stockpicking

EXCLUSIVE INTERVIEW
Charles Payne on Post-Election Politics, Stock Picking and the Future of Investing
By Anthony Wile - December 16, 2012

Introduction: Charles V. Payne is a Fox business analyst and Chief Executive Officer and Principal Analyst of Wall Street Strategies, Inc. (WSSI), which he founded in 1991. Charles Payne oversees a team of stock analysts that cover specific industry groups, in addition to monitoring the entire market and individual sectors on his own. His successful career began at EF Hutton in 1985 and today is a regular contributor to the Fox Business and Fox News Networks as well as host of "Payne Nation," a nationally syndicated, daily two-hour radio show. In addition, he continually provides opinions on the market to scores of news organizations such as Reuters, the Wall Street Journal and the New York Timesand has been the keynote speaker at many investment conferences worldwide. His book, Act Fast, Be Smart and Get Rich debuted in April 2007. Charles attended Minot State College, Central Texas College while in the US Air Force and then Bernard Barch College.

Daily Bell: Remind our readers of your background, please.

Charles Payne: I went to Minot State College in North Dakota and then was in the Air Force, after which I went to Bernard Baruch College in New York City. My first job on Wall Street was at E. F. Hutton, as a compliance analyst, and then not too long after that I left for a smaller firm where I became a stockbroker. It was there where I initially had a few epiphanies, where it was my dream of being a stockbroker. I would go home and research and buy stocks for people. It turned out to be all for naught because the first month I was in the business I was number one at opening new accounts and I was getting people to buy a company called Burrows Wellcome. At the time it looked very promising and I thought it would be big, and as it turns out it was big and it turned out to be a phenomenal stock. The only problem was I didn't make a lot of money. Even though I was opening up new accounts and bringing in money under management, people who were selling the "health stocks" were making significantly more than I did. I am embarrassed to tell you, I started to sell the house stocks. I had a one-year-old daughter, was just out of the Air Force and I needed the money. So as it turns out I was able to take my love for research and my understanding of the stock market and start Wall Street Strategies.

Daily Bell: How is Fox doing? How is the Business Channel doing? Give our readers a sense of your work at Fox.

Charles Payne: Well, Fox News may need to refresh itself. I think there were a lot of lessons learned in this past election. For me, the number one thing I learned, and I have said this on air, is that no matter how good you think your economic policies are or your foreign policies, people are not going to vote for you if you don't think you like them.

While I think Fox was revolutionary in bringing to fore Middle America, people who live between Los Angeles and New York City, I think there are a lot of things that they have to do or they should do now to be more inclusive. I think the network needs to look more like America does and so does the Business Channel. I think there needs to be a kinder, gentler approach to some of their stuff. I would like to see the Business Channel do more things to get people more interested in their stories, like the story I recently did about Movado.

This 15-year-old kid is working in a factory in Cuba. His boss comes to him one day and says, "I love those American alarm clocks. Can you get one for me?" The kid had access to one and gets it for him and so the boss is thrilled and he says, "Can you get me two more?" The kid says, "Sure. Do you mind if I make a profit?" And the boss said, "Okay. You can make a small profit." So fast-forward a little bit. Fidel Castro takes over and even though this kid is somewhat of a Leftist, he never forgot making that profit and he didn't want to join Castro. He spends eight hours in interrogation and they threaten to kill his whole family and let him go home and think about it. He runs out to the airport with his family to think about it. He gets there and sees his best friend who has joined Castro and is an officer, who looks the other way and lets his best friend get on a plane and he comes to America and starts Movado.

Now, I think stories like that are a lot more interesting than saying Movado has an 11 PE and it's on the verge of a break-up. My whole thing is to humanize all of this. I don't want people giving up on the American dream. I don't want people to give up on being owners instead of renters. I don't want people to give up on marriage, on having kids. And we are currently living in a dropout society. If I can get my way, I am lobbying hard to get my own show on the Business Channel because I think that needs to be communicated to people.

Daily Bell: Are you playing a larger role?

Charles Payne: I hope I can. I have thrown it out there and everyone knows I want to. We'll see what happens. I know I have a tremendous amount to offer. For intance, I know that this week no one else at the Business Channel is going to review as many portfolios as I will – probably they won't be doing any – but I think I will review more portfolios, on Saturday morning, than anybody else. I know this stuff. I am a people person and people like me. I've had an amazing life where I have spent time amongst every type of person. Even now, one week I can watch the Redskins in the owner's suite and the next weekend I can be in the Bronx with guys that are barely making it. I understand and listen to both sides of the argument. I know it's an uphill battle for people who believe in the free markets right now because so many Americans have a certain disdain for it and there's a certain notion that somehow it's failed them.

Daily Bell: What's going on with Wall Street? Things seem to be getting worse.

Charles Payne: Let's talk about the stock market. The stock market is up over 100% in the last four years and while a lot of people point to the Fed money printing – and that no doubt plays a role – the fact of the matter is for the most part stocks are undervalued and the main reason for that is because American companies are uniquely positioned to take advantage of what is really a global boom. We spend so much time, especially in the financial media in America focused biopically on Europe and those fading empires that for the most part shot themselves in the foot, put it in neutral, lived off the fat, lived off their reputations, sank their teeth into socialism and now they're on a precipice. But we don't really talk about the 5 percent unemployment rate in Russia, we don't talk about the money gushing into the Philippines, we don't talk about the economic miracle in Turkey, we don't talk about Indonesia. In fact, we don't talk about Mexico, which is absolutely on fire. Most Americans just think about the drug dealings and maybe a vacation they had five years ago. Panama is going to open a new Panama Canal soon. In South America they love Whirlpool products; they can't get enough of them. That's why the stock has had a great run.

So the stock market is separate from Wall Street. The politicians who try to suggest that somehow the economic policies of the last four years have helped the stock market are absolutely off base. Indeed, it's a fact that the rest of the world wants what America has and for the first time they are making real strides in achieving that goal.

Have you seen a recent picture of the skyline of Panama? You would be surprised to think you could use skyline and Panama in the same sentence. It's amazing what is going on. They'll sell 300 million cell phones in Africa this year.

Let's be honest. America is the best country in the world but the idea that we can somehow just afford to regulate ourselves to death to redistribute money to demonize success is nuts! It's crazy! People used to come here and get educated and stay here and put down roots. Now they are coming here, getting educated and going back home.

Daily Bell: How's your firm doing?

Charles Payne: We're doing okay. We are not doing as well as we should. I have a two-pronged problem. The biggest problem is getting people to hang in there, getting people to believe and to understand fundamental analyses, looking under the hood.

The market day-to-day is very emotionally driven. Someone can say something, someone can invest something, someone can have a hunch on something, some guy can get on TV and say, "I don't like Green Mountain Coffee; I think it's a short." or "I don't like Chipotle Mexican Grill because Taco Bell has better tacos." and the stock can plummet 30 or 40 percent of it's value. It's a crazy, crazy, nutty world we're in. Having people stay the course is one of the real difficulties. Nothing hurts me more than when a stock that I have featured has gotten hit, gone down and then maybe five or six months later it's a big winner – it's legit and a grand slam. I go through the database and see many people have already sold it or have lost. When we contact them it's the same story – they were scared, they were nervous – but I said, "Look under the hood. The company's taking market share, it's got a tremendous product pipeline and management always beats execution."

So it's hard. There's a lot of animosity still from the crash. There's still a lot of fear and, if you remember, the stock market became a big topic with Social Security at the beginning of Bush's second term. People thought it might not be a bad thing but when the market crashed a lot of people came out and said, "Oh, imagine if we had Social Security in the stock market." Well, that kind of lingers but I have to tell you that's a speechless argument because the DOW ended up going to a new high. The fact of the matter is if the market wouldn't have crashed to that degree, if stocks were in stronger hands – but stocks were in the hands of people who jumped in. They were 30 years old and said, "I'm going to retire by the time I'm 40." – cab drivers who were making trades at every red light. That's the kind of people who were holding onto stocks. That's what amplified the crash even more. But if it was sitting somewhere in a Social Security fund or IBM was holding a Social Security fund, that stock wouldn't have gone down as much and it would probably be much higher than it is now. Be that as it may, it was an amazing stock to be in. Of course, Apple would be an amazing stock to be in or General Mills so I'm not talking about speculation but the entire stock market has taken a real bum rap and consequently, pension funds underinvested in stocks, people are underinvested in stocks. Part of it also is chasing performance. The bond market's done well. People chased that. Of course, people after the market crash went into the housing market and chased that bubble. So we always get the bubble-chasers out there, as well.

Daily Bell: What strategies are you using these days?

Charles Payne: My strategies are about the same. Often we alter in allocations but for the most part we look for value and believe in having a balanced approach, particularly in the equities side. Sometimes I'm a little contrarian. I happen to like a lot of coal stocks and they're starting to come on really nicely. There's some big giant news here recently. Maybe one day we'll have a real winter in America but in the meantime, I think natural gas is at a point where it's not going to get much lower and as it goes up we'll see coal as part of America's electricity power generation begin to rebound.

In the meantime, Japan has sworn off nukes and if that's the case they are going to need a lot of coal and a lot of natural gas. China obviously will need tons. But even Europe's consumption went up 14 percent this year, and they're in a deep depression. So I like my somewhat of a contrarian play but those stocks are very, very cheap here. I also like hard assets, particularly gold. I like silver as a play on inflation but perhaps a real, true economic rebound and not just smoke and mirrors. It has industrial uses that could make the move once it breaks out that much quicker, even to the up side.

Daily Bell: When does this business cycle end?

Charles Payne: I think this business cycle has been wrecked, and wrecked by all these different things. I think if we had gone through a normal business cycle we would have gone through a lot more pain and be on the healing of that pain. That's the interesting thing about whole thing. Politicians and the White House talk about the morality and all those programs that stopped the housing market from crashing. Well, none worked and not only that but it stalled the inevitable. There is a certain point when corrections happen that must be reached on the downside no matter what the gimmicks are. I would argue that it would be better to have a sharp decline and then a nice, steady, honest rebound as opposed to this long, drawn out drama that makes the rebound even clumsier.

Cash for Clunkers … okay, we are going to take all the used cars off the market and then force people to buy a new car, take a loan, all of these artificial programs – in my opinion, wreck the traditional business cycle. This is the worst post-recession recovery in the history of this country. I don't know where the heck we are in the business cycle but I do know it's been wrecked, although now we are positioned to take advantage of a global economy if we attack these multinationals because I've got a gut feeling the next move will be some sort of emergency to get to that honeypot of $1.5 trillion sitting offshore and bring a large part of it back under the guise of an emergency. It's a jobs emergency, it's an infrastructure emergency … some sort of emergency.

Daily Bell: Where is the EU headed?

Charles Payne: I think everyone is going to leave the EU. I think what we will have is a de facto United States of Europe but headed by Germany with the ECB printing the money. Essentially, you will have a few vassal states like Greece, Spain, Portugal and to a lesser degree Italy, and that's how their economy will work. I don't see any other way it will stay around and I think that's the only way Germany will participate.

It's sort of ironic when you think about all this work and treaties that were erected to stop the German military machine that in reality were always erected to stop the German economic machine because they have always had this amazing work ethic and determination that rival countries could not keep up with. So once these wars were lost they were able to slow these guys down. But the tables have been turned in Germany and they are calling the shots – and they should be. I heard about a very popular t-shirt in Greece that refers to my stingy, workaholic German neighbors but guess what? The key word there is workaholics and they are successful and they hold the cash.

Daily Bell: Will oil go up in price or down?

Charles Payne: I think oil as a function of inflation and the dollar going down will make another spurt. As far as demand is concerned, this whole natural gas story in America is sort of interesting. Another play I love is Cheniere Energy, which is liquefying natural gas and exporting into other countries, which is an amazing thing. Where we are within the trading range of oil … I don't see much downside unless we go into a huge recession in America and on the upside trading around $1.10 and $1.20.

Daily Bell: How about food?

Charles Payne: I think food prices are underestimated by the Federal Reserve in their CPI report. I don't like the idea of food for fuel. Even though Iowa farmers always contact me and say I am conflicting yellow corn with white corn and one's used to feed cows, well, it's all plausible and at some point it's all land that's used to grow a product that doesn't go to feed people. I think food has a very limited downside and lots of upside potential. I think nations that control food and fuel will be extraordinarily dominant in the next 20 to 30 years.

Daily Bell: Gold and silver?

Charles Payne: I have been telling people at least 10 percent of your investable assets – and depending on your circumstances maybe more – should be in hard assets. You know what kills me now is when gold stalls and they say "What's wrong with gold?" HUH? Gold's been up for 11 years in a row. Be cool. It's not supposed to go up every day. No investment does that. It's obvious that the Fed is just printing non-stop in a desperate effort to help this economy and at some point inflation will be a gigantic problem.

Daily Bell: What do you expect for Obama in the new term?

Charles Payne: I expect the real Obama to come out. I think the president is going to focus more on his legacy, his legacy as more of a leftist/socialist politician as opposed to his legacy of being a president for all Americans. I think it's really amazing and very sad that the feeling right now is so different than it was four years ago. Four years ago, even Republicans were saying, "You know, this is still monumental." All of the ribbing that Americans have taken over the years, particularly by Europeans … we're this giant Baby Huey who beats everybody up, bullies. France is a couple thousand years old and never elected a black president and Italy and Germany. I think every one felt really good about that. Even if you didn't vote for the president, there was this lingering aura that maybe this could be one of the final stitches that really, truly makes it the United States of America.

But I am sad to say that the president came out of the gate and almost immediately started to unwind those stitches – not put a couple more in but actually make it worse. Divisive policy. Divisive politics. Us versus them. The immunization of different people, demonization of success. I think it's an enormously missed opportunity.

So we go into these next four years with buckets of victims who are demanding something for nothing and other people who are moderately successful feeling demoralized. Why did they go through this? Why did I stay in the office and work 60 hours a week instead of 40? Why did I go to college? Why did I work my way through college? Why did my wife and I pay off our student loans and live in a small, cramped, apartment for a decade before we started to branch out? And this is the reception I am going to get from my fellow Americans?

Daily Bell: Did the GOP self-destruct?

Charles Payne: They are on the verge of it. A week ago Boehner fired a lot of tea party people. I called it the night of the swan screwdrivers. But having said that, over the last year I expressed a lot of disappointment with the tea party becoming candidates and getting off the grass. I kept saying, "Guys, stay on the grass. Keep the powdered wigs on. Keep the signs up. Don't morph into a party. Don't start running for office. Keep both parties accountable. That is your role and that's an amazing role for you."

Having said that, the GOP seems to be a rudderless ship and there's no one in control. There's no party leader. I've heard talk about the deep bench they have. I'm not so convinced, to be quite frank with you. I think a lot of conservatives have missed the message in the election. And again, people have to think that you like them before they will begin to embrace your policies. When I hear people say they don't want to pander, well, that's not the greatest sin you can commit. Either you find a way to communicate to articulate your message to all Americans or you never get back in the White House. Those are your two options.

Daily Bell: What do you expect over the next few years? What can people do to protect themselves?

Charles Payne: I don't want people to panic. In February and March of 2009 Americans sold $50 billion worth of equity mutual funds and the DOW was at 6600. We have doubled since then. Fifty billion dollars sold. They didn't get back in and they took amazing losses.

Do not panic. Do not give up. Panicking actually helps the side that you are concerned about. Keep hard assets. You have got to have gold. But you can have antique watches and collectable guitars. Obviously, they are not as liquid but you definitely want hard assets. Own land. Interest rates are extraordinarily low, land prices are low – own a piece of land. Finally, have some cash. You want to be nimble or have the ability to be nimble. Don't be all in cash. That's a mistake. Take your head out of the sand. Don't panic and be prepared. Fight back and don't panic.

Daily Bell: Any new books being planned? Any last thoughts?

Charles Payne: I have three books I want to write. I want to write a book on reawakening the American Dream, about capitalism losing in America and how to revive it. Here's the thing: Capitalism has always been different in America than anywhere else in the world. The opportunity to make money has always been different in America than anywhere else in the world. Too many people have either forgotten it or never knew it or are taking it for granted. We are in danger. So many young people think socialism is as attractive as capitalism. That's scary. That's a red flag.

I have been asked over and over to write a story about my childhood and I think I'm going to go ahead and do it because part of it does include watching two Americas – the America that worked hard and the America that didn't work hard – but without the right system, ultimately, why am I doing this? I want to get into that. I think I am going to finally tackle that, as I want people to understand the reasons to be working hard.

Daily Bell: Thank you for your time.

Charles Payne: Thanks a lot.

After Thoughts
For us, the most interesting part of this interview was Charles Payne's perspective regarding the stock market. He tells us:

Let's talk about the stock market. The stock market is up over 100% in the last four years and while a lot of people point to the Fed money printing – and that no doubt plays a role – the fact of the matter is for the most part stocks are undervalued and the main reason for that is because American companies are uniquely positioned to take advantage of what is really a global boom. We spend so much time, especially in the financial media in America, focused biopically on Europe and those fading empires that for the most part shot themselves in the foot, put it in neutral, lived off the fat, lived off their reputations, sank their teeth into socialism and now they're on a precipice.

But we don't really talk about the 5 percent unemployment rate in Russia, we don't talk about the money gushing into the Philippines, we don't talk about the economic miracle in Turkey, we don't talk about Indonesia. In fact, we don't talk about Mexico, which is absolutely on fire. Most Americans just think about the drug dealings and maybe a vacation they had five years ago. Panama is going to open a new Panama Canal soon. In South America they love Whirlpool products; they can't get enough of them. That's why the stock has had a great run.

This cuts to the heart of how people perceive investing. We confess to being monetarists here at The Daily Bell – monetarists even to the degree that at times we hardly even believe in issues of "value" and "supply and demand."

When it comes to the stock market, it IS true that we tend to believe that what boosted equities over the past few years was not undervaluations but Ben Bernanke's loony determination to "ease" – which is a euphemism for printing literally trillions of dollars.

Now it is true that not all that money has circulated and some is still trapped in bank coffers but we figure enough has been recycled to pump up equities fairly significantly. Mr. Payne, on the other hand, sees the markets from a supply-and-demand standpoint. He might grant the monetary argument but as a value guy, among other things, he's going to maintain that stocks are not merely monetary receptacles but have intrinsic value.

In a day and age of energetic central banking, we could muster arguments against this standpoint but it certainly has merit for millions. It is, in fact, a significant argument and one that will determine a person's investing stance.

Do you believe the markets today are the function merely of manipulations and money printing? Or do you believe that equities respond to much more than mere money stuffing?

Depending on where you come down on this important issue, you will have created an investment portfolio reflective of your biases and convictions. One thing Mr. Payne agrees on with us: A percentage of your portfolio ought to be in precious metals. How much probably depends on your perspective regarding the monetary merits of Federal Reserve strategies and the reality or non-reality of modern market performance.

Mr. Payne believes in markets; he believes in value. He believes in investing. He's done well with his perspective, built a business and become a valuable commentator for Fox business media.

We thank him for sharing his time with us and providing an interesting and even provocative interview.

Posted in EXCLUSIVE INTERVIEW
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