tv Wall Street Week FOX Business December 9, 2016 9:00pm-9:31pm EST
here, sorry we're short on time but the president-elect used it all up. >> i love you. lou: love you back. great to see you, pastor. that's it for us tonight, thank you for joining us. we'll see you monday evening. i hope you'll make plans to be with us. have a great weekend. good night.. announcer: from fox business headquarters and new york city, the new "wall street week." gary: welcome to "wall street week," the show for long-term investing, i'm gary kaminsky. trish: and i'm trish regan. the trump rally continues to roll on, the market soaring to new highs and look at how much the major indices have gained since election day. this is one month time, staggering stuff. gary: will laugh in the face of the likely rise in the interest rates next week. capital management, good friend of the show, bob olstein, we're going to talk about stocks and
investing, but we've got to start with the markets here, since election day. you've been doing this a long time, are you surprised what's happened since the election? >> not really. the market was severely undervalued, especially the stocks that are out of the top of the index because everybody's index investing now and passive investing, so there is a lot of great 9, 10% free cash flow companies. trump comes in, pro business, gets away from the leftist policies that were in prior administrations and so now you're looking to infrastructure spending, you're looking to higher rates to me is bullish, you're going to get spreads in bank to get healthier and basically pro-taxation, probably trying to get the money back that's overseas, that's a lot of expenses. i think market psychology now, don't forget, psychology keeps stocks cheap sometimes, and the numbers there were. market is not as cheap as it
was a month ago, but there's still value out there. trish: people are so optimistic and there is a chance to do major things in the way of economic policy but fear that the market may be getting ahead of itself, the market tends to move from one direction or another. there is so much optimism. what point or level do you say, okay, i need to take money off? >> we have taken money off. 10, 11% cash, that's not a call on the market. we time the market by timing stocks and their value, only their value, some of the values, you're not getting a 20 and 30% discounts anymore. you're getting 10 and 15% but still value out, there if we try to value the market, i would say right now, we're looking at a 2400 valuation on the s&p. gary: you look at interest rates when you talk about values of business, the fed is going to raise rates next week, everybody knows, that what do you expect happens next week when the fed does it? >> boy, if i could tell you what happens next week, i
wouldn't be on "wall street week," i'd be a trillionaire. we are moving into our valuation. gary: by the way, even if you are a trillionaire you would be on "wall street week." >> absolutely. gary: carry on. >> and i miss anthony. we are building in 3.5% rates over next 24 months. 3 and 3.5%, that's how i came to the market valuation. we don't look at market valuations, we think stocks are severely overvalued as you know i always do and stocks are undervalued, and so basically our 10% cash position is going to move up if this continues is a say we can't find enough value to reward us for the risk. trish: you know, forgive me, i know you're looking at a lot of companies specifically. sectorwise, are there sectors you can point to that say they're going to benefit from this administration? >> the biggest sector, we were in it in the beginning is the local banks, regional banks. with their spreads you're going
to have citizens financial, okay, earning $1.50. they got the earnings power of $2.50, $3. the spreads move up, the banks earnings are going to move a lot higher. gary: talk about the active passive argument. you and i have talked about it at various company events, talked about it on air here, a lot of investors have decided to go passive, that is just buying the indexes. you warned them, the warnings have not yet come to fruition. remind us why is index in a bad thing? >> index is active investors trading passive investments. you know that basically -- gary: explain that, i know what you mean but explain that. >> 7-8% turnover in the index, i'm not saying the index is bad to invest in. i'm just saying there is a mania now and everybody is saying it's the only place to go, that nobody can beat the market. our fund over 21 years, and we
have a decent fees as well is worth $10,000 investment is worth $75,000. a $10,000 investment in the index with no fees is 57. and yet we lost to the index in the 21 years, excuse me, nine or ten times. this is not a baseball game, accumulation of wealth over time. all the press goes out and says this guy beat the index, this guy lost the index this year. that is bunk, and basically when you go into -- as an index investor, okay, there is lly if somebody loves netflix and it goes up because there's rumors about disney and goes up higher, it's momentum investing as well. people have to buy more and more netflix as it goes up. so anybody who thinks index investing is riskless is absolutely wrong. gary: you've warned about this for a long time. is 2017 the year where you actually see half of the active
managers outperforming the index. >> i believe so. i think the advantage is coming our way. everybody moving into the index and causing distortions, tremendous distortions, piling into the facebooks and the amazons, et cetera, and leaving the companies go with 10%. we were only buyers of regional banks a month ago, we made 60% on our money in the last 30 days. gary: i agree with you on the index. stay right there. we'll be back with bob and more. "wall street week" will be back in a few minutes.. announcer: should disney buy netflix? disney investor bob olstein says no way. and he's written a letter to ceo bob iger telling him why it's a bad idea. bob reveals that and more when "wall street week" returns. sometimes when brushing my gums bleed.
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. trish: welcome back, everyone to "wall street week," bob olstein is with us, i'm looking at all-value cap fund, it's up over 16% this year. your small cap fund. >> up 25%. trish: wow. so what are some of the names that propelled you to those levels? >> the regional banks and the mutual funds management companies have been the biggest contributors to our performance. we, we had a rough 2015, waiting for that to happen, but boy have we been paid back. that's how value investing is. you have to have patience and strong stomach while you wait for people to recognize the value. gary: give us ideas, some of the major holders in the fund are who? >> rather than give you major holdings, give you the ones that are just as undervalued as
the regional banks were. bed bath & beyond, everybody beating them up, margins are going down, revenues are hardly going up. here's a company, if you take the margins down to 9 1/2, 10% and went for 11, 12 and not only do, that you see they spent a lot of money moving onto the internet and have unique other concepts like bye-bye baby. here's a company that's free cash flow running at 13%. they have $6 in earnings power two years down the road. shares outstanding go from 150 million to 120 million. we expect private equities. trish: the fundamentals themselves, everyone is moving online, but frankly everything moving to amazon, extremely competitive in terms of pricing why, does that leave a bed bath & beyond? >> i'm going to collect my 13% until people recognize it.
that's in 2.5% interest rate market. everybody is moving to amazon, amazon sells at 300 times earnings, 200 times earnings. bed bath sells at 7 times earnings. we think they are not dead. gary: you said private equity may be looking, and you've had a great, i chatted stocks with you for 20 some odd years. you think bed bath & beyond is a take-out? >> we've had 40 stocks taken out of our portfolio in 20 years. reuters called us the breeding ground for private equity investors. i wouldn't be surprised. me if i was private equity, i would be moving bed bath tomorrow. another one, oracle. here's a company, and you compare it to salesforce.com. here's oracle with free cash flow adjusted for stock compensation of 265, going to a different method of accounting because they're moving to the cloud. they have 4 billion in the cloud, on its way to 10 billion.
they don't have profits yet but magnify in the next three years because now they've had all the expenses of moving over and the earnings flow. and salesforce.com, if you adjust the stock compensation, 25 cents a share they're earning, selling at $70. when i look at oracle, they should be earning 60 cents a share. given the 300 multiple of salesforce.com. another 180. it's worth $52. gary: bob, there has been speculation on wall street the last couple of weeks that disney might be interested in acquiring netflix. you are a disney shareholder, investor in disney and against. this you wrote a letter to disney ceo bob iger which we're going to share on the air for the first time. let me read, in our opinion, the proposed transaction with netflix is not only ridiculous but result in a blow to disney and your outstanding reputations, should a transaction occur we would be one of many investors who would
lose confidence at disney and extremely vocal in our disappointment. that's a strong letter. why don't you want to see disney buy netflix. a stock you called the most overvalued stock the last time you joined us. >> i still believe it is. here's a company disney going to earn 8 billion in free cash flow, and here's a company, what do you call it, netflix that's losing in free cash flow, every year 1.5 billion. they had the same amount capitalized expense on the balance sheet. would you rather own "orange is the new black" and have good product there. they are losing a lot of money or rather own "star wars," "moana," "frozen," donald duck, let's go on. basically the bernstein analyst, and it's incredible that the research hit the street, disney could take a 30% hit to their earnings and it would be fine. i find that is absolutely incredibly ridiculous, i have similar conversations with
michael eisner 12 years ago and he never took the potion, and i don't think bob iger would consider anything like this. it would be safe -- trish: there's been lots of rumors. twitter was another rumor. disney might go after twitter. where is this coming from? do you think this disney and bob iger feel they need to do something? >> here's what he said, he was quoted in "barron's" or i think it was "barron's," he needs to get close to the customer. he's as close to the customer as he can. should he buy movie theaters? these guys get the best product. this company is golden. still worth $125 a share, we believe, if he buys oracle, not oracle, netflix, the stock is heading 30% down the next day. gary: you'd rather see this company continue to buy back shares, make accretive acquisitions and the cash balances.
>> great acquisitions in the past. the captain marvel acquisition, don't buy distribution, distribution is too competitive. i don't think bob iger -- bob iger is laughing at the bernstein report. trish: have you gotten a response yet? >> not yet. just went out two days ago, i'm expecting it today. [laughter] we're big supporters of disney, and bob iger. trish: i know you are. bob. stay with us. we've got lots coming up. "wall street week" is going to be right back. see you here. . announcer: a businessman is heading to the white house but looks like it will be anything but business as usual. donald trump is rattling corporate america, making deals to keep jobs in the u.s. and taking aim at oversized government contracts. we've never seen anything like this. so what will it mean? the host of "making money" charles payne joins "wall street week" next. ♪
. trish: president-elect donald trump not waiting to be sworn into take action. the biggest supplier of apple products in talks to operations in the u.s., japan's softbank, donald trump threatening to cancel air force contract with boeing because he thinks the costs are too high and made that deal with carrier to keep hundreds of jobs in indiana, important psychologically for the country as opposed to going to mexico and sounds like he's not stopping there. watch this. >> we're going to have people that haven't worked for years,
they're going to love working, they're going to love it. they're going to be incentivized. my administration will follow two simple rules, buy american and hire american. [cheers] >> some in the media worry donald trump is being too heavy-handed with the companies. what does the host of "making money" with charles payne think? bob olstein is here also. all of this creating tremendous optimism in the stock market and investors like it, so is it a good thing? >> it is a good thing, i talked a lot before the election about two things, the mechanical aspect of getting economy going, we know that, low taxes get rid of the regulations, but the intangible is the animal spirits. people must buy intee it. if people don't buy into it, they don't shop, don't invest, start families, the american public must buy into it. ibd came out with economic sentiment number.
surged, surged. the highest number in ten years. okay? it's not just that by the way. also this week, what did we see? first time, and since february of 2015, orders for class a commercial trucks higher the next year. small- and medium-sized fleets anticipating bigtime business, we're seeing it anecdotally, hard economic data, something is stirring in the corporate c-suites and main street. you don't get that all the time. trish: we cover the markets day in and day out. talking in the business community, everybody is optimistic. the cover of "time" magazine pointing out we for a divided country, saying he is the president of the divided states. how do you unleash the optimism for everyone, right? you know, there are people that are still reluctant, et cetera. >> it's always going to be good.
and that's healthy to have critics. the fact of the matter is the economy starting to improve, and that's why the market's moved up and some of the value stocks and we for a lot of heavy industry stocks, but the transition team, i think is fantastic. i reached out -- trish: you like all the business people, you like all the generals in there. >> i really do. trish: people who have done something. >> i reached out to one of our directors, a lobbyist and well-known lobbyist and said i want to speak about the labor war, and an hour later, one of trump's transition team members called me and asked me about the labor law and said this is the worst. gary: what do you mean by the labor law, the fiduciary rule that's going to go into effect with the department of labor supposed to in 2017, in short n understand this, is that the department of labor wants people as fiduciaryies, financial advisers to think about cost first, what is an
individual going to do in the retirement investment account? should be based on expenses. >> i want the department of labor to think about spending $50. it is not through that you can associate performance and product is a good product or a bad product by its cost. trish: so let's back up for a second. this is a regulation, a whole lot of regulations from the administration, this is another regulation and this regulation would actually prevent investment adviser from seeking what they think is the best alternative for their client, and instead go with the cheapest one, period? >> and make a contract with the client. this is crazy. we basically charge a fee that's higher than passive investing because we hire analysts, we want to do research. trish: if i'm a consumer, shouldn't i have the right to make that decision? why do i want the government telling me? >> that's why the transition told me they're going to do everything in their power to get rid of this. this is just -- trish: charles, talk about other regulation that's going
to hopefully or many investors anticipate now with the move in the markets are going to disappear. gary: there's a time between the changes that actually happen and starts to impact the companies. do you worry? i do worry that the market may be getting ahead of itself in the sense that these things aren't going to change overnight. >> and obamacare, some in the transition team say give us three years, not unreasonable saying how do you change the tires with 20 million people who are on. a lot of people lost the doctors. how do you keep the popular two parts of it. it is not a complicated issue. what i'm concerned about is people trying to time the market. the average investor saying i missed this move, i'll catch the next one. if you don't buy when there is extreme optimism, you don't buy when it's falling apart, okay? this is where people fool themselves on this. if you buy xyz at 20, it dips
to 18. 20 years it is at 30. be cool with that. if you voted to make america great again, didn't you vote to make your portfolio great again too? >> we run public money and call these people procrastinators. they never really invest. >> they say when your fund is moving up, i can't buy, it too big a move. and move down and say the world is crumbling. gary: it's been difficult to be a long-term investor for the last 16 years. >> go back. gary: yes, but there have been periods. if i were an investor in your fund, despite the spectacular performance, 2008 into 2009, i would you to look at camera and tell the viewers how do you sit through those periods and be the long-term investor? >> first of all, you shouldn't have all your money in equities, a little more volatile than bonds, and basically, you only put money in that you can see drop 25% or a period.
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