The Fed actions are like ‘chicken noodle soup’: Munson

Portfolio Wealth Advisors President and CIO Lee Munson sits down with Yahoo Finance Live to discuss the Fed's decisions on interest rate hikes, opportunities in energy amid rising oil prices, and commodity price actions.

Video Transcript

BRAD SMITH: And joining us now for more on today's market momentum, plus what the expectation is for the Fed tightening path from here, is Lee Munson, Portfolio Wealth Advisors president and CIO. Lee, great to speak with you here this afternoon. First and foremost, with the levels that Jared was just pointing out and so skillfully giving us some of the markers, where we should continue to keep our eyes on, on the longer term and some of those levels that we may retest and try to get through, with that in mind, the move from the Fed was widely telegraphed. So why are we seeing this kind of relief rally perhaps on even a very telegraphed move from the Fed?

LEE MUNSON: You know, everybody expects me to know the answer to these things because a lot of times, I do have the answer. I think most of this has to do with the relief that we got past this Fed move. And let me tell you something. I know-- we all know here because we read this stuff, right, that in December, the Fed said what they were going to say today. You know, we're going to look at tapering off, we're going to do a quarter point rate.

But only a few weeks ago, we still had many market participants. I had clients that called me and said, you know, the Fed's probably going to raise 50 basis points or more. And have you heard what Ballard-- you know, Bullard from Dallas has said? This is a classic example where-- and I don't want to throw media under the bus here, but investors and media were so hopped up, listening to one lone wolf from the Fed from Dallas talk about his outrageous expectations as hawkish thing. Like, we should be up 3% on the Fed rates by the end of the year. But people don't really look at what the status quo is.

The Fed is like milquetoast. It's chicken noodle soup. They tend to just take this, like, nice, boring path forward. But we want to think that there's more to it because inflation picks up. I also think that there's this idea that peace could break out in the Ukraine, that we could start having talks. There's this hope springs eternal. And then I think you add a little short covering to the mix, and there you go. Don't discount what happened in China earlier this week with the government coming in and saying, fine. We're going to blink. We're going to start propping up the stock market.

So for those that were dying and languishing in emerging markets yesterday, we had this big pop. And I think that, in general, changed the mood now that we have this perception that China is going to play ball with the Western capital markets, and not try to continue to have this regulatory issue. Because let's be real. The zero-COVID policy kind of makes people in the West nervous as far as China's GDP. But when you look at the actual numbers in China, they're back to pre-COVID levels already.

So this was just sort of the icing on the cake. Who knows? I think that we could still go lower and try to test a little bit. I think I want to be in other-- some places more than others. And I've started selling my gold as of last week. You know, I want to take that money off the table and added things that have done well.

RACHELLE AKUFFO: And to that point then, how should investors think about rebalancing at this point, once we see where the Fed is starting and where they plan on going with the rate hikes and the policy tightening as well?

LEE MUNSON: I think you need to be rebalancing to an overweight in the US stock, period. I'm overweight. I'm going to remain overweight. And until I see some more high water marks on broad US, not necessarily the NASDAQ-- it's got-- the NASDAQ is like the Fed. It's got a lot of work. But I think you should-- if you're not heavy in US small or large value, or you have a smaller position in that, I think that that asset class since the beginning of the year has showed what it's made of. I mean, just look at the Dow transports. They're positive for the year.

Nobody's talking about this. Helene Meisler, who's, like, my chart goddess, you know, has been saying all week, why isn't anybody talking about the breakout in transports? I mean, you could be making money right now. And so when you sort of extend that out to the broader US value markets, whether it's large or small, they're only down, like, 2% to 3% year to date. The NASDAQ's still languishing down almost 15. And the S&P, you know, is down 8 or something like that.

So I think you have to go where money's been treated well this year. I think that you have to remember that if you're heavy in that NASDAQ tech trade, certainly, it's going to bounce, right? Certainly, PayPal, for instance, this week, very interesting. Amazon is trying to show signs of life. But when you have those type of losses, that type of damage, especially on the individual level, it can become dead money. Just remember about Cisco Systems 22 years ago. Great run-up, goes down, bounces, dead money for a dozen years. Don't let that happen to your portfolio.

BRAD SMITH: For those who are looking at commodities and where that could play a role in their portfolio as of right now, where are you advising? Where are you looking at perhaps even adding more, taking some off from your own positions right now?

LEE MUNSON: So here's what I'm doing. Number one, if all you do is look at stock markets, don't think that you're going to be a commodity expert just because you see a squiggly line shoot up, right? I've been trading gold since I was like-- well, actually, gold was the first thing I ever started trading when I was six years old. I learned about bubbles back then in 1981. So I've been taking-- meaning that I had bad timing.

The thing about gold, it made this parabolic blow-off last Tuesday. I got lucky and sold near the top on Tuesday, hoping it would continue. But that's where I took half my position off because I only wanted to see gold above 2,000 an ounce. I'm not like Goldman Sachs here, saying, oh, my gosh, it's breaking out. It's going to be 2,500 by the end of the year. So I took half my gold off, half my silver, because it got to the level that I thought it was going to back in late 2020. It's taken 18 months to get there.

Secondly, today, I started taking off a little bit of my gold miners. I'm in junior gold miners. They've had a great run. I hope they go up. But I took off maybe a quarter to a third of that position because when you see this type of ramp-up, there's something wrong with commodities. There's something wrong with gold and broader commodities. I think investors should take profits. If you don't have exposure, I don't think this is the time to do it. I think that from here, going forward, you can make more money in beat-up stocks, especially ones in, as my buddy, Tony [? Dryer, ?] always likes to say, banks, tanks, cranks, and shanks, you know, that value play. And I still think that that's going to have legs between now and the end of the year.

RACHELLE AKUFFO: And Lee, just very quickly, we're seeing oil prices now back above $100 a barrel on some of this renewed concern from the International Energy Agency that Russian sanctions are expected to squeeze supply, and even lower demand wouldn't offset that. What are you keeping an eye on there?

LEE MUNSON: Well, first of all, what we always have to go back to is look at what the news came out back in December, January, and February. A large minority of OPEC countries cannot meet their targets. Russia hasn't-- Russia has been short 30-- 50,000 barrels for months now, right? You have a few places like the Saudis that can increase capacity. So we knew back in December before Ukraine-- just take Ukraine out of it. We're going to have sticky energy prices going into and through the rest of this year, Ukraine or not, because OPEC, they just can't pump enough. We haven't had enough CapEx, capital expenditures, since the big decline back in 2014.

So I think that higher oil prices are here to stay. And take what you will. If you want to hold on to your Exxon and your energy positions, fine, I just wouldn't necessarily buy them up here. And I think that it's going to affect European-- the European economy. Last year, they spent a trillion more in energy costs. Their energy costs are four times the size. The economists put out a great thing a few weeks ago, where it was going through, like, you know, they think, like, maybe we can get 85% of capacity if we shut off from Russia. But look at-- Europe is shameful. Look at the UK. They said, we're going to keep taking certain things. We're just not going to take all of their thermal energy. Europe, Putin's got by the throat.

BRAD SMITH: Lee Munson, Portfolio Wealth Advisors president and CIO, joining us here this afternoon. Lee, always appreciate the insights, the energy that you bring as well. We'll have to have you back on to continue the discussion in the future.

LEE MUNSON: Thanks so much.