The end of this current bull market cycle will be marked by “significant damage,” said Ted Oakley, founder and partner of Oxbow Advisors, who have currently allocated 35% of their investments into cash.Oakley told David Lin that one of main factors behind the stock market rally in the last 10 years has been quantitative easing from the Federal Reserve, so any tightening from the central bank will likely trigger a market correction.
Investors are concerned about an equity markets, correction. When would it come? Will it come? And if it does, where should you be positioned? We're joined today by Ted Oakley. He is a founder and partner of Oxbow advisors. Ted is a macro economist and an investor. And I'm looking forward to speaking with you, Ted.
It's your first time on the show. Welcome the kid. Go. Thank you, David. Yeah, we're going to be grounded in the gamut of, uh, of, of your overview on the markets. Starting with just a very general question. That's on everybody's mind, are you bullish or bearish on stocks right now? Well, you know, David, uh, I've probably been through more bear and bull markets than most people just because of length of time in the business, but where we are right now is this under almost any measure you want to use and we use, you know, 10 to 15 measures, but.
The macro market is very, very expensive. In fact, it's as expensive as it's ever been in the history of the numbers we run. So for us, what that meant, uh, it doesn't mean for us that we got completely out of the market or anything, but it does mean we, when we can't find anything else to own, uh, when we've sold something, we keep that cash and Ian.
So right now, you'll see. Our cash levels are probably somewhere between 30 and 35%. Uh, not saying I'm willing to go higher cause they could, but that's where we are right now. That's a, that's the highest cash, uh, position I've I've heard of. Uh, since I started doing interviews, tent care to explain why, why you're so defensive right now.
Are you expecting a correction? Is that why? Well, when, when you look at it, what happens is. The reason we carry that type of number and we've had, I'll give you some term, you know, in, in 2008, we had about 40% liquid in tooth in 99, uh, going into 2000, we had more, probably a little over 40%. So you never know when things are going to change and when you get some selling, but you've heard this term by the dip, but I keep telling people that if you don't have any liquidity, if you don't have an insurance policy, You can't buy the dip and it depends on type of money.
It is. But for people that have finite money, in other words, they're managing what you have. It's not like a pension plan where you have money coming in every month. Then you have to decide where you want to be. And for us, what happens is we, we just don't have things out there that meet our criteria for buy.
So when we have that, we say, if we're not going to find something, that's a good value, we don't buy it. So you're a value investors. Okay. I could make that generalization. Um, Ted, I'm curious to how this, uh, allocation to cash has progressed over the last year and a half. Where were you? Let's say in terms of your cash allocation in December, 2019, where were you right before the crash of March.
And, uh, how did that change throughout the pandemic? No, David, about the same, we were probably around 30%, uh, at the same time, you know, if you looked at, in January of 20. Uh, December 19, same way. And when we got to selling in March, we allocated some cash. We had allocated, uh, probably half of, uh, and, and we also made some, a Jew.
We run four different strategies, but over in the strategy where, where we have oil and gas and real estate and things like that, we actually, uh, we didn't change the allocation as much as we upgraded that gave us a chance to really upgrade the better quality. And in some cases, But on the stock side, uh, we put about half of that.
And then as we got through the year and coming into 21, uh, if something got, if it hit our target, we usually a five-year target. You see if something hit that target, we, uh, we cut back on it some and really I've sorta gotten back to. Not quite where we were then, but, uh, we're our cash levers are backed up for sure.
Before we talk about your macro outlook and a specific stock sectors that you like right now, I'd like to touch on this, a cushion of cash here. Now our audience is familiar with gold as a safe Haven asset, or at least that's a common belief amongst people who buy gold. They view it as a safe Haven asset among other things.
What's your view on gold. And I wonder why that 30, 35% cash. Isn't uh, isn't, let's say 15% cash, 15% gold. Well, I'll give you an example. We like go, we liked, we, you know, we came into, uh, our biggest returns really for, uh, for 19 and 20 were gold and, and mine, we had a fairly large position in two of the strategies.
Now we have a growth stock strategy, which we do not own golden because. Uh, it it's really growth companies. We're looking for companies that are growing at 15% a year, but in the other two strategies, Australia, we have a high-income strategy and we have a conservative income strategy. We own the goal and the miners in both of those.
And we did this for this reason because. We think that gold will outperform as the dollar, you know, as the dollar fades away, sort of a FIAR currency breakdown. What we did though, was we cut back on it. When gold got out of the 2000, uh, we cut back on its, um, and we did cut back on some of the miners. They ran away on a, some, but uh, about six weeks ago, we put about half of that position back on and that's where we are now.
And we said, we carry. We as a hedge on the, on the dollar side, we carry in both of those income strategies. We carry gold in those strategies. All right. So you cut back on the, on the, on the top, R a D what, what, what, what are you, how do you view gold now? We've, we've fallen back from the top, obviously. Um, now we're, we're in a tricky place.
W w where do you want me? Yeah, I think it's in a trading range just for the time being, I would say that between, I think that trading range is probably. Uh, you know, 1700 to maybe, uh, 1850 or something. Um, I don't think it's quite ready to go. I would guess that we would spend more of the summer, a little bit in this range.
I know it's moved up recently and the miners have moved up over the last two or three weeks, but I think what you'll find is that, uh, you'll probably stay in this range and I'm not certain that the move up. And goal the last, uh, two weeks as not been because you've had the weakness in cryptocurrencies.
I can't, I don't have any way of empirically proving that up, but that's what I did the personal opinion. All right. Now, uh, let's, let's go back to risk assets. So the S and P 500 has been trading, um, in a range for the last couple of weeks. Now, in your, in your opinion, Ted, what are the biggest risks for stock investors right now to watch for.
Well, the biggest risk you have for stock investors, I think is that everyone owns a lot of exchange, traded funds, a lot of index funds. We don't own those. That's not how we invest. We invest in individual companies. But the problem with that is you look at a lot of those and I'll give you a good example.
A lot of people, if you take Ark a R K K, which was, we don't own that, but it was 158 or so it goes to a hundred. I'm not certain people know what they own. Now. They've, they've spent 10 years just buying line items like exchanged rate of bonds or index funds. And I think when you eventually get an extended bear market, I'm not talking about a March where the feds saved you, but an extended bear market.
I think you get into a situation there to where, um, it will just chip away at those and everybody's selling the same thing. See. And that's one of the problems I think you'll see. And you know, to me, this one is just about like, it was in 2000. I thought the market was so crazy in 2000 that we would have a significant bear market and we had one.
So I would suspect that somewhere off of this, it may not come this year. Uh, but there'll be significant damage in this one too. Okay. Let's talk about the significant damage. Now. I remember way back when I first started, uh, working in finance before, before my current job, one of my managers, first thing he told me was that David look at this valuation chart, it looks over stretched, right?
The value is the poorest indicator of price movement. There is. And so just because something's overvalued doesn't mean it can't go up any further. Now in the last year we've experienced, COVID, we've experienced, uh, um, uh, rising inflation. We've experienced, we've experienced, uh, uh, money flowing out of the stock markets and gold into cryptocurrencies.
There's a lot of, there's been a lot of challenges to, to equities. Uh, but yet we're still at all time highs. I wonder what's going to cause a significant damage, Ted. What's the trigger. It looks like we always need a trigger. Well, you can have a couple of triggers, David. I think the one trigger you would have is you have to watch and see if, uh, either through physical or through monetary that they're going to keep on pushing money out.
That's really what's causes. If you look back the last 10 years, this all had to do with the federal reserve, uh, it's been unfortunate because they took away what should have been these ups and downs in the, in the economy. They should have taken poor companies out of the economy, but the federal reserve has taken it upon themselves, which by the way is an, is unfortunate.
Okay. It'll probably be one of the worst things we look back on it's happened, but they spent 10 years of keeping the money flow on. And then the last two or three, they've really done it in a big way. And so there's two things would happen. One is you would either get into a situation yeah. Where they can't control the upside inflation side.
Because there's too much money or you go into a situation where there's so much debt, that it really pulls everything down. And all of a sudden you go the other way where you sort of disempowered or deep light and airy, and people realize that, Hey, obviously everything really is overpriced until you get into that selling.
There's a point in time out there where people sober up. Uh, but it typically, there's typically a reason for it, you know, but it, it won't, you won't see it now, but it'll be something out of the blue that gets it started. But the main reason once it gets started is overpriced. Now, now tell you you've experienced the last few rounds of quantitative easing throughout the last decades.
Why is it that all throughout 20 2009 to up until basically last year, we've had very little inflation, despite four rounds of quantitative easing. What's different this time. Brian, I think the biggest part of that had to do with the fact that if you look at the wage side of you, look at what corporations have done.
Okay. They've basically done this type of setup. They've paid. They paid the average worker no more money. They're not, they weren't making any more at 19 than they were in 2010 on an adjusted basis. They were basically the same. So wages hadn't caught them at all. Technology had really come around. And so they were able through, uh, through technology and really global enterprise to keep prices of costs of goods coming in at a really, really low point.
And the other thing that happened, and this happened over a 15 year period as the internet grew as a form of marketing and advertising the hope and everything else. It's not like it was 20 years ago or 25 years ago. Where if somebody raised prices, you know, you, they can, they can get a price raise. Yeah.
And make them move a little bit down. But he raised the price. They're good for competitors the next afternoon and said, Hey, other way, we'll do the same price. Matter of fact, we might we'll leave a little better than that. So you went through a whole period like that and you didn't have any of the input costs going up.
All right. Well, wage pressures haven't yet hit the United States. Have they? Well, they, uh, there, I think they will. Yes. I think I have to, actually, if you look at it, they, they moved a little bit. Uh, and I, if you look at margins of companies, we track, uh, uh, really basically profit margins and we track it against cost of labor.
And margins are, are very, very high peak of where they ever would be. And, and really labor's down here. And so what happens is when you see those two really move toward each other, then you know, you're into it. And we're starting to see both of those turn a little bit. That was an investor, which is a bigger concern for you at this juncture right now, inflation or deflation.
Because remember now I bring up deflation as a possible scenario because uh, people have been comparing our country to Japan in the early nineties back then they had monetary easing, but yet no inflation whatsoever and stagnating Nikkei for 20 years. One, one of the problems I think with it, what would bother me?
What's harder to handle for us really, because we have a lot of. We have a lot of fixed income. That would be fine if you deflated from here that we've, that we've accumulated over the years and yeah. And different things. Not only in bonds, but in stocks where we've got some really sick. Yeah. I forgot sources of cashflow.
Uh, but on the inflation side, the problem you get into there, and this is, would be the biggest problem for us is that. We have a number of people that we manage for across a spectrum. So they will have some growth stock and they'll have some high-income, but they'll also have some conservative, fixed income.
And for people in those categories, they get murdered in a higher inflationary environment. Because every time, every time they buy a bond, let's say, and 90 days later they're underwater on it because. Uh, the new coupons coming out are higher than the old ones. And I experienced that during the early eighties.
And so you had to keep everything really short because by the time it came due, you're right. You're level is already higher than the one before. And so it's a hard, it's a harder management piece. All right, bye. Now let's talk about your investments. Uh, people, many people I've spoken to privately, uh, share your concern, but, uh, they don't want to be, you know, more than 30% in cash because they're afraid of losing value to inflation.
So they have to deploy it somewhere. So if you have to deploy all your resources somewhere, where would that place be? Ted. Well, I think most investors today, uh, which listened to wall street, which we don't listen to, but I think what happens is wall. Street's got them over in a standard 60, 40%, obviously for 60% stock, 40% bond portfolio.
And I think if you look at it, commodities are at all time lows, uh, versus the S and P 500. For example, even though they've had a move, they're still very, very low in a relative basis. I think the average investor needs to look around and say, okay, what, what could I own here in addition to what I have.
And I think if they don't own us, some timber and some real estate and some metals and some agriculture, uh, there and oil, I think they're going to find that they'll probably be left behind in that respect. As you have to, you have to that's the addition. You probably need to add. And most people don't have right now.
What was your top performing sector in the last year and a half? Well, for us, the easily, the top performing sector for us would have been, would have been technology because we not only do we own it, but we bought it cheaper again. And, uh, I don't know that that will be the case going forward, but. Uh, that's what, in the last 12 to 15 months, that was what it was and you're you're right.
Technology was one of the best performing stock sectors. Uh, are you expecting any sort of capital rotation out of that sector? Given how much has already went up? I think you'll get rotation out of the, uh, the, the non-profit, uh, when I say non-profit, I don't mean charitable. I mean, they don't make any money.
And so I think what'll happen is. You're, you're starting to see that now people are looking around. If you look at it, uh, they're looking expect that don't make any money a lot. And a lot of companies in the Russell, 2000 that don't make any money. And I think they're looking at those coming saying, Hey, um, we're, we're going to sell those companies because we, we, we, we need to go where we're companies are making money.
That said, though, if you look at the technology of companies where they will make money, where they will hit those 12 to 15% targets over the next five years, you know, you, you need to own some of that. I mean, because that, that is where that is probably where the growth is. You won't, I don't think you're going to find that growth in, um, and just standard consumer type stocks.
I understand, finally, Ted, can you share us, share with us a few names of stocks that you own, that you do? Like, uh, if you look at our, obviously our LAR I'll give you two different sections. Okay. Uh, give the income side. I'll give you the stock side. Let's say the stock side. If you look at a new company, we make mine as a service.
Now we own Microsoft. Amazon got cheaper. We obviously picked up more of Amazon. You look at, we own United health. Uh, we like healthcare in that same segment. Uh, you know, we've obviously, uh, uh, like, you know, like companies like PayPal, we're looking for companies where no matter what happens in the economy, you're still going to be using those as an example, MasterCard, we own you'll be using MasterCard may not use it as much, but you're going to be using it, um, over a period of time on the income side.
Uh, we really, we really like, um, oil and gas as an income item. We own you'll see what we own. Uh, three or four of the top, uh, master limited partnerships, gas pipelines. We not a couple of straight up energy companies and, you know, fine where we own, um, in, in those would be enterprise products. We own, uh, MPLX, which is the L marathon lines.
We don't get into Morgan. And then you'll see us were on the real estate investment trust side. We really liked the medical rates. You'll see, we own Omega health. Uh, and we, uh, we own a hospital trust, those types of things. We've got four of those. So those, those are some areas. And then, and then on the, really on that income side, you'll see where we own companies like Roche drug, which is a 4% dividend.
You'll see where we on a nutrient, which is a fertilizer company. You'll see, we own some of the timber company. So. Those companies, all those companies pay cashflow, which we think will be important over the next few years. So it's kind of a two, it's a two segment and portfolio, but some people, uh, but more money in our income strategy, they knew the growth and some do reverse.
All right. Well, I appreciate you sharing with us. Uh, your other 65%. That's not cash. Uh, fantastic insights. Thank you very much for coming on the show today. I look forward to speaking with you again. All right. Thanks so much, David. Thank you for watching Kitco news. I'm David Lynn. .