In a recent episode of WealthTrack, host Consuelo Mack talked with Miller Value Partners’ founder and CIO Bill Miller about the state of the market today and his outlook going forward.
Mack prefaced the interview by outlining what she called “pandemic pivots” —changes that have occurred since the Covid-19 crisis began:
- $3 trillion collapse in U.S. GDP
- $10 trillion fiscal and monetary response
- $740 billion (annualized) loss in wages and salaries
- $3 trillion in transfers from U.S. government to individuals
- The Fed’s balance sheet grew from $800 billion in 2008 to $4 trillion by 2019 and has since grown to over $7 trillion (expected to hit $10 trillion by the end of the year, a level nearly 50% of GDP).
Here are highlights from Miller’s comments:
- The market’s fall in March of this year represented an excellent buying opportunity, according to Miller, who underscored his belief that people are underestimating values. Given the backdrop of low interest rates and no inflation, Miller says, “we can get valuations that go much higher, so buying now is a good thing.”
- His firm’s tech holdings (it owned Facebook and Amazon as of their IPO dates) do not fly in the face of his value investing philosophy, says Miller.
- Miller says the degree to which debt concerns him is dependent on a company’s cash flow and interest coverage. It worries him more in capital intensive, commodity businesses (like oil), he notes.
- Regarding the hit taken by the airline industry due to the pandemic, Miller contends, “if you had airlines and sold them, you were effectively betting against a vaccine or effective treatments.” He believes airline traffic will come back “faster than the current stock prices would indicate. Right now, I’m not betting in favor of a vaccine, but I’m not willing to bet against it.” He notes that only one case of Covd-19 could be traced to flying in an airplane and believes strongly that traffic will gradually come back as people become more comfortable. Airline holdings also offer diversification, he adds.
- Miller has no concern regarding financials and describes them as “among the most attractive areas of the market today” given their strong capital positions and profitability. Even with the stress of the pandemic, Miller claims that financials “aren’t getting worse, they’re getting better.”
- On a more macro level, Miller argues that the market is “taking too dire a view of perceived risk” relative to the real risks presented by the current environment. “When people are fearful,” he says, “their perception of risk changes dramatically”—which is what happened with the market went from an all-time high to a bear market in four weeks.