Lee let me let me ask you you have been concerned about the market and the heights of the market for some time you've been warning that that things could take a turn down and that you are less optimistic than others we keep hitting new highs and I just wonder when you think things would potentially be offset I know you're still not convinced that uh good times are here to stay yeah well I'm very concerned about two things one is uh the debt buildup you we have two candidates running for office neither one it talks about
the deficit uh or the buildup of debt you know in 2017 I think our national debt was $2 trillion and 7 years later it's $34 trillion that's a growth rate far next as the growth rate of the economy and that's going to be a problem one day we don't know the day but it's going to be a problem probably when we least expected and secondly I would say which kept me involved in the market is if the 10-year bond and belong to 3.76 where it is currently there very little in the market it's overvalued unless
the 3.76 is reflective of a coming recession and um if it's 376 X recession there's very little that's overvalued you know I go back to 1972 nifty50 when uh the the market is selling at a much bigger multiple than it's selling at now and the 10 and the Kya Government Bond was 65% and in 2000 Cisco which was the then present day Nvidia was selling a 380 times earnings Tenya government in 2000 was uh also 6% so at 3.76 there's nothing that's overvalued or very little that's overvalued so has the FED cutting rates pushed you
into a position where you're going to be putting a lot more into stocks no I'm reasonably fully invested but you I'm I'm investing North beat merchandise I have a 20% position in a bond that I think the government's behavior is disgraceful I've discussed about it before it's a little complicated have about 15% energy given what's going on in the Middle East I would think energy uh would be a place to have some money and then I have a lot of special situations so you know I'm not sitting on a lot of cash and I think
the FED cutting rates is cutting rates in the short end and I think the long rate is going to go up the 10 R go up as the FED reduces short rates so you get back to a posibly slope Fel curve does it make sense to you that the FED cut rates just looking at where you see the economy yeah I would say that the short rates are too high relative you know historically the 10year Government Bond is yielded in line with nominal GDP so if you have real growth of about 2 and a half%
you have inflation of 2 and A2 that would be 5% nominal GDP so 10 would not be uh overvalued at a 5% yield uh it wouldn't be undervalued I think the rates are going to go higher in the short end you know maybe you get 125 basis points over inflation so the rate doesn't belong at the current R 5% so I think that the the FED will cut short rates but it's not going to make much of a difference you don't use a short rate to Discount a long duration asset so your concerns about when
we will have a problem on our hands just in terms of when people won't buy the government debt um as you said it's probably coming at the the time we least expected how do you prepare yourself for that well you know I think look I may be too old you take me out behind the bar and shoot me I'm 81 years old uh I've been through a couple of uh you know bubbles 2000 bubble and a 1972 bubble uh and a be Market who he loses least loses loses wins so I would think that it's
going to be hard to prepare though I think stocks are the best place to be I would avoid bonds uh and uh you just don't know the timing you just don't know the timing you know uh in 1972 two very Civic wi citizens Pete Peterson and Henry F used to run full page ads in the journal in the times alerting the public to the evil of the budget and trade deficit here we are what 50 years later and the only significance has been that we have the lowest interest rates in our lifetime now I don't
think it's sustainable you know uh we had in the 70s the concept of guns and butter we have guns and butter now we're assisting in fighting two Wars and no one's focus on reducing the deficit and uh we're going UL we have crowding out that's my view so I'm I'm very concerned I'm concerned about the election outcome we got two people running for election I don't hear either one of them talking about uh the need to deal with our fiscal issues you know we we got to finance these wars it's uh we're not thinking about
it and whether the market forces this one day who the hell knows but I think it will and so that leads to my conservatism not outright bearishness but very conservative I think the market at 21 22 times earnings is fully valued does not allow for uncertainties that exist that's my view but I'm find plenty of things to do in the market I'll be honest with you I find plenty of things to do but everything I look at uh leavs me to be cautious you know everybody talks about stock repurchase and I would just observe what
the wise men does in the beginning the fool does in the end how many billions of dollars of stock you think Intel brought back how many billions of dollars stock that bed Bond Buy Back Now intel is now on government assistance and B and you know bed be of the Y the great retailer is in bankruptcy so there's no magic you know you you only makes sense to buy back your stock if it's cheap and if you're so far into a bull market maybe your stock isn't cheap maybe you're making a mistake Lee why don't
we talk about the things you are finding to do if you've got 15% in energy because you worry what's happening in the Middle East and and think that that will potentially Drive Energy prices higher where where are you looking Where have you invested the most well I have two large positions in two Canadian oil and gas companies Paramount resources have gr for a while stock yield 7% uh they have virtually no debt they're producing oil at $31 a barrel and they're following a strategy of increasing production so they're going to go from 100,000 barrels a
day of production to probably 150,000 over the next few years bringing down their average cost of production so you have a debt free company with a current dividend yield about 7% you know I find that's better than cash and another company that has written run by a very smart guy Michael Rose of uh taline you know one of the largest oil gas producers in Canada stock has a fat dividend yield overow over 5% uh and run by a very smart guy and uh I would think that given what's going on in the Middle East there's
a risk that oil prices move higher than we think um one that I have a very big position in but it's complicated is a company called the Legato which I've talked about in the past sure this this is a travesty of the US government in terms of their behavior these guys have $40 billion of assets and you can create in the market for a billion dollars at the end of the day they swing the government for $40 billion and I think that the L has a lot of Merit and I think the bonds are Miss
