WEBVTT 00:00:00.000 --> 00:00:03.910 align:middle line:90% 00:00:03.910 --> 00:00:05.610 align:middle line:84% JULIE HYMAN: Let's talk more about what all of this 00:00:05.610 --> 00:00:09.090 align:middle line:84% means for markets here and get a bigger picture of Hugh. 00:00:09.090 --> 00:00:10.260 align:middle line:90% Hugh Johnson is with us. 00:00:10.260 --> 00:00:13.480 align:middle line:84% He's Hugh Johnson Advisors Chairman and Chief Economist. 00:00:13.480 --> 00:00:14.500 align:middle line:90% Hugh, it's good to see you. 00:00:14.500 --> 00:00:15.740 align:middle line:90% Thanks for being here. 00:00:15.740 --> 00:00:18.630 align:middle line:84% So I want to pick up on Jared's point 00:00:18.630 --> 00:00:21.870 align:middle line:84% first about what's going on with Tesla and Bitcoin. 00:00:21.870 --> 00:00:24.180 align:middle line:84% And you said in a note to us this morning 00:00:24.180 --> 00:00:26.760 align:middle line:84% that you keep getting the question about whether this 00:00:26.760 --> 00:00:28.290 align:middle line:90% is a bubble or a mania-- 00:00:28.290 --> 00:00:31.170 align:middle line:84% what we're seeing in that, what we're seeing in GameStop, 00:00:31.170 --> 00:00:32.100 align:middle line:90% et cetera. 00:00:32.100 --> 00:00:33.480 align:middle line:90% And you say it's not yet. 00:00:33.480 --> 00:00:35.730 align:middle line:90% What signs will you look for? 00:00:35.730 --> 00:00:38.790 align:middle line:84% What are the sort of criteria you're looking for to tell you 00:00:38.790 --> 00:00:41.490 align:middle line:90% if it is a bubble or a mania? 00:00:41.490 --> 00:00:43.440 align:middle line:84% HUGH JOHNSON: Well, what I said was that it's 00:00:43.440 --> 00:00:45.420 align:middle line:90% not for the broad market. 00:00:45.420 --> 00:00:49.890 align:middle line:84% And the broad market has had a big move up since last March. 00:00:49.890 --> 00:00:52.520 align:middle line:84% And the question has been, is the broad market a bubble? 00:00:52.520 --> 00:00:54.720 align:middle line:84% Is this a general stock market bubble? 00:00:54.720 --> 00:00:56.380 align:middle line:90% And the answer is no. 00:00:56.380 --> 00:00:57.720 align:middle line:84% And the reason is that it's really 00:00:57.720 --> 00:01:01.380 align:middle line:84% three defining characteristics of bubbles. 00:01:01.380 --> 00:01:03.950 align:middle line:84% And one is, of course, widespread optimism. 00:01:03.950 --> 00:01:06.630 align:middle line:84% And one of the things that's been very missing from the move 00:01:06.630 --> 00:01:09.210 align:middle line:90% up in stock prices is optimism. 00:01:09.210 --> 00:01:12.030 align:middle line:84% Yes, optimism has, increased but it's certainly not 00:01:12.030 --> 00:01:13.950 align:middle line:90% what I would call exuberant. 00:01:13.950 --> 00:01:15.660 align:middle line:84% And it certainly hasn't gone to the point 00:01:15.660 --> 00:01:17.220 align:middle line:84% where we'd call it euphoria, which 00:01:17.220 --> 00:01:19.360 align:middle line:90% is characteristic of a bubble. 00:01:19.360 --> 00:01:21.930 align:middle line:84% The second thing is overvaluation. 00:01:21.930 --> 00:01:23.650 align:middle line:90% I do think we're overvalued. 00:01:23.650 --> 00:01:26.610 align:middle line:84% I think we're about 6% overvalued or above the level 00:01:26.610 --> 00:01:28.710 align:middle line:84% we should average for the current quarter. 00:01:28.710 --> 00:01:31.030 align:middle line:90% But it's certainly not extreme. 00:01:31.030 --> 00:01:33.250 align:middle line:84% And the final thing, which is probably the most important 00:01:33.250 --> 00:01:34.830 align:middle line:90% of them all, is leverage. 00:01:34.830 --> 00:01:36.480 align:middle line:84% And we look at the leverage numbers, 00:01:36.480 --> 00:01:39.540 align:middle line:84% the level of margin debt relative to the entire market. 00:01:39.540 --> 00:01:42.060 align:middle line:84% And quite frankly, it's nowhere near what we saw, 00:01:42.060 --> 00:01:45.990 align:middle line:90% say, in the 2000 dot-com bubble. 00:01:45.990 --> 00:01:47.250 align:middle line:90% So I'd say for the broad market. 00:01:47.250 --> 00:01:49.830 align:middle line:84% Now there are examples within the market, 00:01:49.830 --> 00:01:51.570 align:middle line:84% and Bitcoin is certainly one of them. 00:01:51.570 --> 00:01:55.650 align:middle line:84% GameStop, well, that depends on the day you're looking at it. 00:01:55.650 --> 00:01:59.070 align:middle line:84% Where I do think, let's say Bitcoin anyway, where 00:01:59.070 --> 00:02:01.140 align:middle line:90% that is an example of a bubble. 00:02:01.140 --> 00:02:04.470 align:middle line:84% This is the second time we've gone through this with Bitcoin. 00:02:04.470 --> 00:02:08.250 align:middle line:84% And it's very hard to explain why I call it a bubble. 00:02:08.250 --> 00:02:09.900 align:middle line:84% But just take a look at the chart. 00:02:09.900 --> 00:02:11.280 align:middle line:84% And if you take a look at the chart, 00:02:11.280 --> 00:02:13.830 align:middle line:84% you'll get a pretty good idea what a bubble looks like. 00:02:13.830 --> 00:02:17.523 align:middle line:84% And you need to be very careful when you do that. 00:02:17.523 --> 00:02:19.190 align:middle line:84% BRIAN SOZZI: Hugh, if you could put your economist 00:02:19.190 --> 00:02:20.690 align:middle line:90% hat for a moment. 00:02:20.690 --> 00:02:24.440 align:middle line:84% So Tesla is going out there and buying $1.5 billion 00:02:24.440 --> 00:02:26.930 align:middle line:90% worth of Bitcoin. 00:02:26.930 --> 00:02:28.700 align:middle line:84% What could the economic impact of that 00:02:28.700 --> 00:02:30.510 align:middle line:84% be if more companies follow that lead? 00:02:30.510 --> 00:02:33.680 align:middle line:84% Theoretically, you're sucking dollars out of the system. 00:02:33.680 --> 00:02:36.460 align:middle line:84% Does that have an economic effect? 00:02:36.460 --> 00:02:38.110 align:middle line:84% HUGH JOHNSON: Well, the real question 00:02:38.110 --> 00:02:42.490 align:middle line:84% is not so much whether people from Tesla are buying Bitcoin. 00:02:42.490 --> 00:02:44.830 align:middle line:84% The real question is, to what extent 00:02:44.830 --> 00:02:49.990 align:middle line:84% will Bitcoin be accepted as a sort of a legal currency? 00:02:49.990 --> 00:02:52.300 align:middle line:84% In other words, to what extent will it become widespread 00:02:52.300 --> 00:02:54.070 align:middle line:90% and accepted as a currency? 00:02:54.070 --> 00:02:56.230 align:middle line:84% Because until that happens, it's hard for me 00:02:56.230 --> 00:02:58.180 align:middle line:84% to believe that it's going to have 00:02:58.180 --> 00:03:00.830 align:middle line:90% any real legs as a company. 00:03:00.830 --> 00:03:04.220 align:middle line:84% So that to me is really one of the defining moments. 00:03:04.220 --> 00:03:06.340 align:middle line:84% Another thing we're going to look at-- 00:03:06.340 --> 00:03:09.490 align:middle line:84% as we move along here-- is the level of regulation. 00:03:09.490 --> 00:03:11.050 align:middle line:84% I think there's going to be regulation. 00:03:11.050 --> 00:03:13.210 align:middle line:84% I'm sure the people at the Federal Reserve-- 00:03:13.210 --> 00:03:16.600 align:middle line:84% when you really think about it, when people talk about it 00:03:16.600 --> 00:03:18.800 align:middle line:84% becoming an accepted currency-- the people 00:03:18.800 --> 00:03:21.610 align:middle line:84% of the Federal Reserve would be very concerned about it. 00:03:21.610 --> 00:03:24.760 align:middle line:84% What's that going to do if it ever wants to become a reality 00:03:24.760 --> 00:03:27.080 align:middle line:84% and it's not going to become a reality? 00:03:27.080 --> 00:03:29.110 align:middle line:84% But if it were to start to move in that direction, 00:03:29.110 --> 00:03:32.740 align:middle line:84% would they accept that and have to include that in there? 00:03:32.740 --> 00:03:34.930 align:middle line:84% Obviously, as they try to manage the money 00:03:34.930 --> 00:03:38.800 align:middle line:84% supply in order to manage the economy. 00:03:38.800 --> 00:03:41.380 align:middle line:84% From a fundamental point of view, I just don't see it. 00:03:41.380 --> 00:03:42.850 align:middle line:84% From a speculative point of view, 00:03:42.850 --> 00:03:45.400 align:middle line:84% sure, you might jump on board and make some money. 00:03:45.400 --> 00:03:46.960 align:middle line:84% But from a fundamental point of view, 00:03:46.960 --> 00:03:49.600 align:middle line:84% does Bitcoin in my judgment have a future 00:03:49.600 --> 00:03:51.370 align:middle line:90% as an accepted currency? 00:03:51.370 --> 00:03:56.360 align:middle line:84% The answer to that question is clearly no. 00:03:56.360 --> 00:03:58.280 align:middle line:84% MYLES UDLAND: You know, Hugh, how hard is it right now 00:03:58.280 --> 00:04:01.820 align:middle line:84% to talk with your clients about fundamentals 00:04:01.820 --> 00:04:02.930 align:middle line:90% and back to basics? 00:04:02.930 --> 00:04:04.460 align:middle line:84% I mean, we're sitting here talking 00:04:04.460 --> 00:04:06.240 align:middle line:90% GameStop, Tesla, Bitcoin. 00:04:06.240 --> 00:04:09.350 align:middle line:84% And I can't imagine that you have folks calling you up who 00:04:09.350 --> 00:04:10.760 align:middle line:90% want to talk about much else. 00:04:10.760 --> 00:04:13.910 align:middle line:84% I mean, this is a phenomenon right now. 00:04:13.910 --> 00:04:15.860 align:middle line:84% What's that dynamic like right now? 00:04:15.860 --> 00:04:18.000 align:middle line:84% HUGH JOHNSON: Yeah, it's exactly what you said. 00:04:18.000 --> 00:04:19.700 align:middle line:84% I don't go into a meeting with everybody 00:04:19.700 --> 00:04:23.210 align:middle line:84% asking me that question, what's going on there? 00:04:23.210 --> 00:04:26.490 align:middle line:90% To what extent is it rational? 00:04:26.490 --> 00:04:27.710 align:middle line:90% Which it's not. 00:04:27.710 --> 00:04:31.460 align:middle line:84% To what extent is it going to impact the broader markets? 00:04:31.460 --> 00:04:33.260 align:middle line:84% And you just have to cross your fingers 00:04:33.260 --> 00:04:36.890 align:middle line:84% and say, well, look, this is sort of casino like. 00:04:36.890 --> 00:04:39.230 align:middle line:90% It's clearly very speculative. 00:04:39.230 --> 00:04:42.350 align:middle line:90% I understand why people do it. 00:04:42.350 --> 00:04:43.970 align:middle line:84% You get to buy stocks for nothing. 00:04:43.970 --> 00:04:46.100 align:middle line:90% It's very easy to buy stocks. 00:04:46.100 --> 00:04:48.090 align:middle line:84% And some people are making a lot of money. 00:04:48.090 --> 00:04:50.900 align:middle line:84% And when some people are making a lot of money, that creates 00:04:50.900 --> 00:04:54.530 align:middle line:84% this sort of monkey see, monkey do environment 00:04:54.530 --> 00:04:56.120 align:middle line:84% where other people jump on board and it 00:04:56.120 --> 00:04:58.460 align:middle line:90% becomes even more speculative. 00:04:58.460 --> 00:05:00.680 align:middle line:84% My only answer to that is, look, I've seen 00:05:00.680 --> 00:05:02.630 align:middle line:90% this many times in the past. 00:05:02.630 --> 00:05:05.330 align:middle line:84% I've seen where the markets have become very speculative. 00:05:05.330 --> 00:05:07.550 align:middle line:84% I'm a little bit surprised at the lack of liquidity 00:05:07.550 --> 00:05:09.140 align:middle line:90% in some of these issues. 00:05:09.140 --> 00:05:11.240 align:middle line:84% But I've seen this many times in the past. 00:05:11.240 --> 00:05:13.070 align:middle line:90% And in time, it will die out. 00:05:13.070 --> 00:05:17.570 align:middle line:84% I'm very hopeful, very hopeful that this will 00:05:17.570 --> 00:05:19.370 align:middle line:90% not impact the broader market. 00:05:19.370 --> 00:05:22.010 align:middle line:84% And we have to introduce things like circuit breakers 00:05:22.010 --> 00:05:26.180 align:middle line:84% or some sort of a response to the level of volatility 00:05:26.180 --> 00:05:27.140 align:middle line:90% that this is creating. 00:05:27.140 --> 00:05:31.170 align:middle line:84% The volatility now is limited to a few issues. 00:05:31.170 --> 00:05:32.960 align:middle line:90% It's not broad or widespread. 00:05:32.960 --> 00:05:33.860 align:middle line:90% That's OK. 00:05:33.860 --> 00:05:35.150 align:middle line:90% And hopefully, it'll die out. 00:05:35.150 --> 00:05:36.650 align:middle line:90% It won't become widespread. 00:05:36.650 --> 00:05:39.950 align:middle line:84% If it becomes widespread, such as the '87 crash-- 00:05:39.950 --> 00:05:42.620 align:middle line:84% good example-- then we're going to start to introduce 00:05:42.620 --> 00:05:46.990 align:middle line:84% regulations to try to reduce the level of volatility, 00:05:46.990 --> 00:05:53.020 align:middle line:84% and to basically help the credibility of the markets. 00:05:53.020 --> 00:05:55.840 align:middle line:84% JULIE HYMAN: Hey, Hugh, I want to get back to fundamentals 00:05:55.840 --> 00:05:58.940 align:middle line:84% here for a moment, and ask you about the reaction 00:05:58.940 --> 00:06:00.140 align:middle line:84% that we've been seeing in the market 00:06:00.140 --> 00:06:01.360 align:middle line:90% to some earnings reports. 00:06:01.360 --> 00:06:04.660 align:middle line:84% This is something that was in this morning's Yahoo Finance 00:06:04.660 --> 00:06:06.250 align:middle line:84% morning brief, which pointed out we're 00:06:06.250 --> 00:06:07.970 align:middle line:84% really seeing sort of buy the rumor, 00:06:07.970 --> 00:06:09.580 align:middle line:90% sell the fact phenomenon. 00:06:09.580 --> 00:06:11.200 align:middle line:84% And a lot of companies that are beating 00:06:11.200 --> 00:06:14.380 align:middle line:84% estimates this season, they're either not reacting 00:06:14.380 --> 00:06:16.640 align:middle line:90% or they're actually selling off. 00:06:16.640 --> 00:06:17.740 align:middle line:90% What do you make of that? 00:06:17.740 --> 00:06:20.140 align:middle line:84% What do you make of that sort of expectations 00:06:20.140 --> 00:06:23.780 align:middle line:84% versus reality game when it comes to earnings right now? 00:06:23.780 --> 00:06:24.880 align:middle line:84% HUGH JOHNSON: Well, you're right. 00:06:24.880 --> 00:06:26.320 align:middle line:90% The earnings are coming in. 00:06:26.320 --> 00:06:27.620 align:middle line:90% It's unbelievable. 00:06:27.620 --> 00:06:31.730 align:middle line:84% Earnings for the fourth quarter are much better than expected. 00:06:31.730 --> 00:06:34.360 align:middle line:84% Some of the comments that are being made by executives 00:06:34.360 --> 00:06:36.850 align:middle line:84% in some of the conference calls that we've 00:06:36.850 --> 00:06:38.620 align:middle line:84% had after the earnings announcements 00:06:38.620 --> 00:06:40.480 align:middle line:90% have been a little more tepid. 00:06:40.480 --> 00:06:43.690 align:middle line:84% They're doing exactly what they always do, which is to say, 00:06:43.690 --> 00:06:45.040 align:middle line:90% yeah, we had a great quarter. 00:06:45.040 --> 00:06:48.370 align:middle line:84% We beat expectations, whether it's revenues or earnings. 00:06:48.370 --> 00:06:50.140 align:middle line:84% But we think that the future is probably got 00:06:50.140 --> 00:06:53.440 align:middle line:90% some very big question marks. 00:06:53.440 --> 00:06:56.200 align:middle line:84% And so they're trying to water down or reduce estimates 00:06:56.200 --> 00:06:57.150 align:middle line:90% for the coming quarters. 00:06:57.150 --> 00:06:59.110 align:middle line:84% I don't say it's intentional so that they 00:06:59.110 --> 00:07:00.580 align:middle line:90% can beat those estimates. 00:07:00.580 --> 00:07:03.190 align:middle line:84% But let's put it this way, some of the comments 00:07:03.190 --> 00:07:05.500 align:middle line:84% that we're hearing in the conference calls 00:07:05.500 --> 00:07:08.723 align:middle line:90% are a little less optimistic. 00:07:08.723 --> 00:07:10.690 align:middle line:84% And I think that's one of the reasons you see the sell out. 00:07:10.690 --> 00:07:12.400 align:middle line:90% But there is that old adage-- 00:07:12.400 --> 00:07:16.060 align:middle line:84% as you mentioned, you buy on the rumor and you sell on the news. 00:07:16.060 --> 00:07:18.340 align:middle line:84% And when the news comes out and it's a very good news, 00:07:18.340 --> 00:07:21.280 align:middle line:84% it's really good news, a lot of Wall Street professionals 00:07:21.280 --> 00:07:22.680 align:middle line:90% know that and they do sell. 00:07:22.680 --> 00:07:26.260 align:middle line:84% But believe me, the comments we're getting from some 00:07:26.260 --> 00:07:28.090 align:middle line:84% of the chief executive officers are 00:07:28.090 --> 00:07:32.950 align:middle line:84% a little bit more watered down than the earnings 00:07:32.950 --> 00:07:33.940 align:middle line:90% and revenue results. 00:07:33.940 --> 00:07:37.400 align:middle line:84% So that I think is one of the reasons for-- 00:07:37.400 --> 00:07:38.710 align:middle line:84% that doesn't mean, it hasn't been 00:07:38.710 --> 00:07:39.970 align:middle line:90% a really good earnings season. 00:07:39.970 --> 00:07:41.910 align:middle line:90% It's been great. 00:07:41.910 --> 00:07:43.890 align:middle line:84% BRIAN SOZZI: Well, Hugh, what's not been watered down 00:07:43.890 --> 00:07:46.860 align:middle line:84% or what wasn't watered down is Treasury Secretary Janet Yellen 00:07:46.860 --> 00:07:50.820 align:middle line:84% over the weekend, saying she could see potentially full 00:07:50.820 --> 00:07:53.730 align:middle line:84% employment happening in 2022, in large part 00:07:53.730 --> 00:07:56.610 align:middle line:84% I'm sure powered by various stimulus measures. 00:07:56.610 --> 00:07:59.180 align:middle line:84% If we do go back to full employment next year, 00:07:59.180 --> 00:08:01.656 align:middle line:90% where's the S&P 500? 00:08:01.656 --> 00:08:04.540 align:middle line:84% HUGH JOHNSON: The S&P 500 is fully valued right now. 00:08:04.540 --> 00:08:06.160 align:middle line:90% As I mentioned, it's overvalued. 00:08:06.160 --> 00:08:08.920 align:middle line:84% I don't think there's much upside potential between now. 00:08:08.920 --> 00:08:11.050 align:middle line:90% I think all of the good news-- 00:08:11.050 --> 00:08:13.780 align:middle line:84% even from the stimulus, even from the success 00:08:13.780 --> 00:08:15.550 align:middle line:90% of the vaccine program-- 00:08:15.550 --> 00:08:18.100 align:middle line:84% the good news that we're going to see in 2021 00:08:18.100 --> 00:08:20.800 align:middle line:90% is in the market, not 2022. 00:08:20.800 --> 00:08:22.560 align:middle line:84% We still haven't gotten that in the market. 00:08:22.560 --> 00:08:23.980 align:middle line:90% So we still have some upside. 00:08:23.980 --> 00:08:27.560 align:middle line:84% We still have to get 2022 into the market. 00:08:27.560 --> 00:08:30.580 align:middle line:84% But quite frankly, I think that's very 00:08:30.580 --> 00:08:31.810 align:middle line:90% optimistic of Janet. 00:08:31.810 --> 00:08:33.730 align:middle line:90% I think she's a great economist. 00:08:33.730 --> 00:08:36.400 align:middle line:84% I look at 2021 as the year when we're 00:08:36.400 --> 00:08:39.190 align:middle line:84% going to get output or GDP back to levels 00:08:39.190 --> 00:08:40.520 align:middle line:90% that were pre-pandemic. 00:08:40.520 --> 00:08:43.030 align:middle line:84% But the employment numbers are just not going to get 00:08:43.030 --> 00:08:46.240 align:middle line:90% there until we get to 2023. 00:08:46.240 --> 00:08:47.560 align:middle line:90% Now, this could be wrong. 00:08:47.560 --> 00:08:49.750 align:middle line:84% And the reason it could be wrong is that I could 00:08:49.750 --> 00:08:54.010 align:middle line:90% be really underestimating GDP. 00:08:54.010 --> 00:09:00.790 align:middle line:84% Right now, I'm at GDP for, say, 4% for 2021, 3.5% for 2022. 00:09:00.790 --> 00:09:02.770 align:middle line:84% Some very able economists are telling 00:09:02.770 --> 00:09:05.350 align:middle line:90% me, Hugh, you're much too down. 00:09:05.350 --> 00:09:07.040 align:middle line:90% You're way too low. 00:09:07.040 --> 00:09:13.060 align:middle line:84% It should be 5.5% for 2021 and 4.4% for 2022. 00:09:13.060 --> 00:09:16.450 align:middle line:84% Under those conditions, we'll get probably better employment 00:09:16.450 --> 00:09:20.230 align:middle line:84% numbers and we may get close to the pre-pandemic levels 00:09:20.230 --> 00:09:22.240 align:middle line:90% in 2022. 00:09:22.240 --> 00:09:25.060 align:middle line:84% But believe me, that's, I mean, I have a lot 00:09:25.060 --> 00:09:26.230 align:middle line:90% of respect for Janet Yellen. 00:09:26.230 --> 00:09:27.670 align:middle line:90% I think she's wonderful. 00:09:27.670 --> 00:09:30.460 align:middle line:84% But I think that's a little bit of a stretch quite frankly. 00:09:30.460 --> 00:09:36.460 align:middle line:84% I think it's 2023 when we recover the employment numbers. 00:09:36.460 --> 00:09:37.560 align:middle line:84% JULIE HYMAN: Hugh Johnson of Hugh 00:09:37.560 --> 00:09:39.780 align:middle line:84% Johnson Advisors, the Chairman and Chief Economist there. 00:09:39.780 --> 00:09:41.590 align:middle line:84% Hugh, it's always a pleasure to talk to you. 00:09:41.590 --> 00:09:43.420 align:middle line:84% Thanks for your time this morning. 00:09:43.420 --> 00:09:45.170 align:middle line:90% HUGH JOHNSON: My pleasure.