Session 137–“What Tom Lee likes … “

It’s 2:00 PM CST, Wednesday afternoon, December 10, 2014, and the markets are in the tank (DJII -278, S&P 500 -34 and NASDAQ comp. -79). The market is in flight over the continuing drop in crude prices (WTI, @ $61.37/bbl -$2.45). Ali al-Naimi. Saudi Oil Minister responding to a reporter earlier in the day, said, “Why should we cut production? Why?” Iranian President Rouhani blamed fall in prices on “Treachery” (US/ Saudi Treachery). To my knowledge Mr. Putin had not yet weighed in. Meanwhile, The Street is flowing red with ‘energy blood’ and the media is having a field day turning this economic ‘silk purse’ into a ‘sow’s ear’.

According to Tom Lee (Founder, Fundstrat Global Advisors), this sharp drop in crude bodes well for every major industrial nation (China, Japan and the Eurozone (including the UK), anyone not energy self sufficient. This is not to mention energy savings for the developing world or relief amounting to $66 billion dollars for the American consumer … a cool $200 per capita, BTW.

So, what does Tom Lee like in 2015?

“What Tom Lee likes in 2015” aired Wednesday morning, 12/10. I will let you watch via the link for details. I will point out Lee has been consistently positive in his market call (i.e. correct) over the past few years, and he thinks a good contrarian call would be to look at energy. Most importantly, the clip gets at the heart of the media contribution to what appears to be a burgeoning panic/ opportunity in energy. It is a quintessential example of the media (esp. CNBC) spinning a good news story into a potential disaster. But, Tom Lee stands his ground, even vs. formidable leading questions from tough guys like the lovely Sara Eisen.

Sara was all bothered by deflation and the impact this big drop in crude would have on future prints of the CPI. She speculated, ‘what if they go negative?’ Mr. Lee rightly pointed that was not a problem, because we don’t count food and energy in that number. The big movers would be labor and housing costs. Sara should have known this before posing the stupid question.

A few Take-aways

• It is year end and money managers will make short-term moves to protect returns, not necessarily prudent moves, that exaggerate the downside in out-0f-favor groups and names. On top of this, for taxable investors, losers are being sold to offset gains. These phenomena (akin to ‘throwing in the kitchen sink’) create valuation overshoots on the downside that create opportunities. In the case of the energy sector by year-end anyone who ever wanted to sell these names may be out.
• Rather than argue with the negative environment, it is good to realize we are ending five very good years in the market. A prolonged downside would not be extraordinary.
• Alas, ‘if the heat gets too hot in the kitchen’, Mr. Putin might try using his Crimean Fleet to enforce some ‘gunboat diplomacy’ in the Persian Gulf. This would really tank the market, but not forever.

What is your take?

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