

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Speaker 1: So therefore you have to make the case for or

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Speaker 1: you have to be comfortable that oil prices are gonna

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Speaker 1: stay at current levels and maybe even move a little higher.

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Speaker 1: I do a lot of work on oil prices, and

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Speaker 1: I can make the case for the low fifties. Even

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Speaker 1: moving up a little bit from there may be very volatile,

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Speaker 1: but moving up a little from there it makes a

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Speaker 1: real good case for an undervalued sector of the market.

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Speaker 1: And when you're putting together a portfolio and junia energy sector,

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Speaker 1: make sure that under under conditions of rising oil prices

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Speaker 1: you have exploration companies a company like x and would

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Speaker 1: be a great buy, and also hedge that with a

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Speaker 1: company like a refiner like Valero, which we own in

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Speaker 1: all our portfolios. I owned personally. Valerio is not going

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Speaker 1: to do well when rising prices are rising, but it'll

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Speaker 1: give you a hedge in case we're wrong and prices

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Speaker 1: oil prices go down. That's very complex, but the energy

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Speaker 1: sector is a very attractive sector. Technology who who could be? Again,

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Speaker 1: you're not gonna picked by the whole industry, but you

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Speaker 1: can say that's a company I can make some money

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Speaker 1: on Apple. Apple. I I've set Apple so many times

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Speaker 1: for so much, so often, and we've we've had obviously

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Speaker 1: weathered some periods when there's a lot of skepticism about Apple,

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Speaker 1: what are they gonna do next? But when you take

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Speaker 1: a look at the obvious metrics and Apple, when you

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Speaker 1: take a look at their balance sheet and see the

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Speaker 1: cash position, when you take a look at the cash

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Speaker 1: that's being the cash flow analysis, when you take a

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Speaker 1: look at the cash that's being errated. Even if and

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Speaker 1: I think this will happen, even if the growth rate

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Speaker 1: slows from something and let's call it a growth rate

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Speaker 1: down to a four percent growth rate, and they don't

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Speaker 1: come up with a genuinely new idea, you still have

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Speaker 1: such a large, powerful company. They can do an awful lot.

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Speaker 1: They can raise dividends, they can buy stock back and

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Speaker 1: it hardly will make a blip on their balance sheet.

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Speaker 1: So I look at Apple and I think that's a

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Speaker 1: company that, Yeah, I know I have to go through

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Speaker 1: a lot of tough days with Apple, but I think

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Speaker 1: the upside potential there is let's call it a hundred

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Speaker 1: and forty dollars a barrel as we excuse me, barrel

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Speaker 1: hundred forty a price uh target um over the over

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Speaker 1: a little bit longer period of time. You know, sometimes

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Speaker 1: people think Apple does sell barrels of of iPhones, Hugh,

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Speaker 1: So maybe your barrel idea for Apple is not a

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Speaker 1: bad one. G Johnson, Chairman, chief investment officer of Hugh

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Speaker 1: Johnson Advisors. He said it's getting very tough to make

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Speaker 1: a case for the stock market to move significantly higher.

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Speaker 1: A longtime bull, he says he can't quite do it,

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Speaker 1: but he keeps trying. I'm Kathleen Hayes along with him. Fox.

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Speaker 1: We're gonna come to the market clothes the movers and

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Speaker 1: shakers coming up on taking stock. This is Bloomberg. H