Markets hold strong for second day rally

Ted Oakley, Oxbow Advisors Managing Partner, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Heidi Chung to discuss the impact of coronavirus on the markets.

Video Transcript

BRIAN SOZZI: I do want to bring in Ted Oakley, Oxbow Advisors managing partner. Ted, always good to see you here. So a second straight rally in these markets. Do you think investors just being too optimistic on the coronavirus peaking perhaps in a week or two?

TED OAKLEY: You know, Brian, I do. I think that they're really not looking at what's going on in the real world right now. I mean, I don't think they understand at all what's happening with a cash crunch on businesses and people. And they've been waiting. We've had so many people waiting around to try to catch the bottom here. And that's typically not what you see when it's all over.

ALEXIS CHRISTOFOROUS: Alexis here. We're seeing that travel and leisure stocks are among the best performers today, not only here, but in Europe as well. We know that their troubles aren't going to be magically over. Is this just investors jumping in here at attractive valuations for the short term?

TED OAKLEY: Well, you know, Alexis, I'm not certain you know what attractive valuations are right here. Because you can't really tell what's going to happen. See, there is no visibility in these companies. And people try to catch in and catch a trade and catch the low. And I've seen this before in bear markets. It doesn't work. I mean, they end up giving it all back in the long run. So I think that's what you're seeing on those stocks right now.

HEIDI CHUNG: Good morning, Ted. It's Heidi Chung here. So we have the big banks reporting earnings next week, which will kick off earnings season. I want to get your overall thoughts on this upcoming earnings season. And of course we've got a lot of preannouncements regarding COVID, a lot of companies withdrawing their outlook as well. So what are you seeing this upcoming earnings season?

TED OAKLEY: Well, I think they're going to try to put a positive spin on it. But the problem about banks right now is really the yield curve, when you look at it. And they're having a problem. I mean, I also-- I'm a shareholder in a private bank as well, and I know the problems they're having. And that's something I don't think they can overcome in the short run.

It's not an area where we're invested. We don't own any banks. And I don't think that's an area where we will be for some time.

BRIAN SOZZI: Ted, it sounds as though you're preparing for another move down in the markets, or next leg down. How are you positioned? What type of trades, what type of positions are you making in advance of that downturn?

TED OAKLEY: Well, you know, Brian, our cash levels are high. What I think investors should do on this move up right here, the last two days, is they will-- they'll think about it and what lies ahead of them. They would probably try to increase their quality, get rid of companies with a lot of debt that's not-- they're really not going to perform over the next three or four months, even though they bounced.

And what we tried to do too is improve quality. But we're carrying high levels of cash, somewhere between probably, on average, around 30% more than likely. But I don't think we'll change that right here. We would-- if we got prices where we wanted them, we would change it.

ALEXIS CHRISTOFOROUS: And Ted, what about airline stocks? Are you-- do you hold any airline stocks right now, and if so, what are you doing with them?

TED OAKLEY: You know, Alexis, we don't hold any right now. I don't think we would be buying them. First of all, they're the types of stocks, anyway, that you don't really own for five or six years. You know, they're normally two-year stocks or three-year stocks, which is not something we like to do.

[INAUDIBLE] whole course of airline business, in looking at it, I've never really thought the business was a moneymaker. I go back and show you, really companies that go back 30, 40 years. And when you net it all down, they don't make a ton of money. So we're not big in the airlines at all.

BRIAN SOZZI: Ted, I'm always interested in how-- especially now, how managers are talking to their clients in this type of environment. What has this been like for you managing through, let's say, the past two to three marks? The past two to three weeks, we're seeing wild swings to the downside. Now we're seeing these-- really these face-ripping rallies here on the street.

TED OAKLEY: I think you have to give them something, Brian. I mean, in our case, we let them know that, hey, you're not in a period of economic visibility right here at all. So what you're doing becomes a bit speculative in a way.

And we try to let investors-- our investors know, anyway, that we've got a fairly decent cash buffer. And you probably need that if you're going to have some peace of mind right here. Because anybody that tells me right now that they have economic visibility is obviously not looking at the same thing we are.

ALEXIS CHRISTOFOROUS: [LAUGH] Ted, what about outside US equities right now? I mean, you said you're holding onto more cash than usual. But to the extent that you're in the market, what else are you looking at outside of US equities?

TED OAKLEY: Mostly in the consumer staples area, Alexis. You know, if you look at it, we own Unilever. We own Nestle, companies like that. I mean, we're not looking to buy-- we do own a few companies, small positions in China. But, I mean, in general, our portfolio is more US. But more of what we own, the bigger positions we own really would probably be in consumer staples and that area.

BRIAN SOZZI: I think Heidi had a question.

HEIDI CHUNG: Oh, Ted, I just wanted to get your quick thoughts on that OPEC-Plus meeting that's coming up on Thursday, just commodity in general, oil, and as well as the energy sector. What are your thoughts there?

TED OAKLEY: Heidi, I think-- and I've been around the oil and gas business for a long time because we're in Austin, Texas. So I can talk to that. And what happens is this happens a lot of times when you get a lot of what I would say window dressing from this group. I think the biggest problem they're going to have is they can move that number all right, but they can't change the demand side.

We see the biggest problem right now on the demand side. And if you can't pick up demand, then whatever they've got will have very little influence in the long run. I mean, maybe it bounces to $30. It could. But I think in the long run, you're going to have to bring demand back, or you won't change the situation.

BRIAN SOZZI: All right, let's leave it there. Ted Oakley, Oxbow Advisors managing partner. I share your sentiment. Cash is king right now. We'll talk to you soon.

TED OAKLEY: All right, Brian. Thanks.