Market correction needed to clear out 'rubble': Nancy Tengler

As markets cool following the Nvidia-ld (NVDA) tech rally, CEO and CIO of Laffer Tengler Investments Nancy Tengler joins Market Domination Overtime to offer insights on current market and economic conditions.

Tengler is hopeful for a market correction, stating it would "clear out all the rubble" and ultimately benefit markets. She views such corrections as opportunities for long-term investors to find favorable entry points. Drawing parallels to the 1990s, Tengler suggests, "We're not at the 1999 end of the decade; we're in the middle of the decade."

Tengler downplays the importance of Federal Reserve policy, noting that even if rates are cut once this year, it's unlikely to impact market dynamics significantly. She cautions against letting mixed Fed communications drive portfolio decisions.

For investment strategy, Tengler recommends focusing on "old economy companies" with "long-term secular tailwinds." She cites Walmart (WMT) as an example, highlighting its integration of AI into its legacy business model. "These are companies that have pivoted, and those are the ones we want to own," she advises.

However, Tengler expresses concern about the state of the consumer, particularly noting that low- to mid-income consumers "are getting squeezed" in the current economic environment.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Angel Smith

Video Transcript

Stocks closing near the flat line as the tech led rally shows some signs of fatigue while investors also assess the broader health of the economy and the path for interest rates here to discuss all of it is Nancy T CEO and Cio of Laffer 10 investments.

Good to see you, Nancy.

Thanks for having me.

So I know that you guys, I want to start with and that sort of divergence that, that Jared was just highlighting.

I know you like some big tech names, but I am curious if you're seeing those signs of fatigue as something that are gonna last a little more or is it just brief?

I, I mean, I, I actually hope because this is the way the market works that we get a correction that will clear out kind of all the rubble.

Um I, we get 1 10% every 12 months on average and we haven't had one for a while.

So I think it would be good for markets, but I don't know that we're gonna see that.

What's a catalyst for that?

I mean, it could be the fed and we'll get to, you got some really interesting comments about the fed.

I wanna get to.

But what is the catalyst for a correction here?

I think when all the hedges go to the Hamptons and that hasn't happened or is that in process?

I think it's a little early.

Yeah.

Um, you know, there'll just be a lack of it.

It'll be a buyer strike.

And I think, you know, that, that makes sense if you're a short term focused trader, like the hedge fund and al go guys are we're long term investors.

So we use that volatility as an opportunity to step in as we did in, you know, the fall of 22 and the fall of 23.

Um certainly there's names we've been trimming.

Uh but, but I still like the trade.

This my analogy has been pretty clear back to the nineties when I was managing money.

Um I don't think either one of you were born yet, but that's very kind of you Nancy.

But uh you know, it was a productivity fueled growth run.

And I think, you know, a lot of similarities, higher inflation above 3% for the decade, 10 years between five and 7% labor shortage converted inverted deal curve didn't matter what the did.

And so I, I think um I think that we are there.

Uh And we're not at the 1999 end of the decade, we're in the middle of the decade.

We've been writing about this for over a year and I think a lot of other people are starting to join in on that chorus, which I don't know if that's good or bad.

But, um, so does it matter what the fed does?

No, no, just full stop.

It doesn't matter what the fed does, why not.

Uh Because if they cut and I think they probably will, they're gonna cut once, maybe twice and there's really, there's really no major movement in that.

Uh And, and so when you go back to the nineties, Chairman Greenspan understood what productivity did for inflation.

And so he, he raised aggressively in 94 he cut twice in 95 once in early 96 and then let it ride for a couple of years.

And I think that's, that's why I believe higher interest rates and robust stock performance can coexist.

You know, you're talking about Greenspan.

Uh that was the age of irrational exuberance some time around there is, let me coin the phrase, but you're talking about the current fed and I love what you're titling one of your notes here.

Data dependent is a new transitory.

Has the fed just stepped in it here again.

I, you know, I've been so critical, I've, I'm starting to get pushed back.

But I think, you know, they waited too long, we know that to raise rates and then they, they flip flop on so many issues.

And I thought the really interesting parallel was Christine Lagarde at her press conference was, you know, she must have said out of dependent 20 times.

She also raised the inflation estimates and cut interest rates.

And their primary criterion for cutting rates was if wages rolled over.

But they actually went up and we're, we're kind of in that same environment here where at the last press conference, the chairman said, um you know, 2.6 to 2.7 isn't a bad place to be in regards to inflation.

That, that to me was a cue.

And then the, the press conference before that he talked about, you know, if labor softens, we're gonna, we're gonna get in there and, and act and, and labor is rolling over.

So I think they are itching to cut.

Uh they raised their uh inflation estimate too for this year and next year.

But the cuts still on the table.

So I think Fed speak is, is not worth yes, a hill of beans and maybe a hill of beans like you shouldn't let it drive your portfolio decisions.

So something you also said in this note that it was interesting because Mohammed A and it's also been a refrain of his is he also thinks the data dependence is too backward looking and he's looking at what companies are saying and listening to conference calls, which I know you were doing also.

So what's your takeaway from what companies are saying?

Oh, I love being on his team.

Um A good place to be my word.

He's always right.

Um, so what we've been hearing is Beat, beat and race and not across the board because certainly there were companies got nailed, but generally speaking across sectors.

And so it, it matters which companies you own, which management teams you're betting on.

But we, we saw from the company, specially in our 12 best ideas portfolio.

So, so think, um, Chipotle think.

Um, now, of course, I'm not gonna be able to think.

Um, well, Microsoft Beat and maintained.

Um yeah, Amazon Beat and ma and raised and so we had a number across segments that Goldman Beat beat and raised.

So these are in our 12 best ideas portfolios.

But then outside of that in industrials, we saw it uh in, in some consumer discretion.

So there, there are a lot of opportunities to, to make money if you're buying companies that are growing earnings and your investment.

The thesis theme has been investing in old economy companies that have pivoted to digitization, cloud computing, generative A I cloud computing and the suppliers of the picks and shovels.

So that's kind of what we're talking about here.

How far does this go?

Where is it?

What's the logical conclusion of this?

Well, it's been our theme for two years.

And so somebody said to me, we haven't changed very much and we don't, I mean, these are long term secular tailwinds.

So think about, think about Walmart and the improvement that they've seen in margins in sale, same store sales comps in earnings growth and it's been driven by digitization for sure, robotics, uh uh also generative A I in their advertising business.

Um and then e commerce, of course, cloud computing theres same with Amazon.

So you could, you can go across old economy companies.

And you know, Emerson Electric is, is another one of our holdings that is automating um data centers and, and industrial uh complexes you can look at carrier that's gonna cool those data centers that are getting built like crazy.

And you can also look at a company like Qantas Services which we own, which is building, you know, the infrastructure for the electrical expansion, electrical utility expansion.

I mean, I could go on forever, but these are companies that have pivoted and those are ones we wanna own.

So I wanna own a Walmart over a target, for example.

Yeah, a lot of good ideas for people.

I, I'm curious though as we talk, you're not worried about the fed, uh you know, upsetting the Apple cart.

What are you worried about it?

Because it sounds like you're pretty bulls here.

So what's I'm wor I'm worried about the consumer.

Um, and in our, in our ETF TGLR, we reduced our exposure to discretionary names because we think, and, and we reshuffled it a little bit.

I think the low end consumer and even the mid, mid range consumer is getting squeezed if you're a non managerial worker, it takes you 71.5 hours to pay your mortgage every month.

Your average hourly earnings have gone down.

Your savings rate has gone down to 3.6% versus 6.1 pre pandemic.

Credit is becoming hard to, to find.

But what may happen?

And we saw it with the industrial production numbers, you may see the manufacturing side of the economy pick up some of the slack a little bit.

Why if all of this is is happening, why hasn't inflation come down more?

Oh, it's so sticky.

So housing is on its way back up.

And I think it's because of the fiscal spending at the government level.

Um It's, it's really fueled the, the flames of the fiscal spending we're over.

That are, I mean, why aren't we over that?

I guess?

Yeah.

Well, there's, there's a lot that still hasn't been spent and I think it's embedded like if you've got the treasury financing huge amounts of debt at the short end of the yield curve, um that increases and sucks um capital out of the regular economy by having to service the debt.

We're gonna pay $870 billion according to CBO to service debt this year.

That means it's gonna be probably a trillion because their estimates are always wrong.

So that, that becomes another factor because the companies are still spending in our clean energy infrastructure strategy.

We've got, we've got company spending like crazy on manufacturing construction at the historical peak, we've never seen it this high that creates a multiplier effect in the economy.

And, and I think it's gonna, it's gonna continue.

And last thing I'll say is if the fed doesn't cut rates, housing is continue, is going to continue to be constrained and the prices of rent equivalent rent is gonna go up as well as housing prices.

My rent just got increased by 20%.

So I'm right there.

Yes.

Seriously.

And it's cumulative, right.

So, you've got like in Arizona where I spent half the year you've got, um, home insurance prices have gone up 62%.

Mine have gone up closer to 80 since January of 2020.

So to your point, it's cumulative, it's embedded and that's why I think it's gonna stay sticky for a while.

Nancy.

Really great to have you here on a Friday afternoon and talk.

We're Greenspan as well.

Thank you.