'Follow the fed': Infrastructure Capital Advisors CEO on when to buy stocks

Infrastructure Capital Advisors CEO Jay Hatfield discusses when investors should be buying into the market.

Video Transcript

ADAM SHAPIRO: We're going to keep talking about the markets as we go forward with Jay Hatfield, Infrastructure Capital Advisors CEO. Because the big warning that you've got for your clients is inflation and stagflation. Now, we've had a lot of analysts tell us the contrary, that this is really transitory. But you've said, "We believe the Fed has lost control of inflation." So what does that mean going forward for those of us who are just average retail investors?

JAY HATFIELD: Great. Thanks for having me on, Adam and Seana. I think that there's two critical points that are relevant for investing in the long term. Number one, follow the Fed. The Fed has caused 11 out of the last 11 recessions, excluding the pandemic. So Fed policy is critical.

But then it's important to analyze the sector that the Fed impacts, which is housing. So in those 11 recessions, 10 of them were characterized by huge housing crashes. So in this case, we have the opposite. We have the Fed keeping mortgage rates massively low, near all-time lows, by both buying mortgages and treasuries.

And of course, what's happened is housing prices are up 20% and rents are up 10%, which didn't happen in '07, '08 because we had a huge overbuilding, which we don't have now. But it did happen in the late '70s. So we think this period is relevant to the late '70s. The Fed has increased the monetary base way too much. They got away with it last time because of the housing surplus.

And so it's fine to point at the supply chain, but housing doesn't have a significant supply chain issue whatsoever. There's 139 million existing homes, so those are all rising. So it's not about just the production. So we think the Fed is holding the smoking gun and that this transitory dialogue is all political and that we could have inflation. It's more likely to hit 10% before it hits 2%. And the relevant debate is kind of 5% to 10%.

SEANA SMITH: So Jay, with that in mind then, I guess, what do you expect markets to do then over the next couple months? How big of a pullback could we see as a result of all this?

JAY HATFIELD: Well, I think that this kind of, you know, outlook or warning is really a '22 issue. I find it's almost ridiculously easy to predict the market this time of year, because it always does really poorly in September when there's no earnings news and there's just warnings. And most news that doesn't come from companies is bad news, and it comes out of-- it's either macroeconomic, wars, political, things out of China.

But all the good news comes during earnings season. And earnings season is likely to be strong because, again, the companies that are weak warned there'll be a few supply chain issues. But most companies aren't as impacted by that, particularly big tech companies. So we're bullish about the market, really for the rest of the year, which seems strange. But I would still say don't fight the Fed. They're buying $120 billion of securities every month, then why do you want to leave the party before the punch bowl is gone?

ADAM SHAPIRO: I'm fixated on what you was just saying about housing, because I'm trying to think about what's different now versus what we experienced in the financial collapse that got to its force in '08 and '09. Do you expect we've had-- Shiller was on and told us he expects prices to come down. But if the Fed-- you just said don't fight the Fed-- they're going to keep interest rates low, I don't see prices on housing coming down in the next year or two, do you?

JAY HATFIELD: Not at all. I mean, that's kind of my point is that-- so their notion of being of-- addressing the problem is tapering, well, that's just pouring less gasoline on a burning fire. So maybe, you know, mortgage rates go up a few points. The only thing that's going to raise them significantly is a tightening of rates. So we think that's going to occur sooner rather than later.

And if you really listen to the more experienced and better forecaster-type Fed governors like Bullard, he's on that page. It's really more of the politicians, Yellen and the Fed chair, that are sticking to this transitory notion. So I agree with you 100%, what's going to stop it? Once the momentum starts and we know that it cost more to build houses and rates are super low, I don't know why-- and rents are skyrocketing, what's the bear case for housing right now?

ADAM SHAPIRO: That is a question I want to ask Mr. Shiller the next time he comes on. I want to say thank you. Jay Hatfield, Infrastructure Capital Advisors CEO, good to see you again.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting