George Seay, Founder and Chairman of Annandale Capital, joins TheStreet to discuss what the markets are paying attention to.
Transcript:
Caroline Woods: First I want to get your reaction to the latest inflation data. July CPI came in tamer than expected. Although core did come in slightly hot. The market seems to be taking it as good news. What do you make of it? Are you looking at it as glass half full as well?
George Seay: I am, I think that when the market’s priced for, for perfection, a lot of these obscure economic statistics that most people don’t pay a whole lot of attention to except for the professionals. Start really splitting hairs. And getting into granular analysis. And, you know, the result we got was not too far off what was expected, except for the core, as you mentioned. But I think it was just right for Wall Street. It it was the porridge that was just right. Not too hot, not too cold. Basically, you still have inflationary pressures to a small degree, but there’s no evidence that tariffs are really jacking up inflation yet, but it’s not so extreme that people worry about the Fed not cutting it in September. And for the rest of the year it shows a strong economy, shows a healthy economy but inflation not too hot. So the Fed can continue to cut. And the market loves that.
Caroline Woods: Not feeling the impact of tariffs yet. this feels reminiscent of a few years ago when we kept hearing calls of a recession and it never actually came. Will we eventually feel the impact of these tariffs.
George Seay: I think we will if they’re across the board and they stick around a long time. I feel like this has been such an ad hoc exercise. And the president gives all these draconian issuances about tariffs related to our major trading Partners. And he has brought the hammer down on India, for instance. But he hasn’t on China. And he just extended them for another 90 days. And you look at this and think it’s very ad hoc, and you wonder about the efficacy of singling out one country and not singling out another country. And then we’ve got the Russia talks coming up, and he hasn’t brought the hammer down on Russia like he threatened to do as well. So it seems very arbitrary. But as long as it’s kind of isolated and not across the board in the 20% to 30% range, it may not have as big an impact as people have been anticipating. But if he eventually brings the hammer down on Mexico and some of the largest trading Partners, it will have an impact for sure.
Caroline Woods: So given that there’s still some uncertainty on that front, how do you think this report and then eventually PPI later this week will shape the Fed’s thinking heading into Jackson Hole and of course, the September meeting, because I was taking a look at the CME Fedwatch tool and I’m seeing 94% chance of a rate cut next month.
George Seay: Yeah, I think that these inflation numbers aren’t enough to spook the Fed. I Fed. I think that the employment number we got a week ago, week and a half ago was enough to give the Fed a Greene light to go ahead and cut in September and probably cut later in the year, at least once or twice too. But the data will tell the tale on that. But I would bet a whole lot of money we get a rate cut in September. It’s a little bit overdue, I think, as well.
Caroline Woods: OK And you talked about the stock market being priced for perfection at the top of this interview. I’m curious about how you’re approaching the market right now, given the impressive run up that we’ve seen.
George Seay: Well, I think it’s a very interesting time when you look at millennials and Gen Z, young professionals who’ve been in the market for anywhere from 15 down to very few years. They didn’t live through the Great Recession and they didn’t live through the tech bubble. And unfortunately, I’m old enough to have started my company right before the tech bubble popped. And I remember that market extremely well. And luckily, I’m more of a GARP investor, so we lost about half as much money as the market did during that tech bubble popping, but everybody lost money during that period of time. It was a two year, horrible, grinding bear market, and this market is eerily reminiscent of that. It’s not as extreme as it was back then. But at the same time value stocks and GARP stocks are much pricier than they were in 2000. It’s only the tech bubble stocks that are not quite as expensive as they were back then, but they’re still wildly expensive relative to historical measures. And it’s just hard to get excited about making double digit returns every year for the next three or four years, as long as prices are this high. Now, having said that, there’s more margin out there than has ever been in history. And there’s been quite a bit of short selling related on these high prices.
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