turning back to the major averages joining us now is Mark Lehman
Ceo of JMP Securities,
a citizen's company and mark stocks rose higher after this morning C.
P. I.
Data showing inflation continues to run hot your thoughts
and why markets are seemingly just shrugging this off?
Well, it's a great, it's a question of the day.
I mean I learned 20 years ago I heard greed was good.
I'm not sure that was true and hearing inflation is good may not be the case as well.
But I think there's lots of indications that this
described the hottest number we will get that.
I think some of the numbers will start to cool off going into 2022.
I think all the alarm bells have rung from the Fed about how many
um rate rises we're gonna get this year.
And to me this kind of might be one of those kind of sell on the news.
Excuse me by on the news rallies where you
have the worst news in the rear view mirror and
that's why the market kind of went up today and the NASDAQ was up three days in a row
now focusing on C. P. I. For a minute.
Did you expect that reading to be high once again after we've seen inflation
tick higher for several months or do you think inflation could peak anytime soon?
I mean that's really the market's biggest question.
I mean I think you saw some numbers in december that were kind of astronomical.
We saw the numbers for used cars and some other of
the components that were just on top of the big numbers,
we've already seen that were just as large as we've seen.
I think the market told you a little bit today that that may be the peak
of those numbers and the
relative numbers,
It was funny,
they look back to when this was the hottest number and
it was back in 1982 and as a high school senior,
what I remember was that was the actual peak of interest rates.
And we started to kind of a
40 year cycle of rates going down summer of 82
is when we saw that. So I'm not predicting that
rates were obviously substantially higher back then.
But going back to 1982, that's what went through my mind,
which was when the market kind of
took off and the bond market went the other way, which is kind of interesting for me.
But I think that the market is telling you that, that we might have seen that.
All right. So let's talk about the Fed.
Let's talk about JP for a second because yesterday,
during his nomination hearings,
that the Central bank is prepared to pursue aggressive policy
if quote current conditions persist.
The Fed also recently said it plans to hike interest
rates like you mentioned at least three times this year.
So do you think this hawkish policy is in line with the state of our economy?
Well, it's a good question. I mean, watching the Fed is a very tough job.
I always say hindsight's better than 2020,.
Quite the contrary doing the Fed's job right now and you just never,
you're gonna have critics on both sides.
I think clearly nobody expected the numbers to be
quite this strong going in early 22 on the,
on the inflation front,
but I think they are properly attuned to what's going on in the marketplace and I do
think growth is going to be substantial this year
and the economy is changing a great deal.
And I think if you would have seen these kind of rampant
inflation numbers and you see a 10 year still under two,
I think you would have even gotten those experts to tell you that couldn't happen.
And frankly, that's exactly what happened.
And then you saw the vix today,
you saw the vix go down today at a time when
inflation was as high as we've ever seen in the last,
like I said, 30 or 40 years.
So it's so many confusing signals.
I think the Fed stands there waiting to make the kind of
changes and rises like you've described and maybe we're at that
point where there is a little bit of an equilibrium today,
that's what I think you could be seeing from the reaction
of the marketplace despite the incredibly hot number inflation this morning.
Now turning back a bit to 2021. What sectors sectors did you have your eye on the most?
Well I I watched obviously because we're
an emerging growth focused company here at JMP
Citizens companies. We
I watched a lot of the tech and life sciences companies and I watched
that as you had a red hot window for those companies to go public.
Either by a traditional I. P. O. Or SPAC as you've reported.
And we've seen some of those facts have been trading very poorly,
especially the last month in the last quarter.
And I think what's really interesting is to watch what happens to those companies.
You have two phenomenons.
Now you have a bunch of companies that have raised capital to go find a target.
Those facts that have yet to find the target.
And you have those companies that have found a target and a substantial number
of those are trading below the $10 magic price where they found their target,
That's what I've been watching this year.
Um I think there's no lack of innovation and no lack of great companies.
It's evaluation driven market.
And the question I think investors have is that
they love the company's at 50 or 60 times earnings
Now they're trading at 30 times earnings.
Do they love them still or is that just there back
to the metric where that's just not a good entry point for
new investment and that's what I'm watching here in 2020 to
those companies that went public traditionally are biased back in 2021.
Alright so last year as you know a strong year for I. P. O. S.
A record numbers of market debuts raised a record
$594 billion but some did not perform well.
What do you think is in store for those companies this year?
Well it's it's the right question
and I think that the the answer is you're going to find
what we traditionally find which is when you
have an overheated market and everything works.
You generally have an overheated market where nothing works.
And I think the last month or two if you've gone public it hasn't worked.
And especially in some of the hottest sectors from last year.
So if you are a life sciences company the performance of Life sciences I. P. O. S.
Last year it was atrocious.
And that doesn't mean that scientists got any less smarter than last year.
It just means valuation have changed.
I think you're gonna have a lot of portfolio managers who will dig
through the rubble of some of those stocks that have not performed as companies
that is as stocks.
They have performed as companies. They haven't performed as stocks.
And I think you're going to see new resources
put to work because like we saw in previous
Downdrafts we saw I saw it in 2000 I saw it in 2008.
Not all companies that are thrown into the you know the Bathwater are terrible and
I think you're going to find new resources
to find companies that are actually terrific.
They've just stumbled out of the gate through no fault of their own.
We just saw evaluation disparity and that's what I'm looking at for this year.
And I think a lot of portfolio manager will do
the same once we get through first quarter earnings,
that's what I would look for.
All right. Mark, my last question for you, you've been amazing so far
in the year, just begun.
But what factors, good or bad are you keeping your eye on Mark?
Yes.
You know, i i it's a great question.
I think one of the things we all look at um for indications
of the health of the economy and the health of the of jobs,
etcetera, is the housing market.
The housing market is driven so much of the US economy.
And I think that's what I've been looking at uh today, that's been healthy.
Um obviously that rent versus buy decision is so
uh important for so many homeowners and renters,
I'd watch that market if that market stay strong.
I think that the economy stay strong and I
think that is probably the most important factor.
But secondly, and most importantly, I'd watch what happens.
Um we saw the market go down 10% that is the NASDAQ,
it quickly bounced back about half that
obviously we want to keep watching that.
And I think um
earning season is going to be a surprise to the upside for most of these companies.
Mark Lehman, Ceo of JMP Securities, a citizen's company, Mark.
You've been a pleasure, sir.
Thank you so much for your wisdom and your insight and joining us on our show.
I appreciate your time, sir.