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Tech sell-off a 'bit overdone': economist

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Systematic Ventures' Max Wolff tells Reuters' Fred Katayama why he thinks stay-at-home stocks that have taken a recent drubbing have staying power beyond the pandemic.

Video Transcript

FRED KATAYAMA: Tech stocks recouping some of their earlier losses Tuesday. Fed Chair Jerome Powell testifying before Congress. Let's get a read on that from Max Wolff of Systematic Ventures. Welcome back, Max, and good afternoon.

MAX WOLFF: Always a pleasure. Thank you for having me.

FRED KATAYAMA: Oh, great to have you with us, as always. Now Max, Fed Chair Jerome Powell said the economic recovery remains, in his words, uneven and far from complete. So what should we take away from this no rate increases for quite some time?

MAX WOLFF: Yeah. So the market has tended to see all the bad news as fabulous, as an insurance that interest rates will stay in the near-zero zone and policy will stay accommodative. But I think it's starting to dawn on some people that there's actually a reason for that, which isn't so fabulous. Which is that, for a lot of folks, particularly the bottom 60% to 80% of the income distribution and for folks who are less able to work remotely and be kind of seamlessly employed before, during, and after the pandemic, there's been a whole lot of loss here. Right? So here in our native New York City, that's basically 200,000 employees still displaced out of the service economy. And it looks like it's going to be a longer, harder road back for them. And I think the chairman is reasonably pointing to that and also pointing to why accommodative policy, fiscal and monetary, is still probably in the offing.

FRED KATAYAMA: And here to stay for a while, then. So what should investors do? We saw tech stocks sort of pare their losses. Should investors go back to buying stocks or do you think this pullback that we're starting to see-- you've been talking about it for some time now. You know, the NASDAQ is down below 5%-- more than 5% from its peak.

MAX WOLFF: Yup. Yeah, we're seeing a little burn up on reentry, right? So these are sort of, like-- these guys have been in this terrestrial, like, non-terrestrial orbit here, sort of orbiting around the sun. And I think when you come back down into the atmosphere, the thick air, it's fiery. Reentry is tricky when you're traveling in outer space, which a lot of these things are. So you have a lot of companies trading at a higher multiple to their revenue than they used to trade at to their earnings. Right? So there's a lot of room for compression here.

I do think there's beginning to be a question of, does the tech world look as good if we get back to normal? Right? So there has been this notion, which has a basis and significant basis in reality, that the big tech guys have been kind of massive beneficiaries of the dislocations around COVID. Remote workforces, seamless production, life moving online. All the usual reasons. And so now the question becomes, hey, if the rest of the world is in the recovery process and you don't have to do everything online, is there a little bit of a pent up demand to get offline? Right? And that--



FRED KATAYAMA: And along those lines, we're seeing those stay-at-home stocks really tumbling yet again today. You think there's more to come there in the pullback?

MAX WOLFF: Yeah, I do think the long term is very positive for these big tech stocks. In other words, I think what COVID did is take a future that was 12 years away and make it 12 months away. It's a compressed time. But I don't think everyone's going back to the office. I don't think everyone's going back to the grocery store. I don't think everybody is going back to the restaurant as often as they maybe did. Or as often back to the gym. Right?

So I think the recovery trade is a little bit overdone and the sell-off's probably a little bit overdone. But all of these shares are expensive. Everybody's priced for their own private version of mutually exclusive perfection. So there's going to have to be a little bit decompression. Because one of the jokes is, one of the things America seems to have done-- at least affluent America-- is by a lot of stocks and trade them as one of their stay-at-home activities.

FRED KATAYAMA: Apple has fallen more than 10%. In other words, in correction territory. You were saying earlier the sell-off off is a bit overdone. In other words, is it time to start buying these dips?

MAX WOLFF: Yeah. So Apple's had some pretty good news. So Apple did very well on some pretty mediocre news and then dipped on some pretty good news. Not the first, last, or only. But, yeah look, I do think that a lot of this retracement stuff is probably overdone. I think the big tech guys are eating the world. They're also one of the few American company groups that isn't reliant on people feeling positively toward the US to buy American in a competitive world. But I think the markets need to factor what a less cooperative, more nationalistic world looks like and they need to factor in that the other 80% of America, and much of the world, isn't coming out the other end of corona as relatively unharmed as they are.

FRED KATAYAMA: And lastly, Max, do you think the market should be as concerned about inflation as they are, as we saw this week and last week, given the way that we've seen the yields move?

MAX WOLFF: Yeah, I think the inflation markets should be concerned about is equity price inflation, which they don't care about at all.

FRED KATAYAMA: Equity price inflation as opposed to the economic inflation.

MAX WOLFF: Yeah, because it's running at, what, 40 times the rate. Although no one complains reasonably enough about it. But yeah, I mean, it still looks to me like asset prices are a lot more inflated than macroeconomic push variables as a general rule.

FRED KATAYAMA: Well, all right. OK, we'll keep it there. I should note that the 10 year break even rate hit 2.24% last week. But on that, thanks again for joining us, Max.

MAX WOLFF: Thank you.

FRED KATAYAMA: Our Thanks to Max Wolff of Systematic Ventures. I'm Fred Katayama in New York. This is Reuters.