Program:  Cavuto Coast to Coast
Date:  4/11/2022
Station:  Fox Business News
Time:  12:00PM

NEIL CAVUTO: Let’s go to Scott Martin and Jonathan Hoenig back with us right now. Scott, you know, we know that we’re anticipating strong inflation numbers, very high inflation numbers. And the fact is that even though Americans wages have been moving up pretty smartly throughout all of this, they’re still behind the eight ball here because they’re paying out more for everything from food to gas. How long do you think that remains, that that gap remains.

SCOTT MARTIN: Probably for the full cycle, Neal, until inflation starts heading back downward. Just because, to your point, they are so far behind. I mean, it’s going to be almost impossible to catch up given the structure of the labor market and the fact that, frankly, a lot of folks still amazingly don’t want to go back to work. So when I look at the financials and like Jackie talked about, that’s a great lead off, I think, for for the earnings reports that we’re going to see starting in Q2 here. But the financials are not performing well at all. I mean, you look at various stocks in that arena, Neal, whether it’s JPMorgan, Morgan, Citigroup, Wells Fargo looks a little bit better. Most of the banks look like, in a word, dog food on the charts. So something is going on there. And for us, we’ve been liquidating financials against the recommendations of a lot of other analysts out there this year, especially towards the end of last year. And getting more into real estate like XLRE instead. I think that’s a better way to play the lending environment than directly through the banks.

CAVUTO: You know, I think this is one of those quarters, Jonathan, where it isn’t so much the earnings that are going to get people’s attention, but the guidance and particularly with banks, what do you think they’re going to say?

JONATHAN HOENIG: Yeah, absolutely, Neal. I mean, as you know, the markets are forward looking, you know, and if Scott is exactly right, this inflationary cycle is just at the beginning. I mean, if history is any guide, this could be a five, six, even eight or nine year, ten year cycle of which the banks probably won’t benefit too much. Scott is exactly right. I mean, banks should be

doing very well right now because interest rates are going up. So what’s called their net interest margin is growing. As Jackie said, they’re basically making more money on that loan, those loans, but they’re underperforming. And I just think back, Neil, my biggest fear is credit quality. These banks have owned and issued a lot of junk bonds. 20 years ago, junk bond yields were about 18%. Even now, today, they’re only about 4%. So that’s my fear, is that the junk could get a lot junk here if the economy declines and even banks will get hit in that environment.

CAVUTO: You know, we’ve been waiting, Scott, if you think about it, for the stag part of stagflation to kick in. It hasn’t happened yet. And all of us have talked about this in the past. But I’m fascinated by that because I think a lot of people who try to draw the seventies parallel have yet to realize that that part of it, the economy just, you know, rolling over and dying. And that has not happened. Now, of course, it stays like this. And rates and overall inflationary statistics stay like this. It could be just a matter of time. But but do you think that avoids Scott, a repeat of the seventies for the time being potentially.

MARTIN: I mean, goodness, you know, the stagflation era of the seventies, Neal, like you said, is far away. I mean, we ain’t seen nothing yet with regards to what we saw a few decades ago and hopefully won’t the stag part of things, I mean, that’s kind of the story of my life as a personal note. So I get that part. But with regards to the banks going forward, what’s interesting though, Neil, about how Jonathan mentioned credit quality, I mean, I got a mortgage just recently, did some refinancing on some properties. My goodness. That was worse than an exam from the doctor that you don’t want to see if you know who I’m talking about with respect to how much they were looking into me and seeing what was going on, which gives me a little bit of patience and respect to what they’re doing because I think unlike 0′ seven and 0″ eight, there’s some more care that banks are taking and maybe they’re lending and expanding of their balance sheet so that maybe when we do pull out of this, when banks finally do get it together, the economy does grow again because there’s money out there for them to lend. They’re just being very stringent about who they want to give it to. That could refire the economy if things get lined up correctly.

CAVUTO: First, a reminder, Scott, it’s a family show. And secondly,

MARTIN: I thought this was.

CAVUTO: I assume you were talking about the dentist. Let me ask you. Of course. Of course, Jonathan. You know, young investors in particular were drawn into this market and the second wave of it, the bull wave. And and I hasten to add that a lot of them took their time coming, maybe burnt by what their parents went through in the financial meltdown, what have you. And I’m wondering, you know, if you’re twice burnt, are you are you really shy on that third go round? What do you think?

HOENIG: Well, you know, Neal, there’s an old saying, you know, you always want to avoid the herd. So find out what the herd is doing and then try to do something else and even go back to the late 1990s. You know, most people didn’t invest in stocks until January of 2000. That’s when most money came into the financial markets. Right and right when prices were at the top. So, you know, we’ve seen more money coming to the market in just the last few years in a lot of it. And not to denigrate them from from the Robinhood investor, younger investors who haven’t seen the type of interest rate increases. Commodity price inflation or bear markets. Those of us who’ve traded and been around a little bit more have seen. So markets can decline. They can decline quite precipitously. Even good names and good stocks, whether it be Apple, Tesla or all the rest. Sometimes good companies and good stocks aren’t the same thing. I think now it’s why now is a good time for caution.

CAVUTO: Okay, guys, I feel really old when you, of course, now support yourself as a like a Yoda of finance, Jonathan. But I guess that’s, you know, you’re doing enough. You know, you just feel that way. Guys, thank you both very, very much.