Strategas' Trennert: Where the new sovereigns are

The new sovereigns are companies the market believes are better credit risks than government debt. Find out which companies fall into this category, according to Jason Trennert, managing partner of Strategas Research Partners.

This week on Wealthtrack a financial thought leader who is full of creative investment ideas. Jason Trenter and his independent research firm Strategus are known for identifying pithy investment themes like there is no alternative or TINA and a new sovereigns. Find out what they are next, on Consuelo Mack wealthtrack. [MUSIC] One of trendiest most widely quoted stock market claims is one he wrote about in the Wall Street Journal. Its called Tina which stands for there is no alternative. I asked him to explain his theory that there is no alternative to stocks. It really has a lot to do with the idea of financial repression. And financial repression is the idea that central banks try to keep interest rates extraordinarily low. Lower than the rate of inflation. And you're seeing that, it's really a Bernanke doctrine. You're seeing that play out all over the world. And really the point is that in a world like that, it's very, very difficult for individual investors to get yield. It's very difficult for institutional investors to meet their actuarial assumptions by just buying fixed income. You have to buy stocks, you have to buy riskier assets. In many cases, some of these riskier assets have very high dividend yield, have ot, other yields. But really, the Central Banks are giving you almost no other choice, but to seek riskier assets to invest. Jason [UNKNOWN] ha, has, is known for coming up with these really fun investment themes. And one of the investment themes I really appreciated over the last couple of years, is. What you call the new sovereigns. What are the new sovereigns? The new sovereigns are made up with companies that the market believes are better credit risks than sovereign debt. And sovereign debt being government debt? Yes. Sovereign debt being government debt, and it's also supposed to be the most risk free asset. And, and it's ironic because after our, our debt was downgraded in the U.S, for a while there were about 55 companies in the U.S. that had lower credit default swaps spreads. Had lower credit risk, it was perceived, than Uncle Sam. Now there's only about 7 but there's still 100 companies that have, are seen as having lower credit default swap spreads than, let's say, French sovereign debt. So French Sovereign that should be, one would think, would be close to risk free. But there's 100 companies in the US, that are seen as being better credit risks. There's 100 companies in the U.S. that have ba, a better or are seen as having better credit risk, than Japanese Government does. And so, these are the types of companies. They tend to be large, fortress style, blue-chip. Such as? So, it'd be Johnson&Johnson.; Exxon, Microsoft, all the kind of your standard, really big ticket. Big cap. Mm-hm. Big cap names. But they also have, dividend yields. They have obviously very little debt. Generally speaking, well capitalized. And dividend yields in many ways that are very, very competitive with, with what you would get. From what was previously seen to be unassailable. Mm-hm. Sovereign debt. So. And growing dividend yields. And growing dividend yields. And I think, especially as the gold market matures, our view, the reason why we call it the New Nifty Fifty, or the New Sovereigns, is because I, we think increasingly, as the gold market matures, more and more investors are gonna be forced to buy. Things that look, stocks that kind of look like bonds. And they're gonna still have to buy equities, but they might not necessarily want to play in the small cap area or other places or merging markets, for instance, that are somewhat riskier. So they're gonna still buy equities, but they're gonna buy secure, safe equities. Another interesting statistic that you have been looking at at Strategis in, is actually in, in two areas. Is the supply demand situation for stocks and for treasury bonds. You are saying that the supply of stocks is actually shrinking. How dramatic is the shrinkage and, and what does that do to share prices? It's pretty remarkable, because in 1997 there were 8800 publicly traded companies in the United States. At the end of 2013, there were 5,003. So we essentially lost thirty-eight hundred publicly traded companies. There were- They went private. They either went private- Acquired Or went out of business. Acquired, whatever. Acquired. But I think what's happening really considering all this that a lot of because of the growth of the private equity business a lot of, and the costs associated with being a public company have gone up very dramatically. A lot of companies that would normally go public, are not going public, the problem is that those private companies are not particularly liquid, so you have investors that need liquidity... That wanna have equity investors, investments, but wanna have liquidity you're essentially being forced to buy a smaller pool of publicly traded equities. It's part of the reason why the stock market's moving higher. Supply and demand situation in treasury bonds, they're shrinking too. Yeah that's, the budget deficit is improving so dramatically. Right now. It's hard to believe, giving how much we're spending, but it's improving very dramatically and there's almost a sense in which the Fed in my view had to start lowering its purchases of, of treasuries simply because the deficit wasn't large enough. Treasury wasn't issuing enough treasuries. The deficit this year could be something like $400,000,000,000. Last year the Fed purchased about $540 billion worth of treasuries. So, there was a real reason why the Fed actually had to slow down it's purchases. They're probably done by this October according to the, the best estimates. But that shouldn't scare people in terms of being worried about bounds. It seems to me because the U.S. is still a reserve currency. You still have a lot of people around the world that would rather own US dollar based assets, secure US dollar based assets, than any other place in the world. [MUSIC].

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