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People are rotating out of tech into some other sectors: Dan Niles

Satori Fund Founder & Portfolio Manager Dan Niles joins the Yahoo Finance Live panel to discuss Twitter and Facebook temporarily banning President Trump from their platforms following the siege at the Capitol building, in addition to his latest stock picks for 2021.

Video Transcript

- We are watching shares of some of the social media companies today after Facebook banning President Trump from the platform for two more weeks. That announcement came on Mark Zuckerberg's Facebook page this morning.

Here's what he said. He said, "We believe the risks of allowing the president to continue to use our service during this period are simply too great. Therefore, we are extending the block," he goes on to say, "until the peaceful transition of power is complete."

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Facebook shares not necessarily getting a big hit, but Twitter shares are down in the session, that platform banning the president from the platform for 12 hours initially, calling on the president to remove some of those tweets from yesterday. If he doesn't do that, the platform has threatened to extend that ban as well. Let's bring in Dan Niles. He is Satori Fund Founder and Portfolio Manager.

Dan, it's good to talk to you today. Let me just get your thoughts on the reaction right now we're seeing to what happened yesterday, at least in the social media space. Why do you think Twitter is under so much pressure when this is one of those things that that unfolded on a number of different platforms?

DAN NILES: I think on any given day, there's a lot of different crosscurrents. So I think trying to say, OK, what's making a move today, you know, it could be somebody just selling it to get more financial exposure or energy exposure. So I think looking at it over a one day period of time is very difficult. Obviously, the stock had a good year last year, as did a lot of other social media platforms.

I think investors, to start this year, are-- I mean, if you look at more broadly what I call MAFANG, so Microsoft, Apple, plus the traditional FANG stocks, I think only one of them, Google, is actually up year to date. It's up about, I think, only 1%. I think the rest of them, the last time I looked, they were all down year to date.

So in general, people are rotating out of tech, which obviously had a monster year last year, into some other sectors. And that would include Twitter as well as the broader group of tech stocks that people sort of migrated to off of the COVID crisis.

- Yeah, and Dan, that's personified in kind of the list of your top picks for 2020, versus the top picks for 2021. And your picks did well in 2020 too. Facebook would be among those, averaging about a 60% year to date gain, or a yearly gain in 2020.

But when you look at your picks for 2021, interesting to see Oracle being the lone tech name there. What's the thesis around maybe shifting away from tech this year. And why do you see maybe some of these other value picks performing better?

DAN NILES: Yeah, I mean, I think if you look at this year, there are several trends that are occurring. I think the first one is really, I think you're going to see a fair bit of inflation showing up as we exit the year. And if you look at 10 year treasuries, for example, they started 2019 at about 1.9%, got all the way down to 0.5%. And as of yesterday, they got above 1% for the first time. And they're above where they were in March.

If you look at the yield curve, it's the steepest it's been in a couple of years. But if you look underneath that, things like zinc, copper, and on the food side, things like wheat, soybeans, et cetera, you've got double digit moves in a lot of these different commodities. And we're still locking down.

So if you think of late next year, or sorry, this year, I should say, late 2021, when you've got a lot of vaccinations out there and the economies are fully reopened, you could see a much stronger inflation picture. And as we said in our preview note that you can find on DanNiles.com, we think Treasury yields are going to be above 2% by the end of the year.

And we think sectors that lagged last year, like financials and energy, they are going to be some of the top performing sectors. And that's why those are amongst two of our five picks, which is JP Morgan and the XLE.

- Dan, one of the other names that you had on your list, at least last year, not necessarily the top picks this year is NVIDIA. We've been following that stock today, a big pop in the session. But there seems to be a lot of concern around the regulatory environment here as they look to try and complete that deal with Arm. I'm curious why you've sort of pulled back a bit, if that's the right word, on that particular stock and what the thesis is on that front.

DAN NILES: Yeah, I mean, I think with NVIDIA, when the deal got announced, we said publicly we thought it would have a tough time getting closed, because obviously, that's a very powerful combination. And the political climate right now, rightly or wrongly everywhere, is foreign countries are doing their best to try to attack US stocks, big tech companies.

And unfortunately in the US, we're doing the same thing to our best companies. So from a purely political standpoint, I thought this deal would have a tough time going through. And it's a very highly priced stock. They're doing fantastically well. And I think they're going to continue to do very well in 2021.

But with regards to that deal in particular, I think there's enough opposition. And now with the Democrats having control of the Congress as well as the presidency, I think it's going to be very tough to get that through. It should go through under normal circumstances. But we haven't been in normal circumstances for a long time.

- And Dan, I mean, obviously had a good year and 2020, obviously playing kind of the long short end of things hedge fund. You were trying to time some of these moves. Where we're sitting out right now, I'd be curious to hear your take, given all the warnings you had for us in 2020 about valuation.

Here with the market kind of hitting Bank of America's year end target already this early in 2021, what do you make of maybe some of the risks right now that investors should be considering, you know, even given the fact that, yes, we do have the idea that stimulus could be boosted here with the incoming Democratic administration. But where do you see this playing out? And how real are the risks that investors should be considering right now?

DAN NILES: Yeah, I mean, it's a great point, Zack. I mean, the risks are very real in the sense that if you look at the market cap of the entire stock market, you divide it by GDP, that's sitting at about 1.6 times. That's higher than where it was at the peak of the tech bubble. And the 50 year average, by the way, is 0.8.

Even if you look at Forward PEs, they're above 40% above where they are on average on the S&P 500. So there's no way you can say the market is cheap. But the one thing that we've seen during this entire crisis period and really since the global financial crisis is the number one thing the market is fixated on is stimulus.

And so at this point, if you think about a $22 trillion US economy, they're talking about maybe another $2 trillion in stimulus, so roughly 10% or so. Could you see the market continuing to go up just based on that and ignoring everything else? Well, that's really what it was doing last year. The S&P was up 16% last year, and we were in a pandemic.

Why? Because the Federal Reserve balance sheet went from $4.2 trillion to $7.4 trillion. And then you had Congress obviously passing a lot of things like the Cares Act. You had 30% of GDP in stimulus in total in the US, 20% globally. So that's really what's driving the markets. And I think for right now we're on a stimulus-induced high. It probably goes up some more.

And then I think the number one chart I'm actually watching is the Fed balance sheet. And the number two chart I'm watching is the money supply, so M2, which comes out once a month.

And when those things start to level off, I think that's when you have the potential for a really sharp correction from these valuation levels. But I think until then, people will be focused on another $2 trillion in stimulus. And things will continue to kind of go on the path that they're going.

- Yeah, all signs right now pointing to more stimulus as we await the incoming Biden administration. But Dan Niles, Satori Fund Founder and Portfolio Manager, always love having you on. Be well.

DAN NILES: Thank you, Zack, you too.