Keeping interest rates low is just delaying the inevitable. “When the cost of capital is zero, the return on capital goes to zero. It’s axiomatic, if you give people free money, they will do stupid stuff,” Yusko said.
Some companies, like ExxonMobil, are actually borrowing money to pay dividends because interest rates are so low. “ExxonMobil is my favorite short,” Yusko added.
The speakers agreed that the next U.S. president would likely face a recession.
Gartman said presidents can effectively handle recessions if they occur early enough in their administrations. He said that both Hillary Clinton and Donald Trump would likely use fiscal policy in the form of infrastructure expenditures to combat a recession. “How will Mr. Trump deal with it? He’ll stamp his feet and gnash his teeth and wail and bemoan things and say he’s going to ‘make America great again,’” said Gartman.
Nevertheless, Gartman said he planned to vote for Trump. “I’ll vote for a fascist over a liar almost any day,” he said, echoing the widespread dissatisfaction with this election cycle’s presidential candidates.
Given the risk of recession, Yusko recommended shorting Europe and European banks. He said the European market could crash 30 to 40 percent overnight if Italy votes in its upcoming referendum to leave the EU. Meanwhile, Deutsche Bank is teetering financially.
Yusko also sees good potential shorts in low volatility U.S. stocks—and Hormel Foods. “Who eats Spam?” Yusko joked with the audience.
Other profitable shorts could include auto companies, utilities and big-box retailers. “REITs may be the most overvalued thing on the planet right now, particularly office REITs. Office REITs are selling at ridiculous cap rates,” Yusko said.
“High-cost New York real estate has got to be the best short in the world. It’s already crumbling at the top. They can’t sell the penthouses and the Russians are no longer coming to the United States,” said Gartman.