Dan Niles: Tech has gone up way too fast, way too far

Satori Fund Founder & Portfolio Manager Dan Niles joins Yahoo Finance's Zack Guzman to break down the latest market action and more.

Video Transcript

ZACK GUZMAN: But what does this all mean for the strength of the recovery? That's the main question top of mind for investors. And here to break that down with us is, again, one of our favorite guests to have on the show here, Dan Niles Satori Fund founder and portfolio manager, who's up double digits, whose fund is up double digits for the year.

And Dan, thanks for coming back to chat here. I mean, I just want to first get your thoughts on that number, stubbornly high again, 1.3 million initial jobless claims. What does that say right now in your eyes about the state of the market recovery, the economic recovery we're seeing play out?

DAN NILES: Well, I mean, it's fragile, I think, is what it tells you. And I'm curious to see what those numbers look like a week from now because, as you're aware and have talked about before, I mean, California's actually shutting down again in certain segments. And you know, places like Florida, Texas, same thing, where they're getting a lot more cautious, just given the surge in these cases.

So I actually wonder, you know, when we're looking at these numbers next week, the week after, if, you know, the jobless claims numbers actually start to rise again. And none of this would really matter because it's clearly better than it was on March 23.

But the stock market also, as of yesterday, was flat for the year. And you and I both know that, you know, the world doesn't look nearly as wonderful as it did on December 31 when we started the year. And so that's where the sort of the riskiness comes in and what you need to be careful about if you own stocks, especially high momentum stocks, at this price, at these levels.

ZACK GUZMAN: You know, it's a good point. And obviously, I guess the data that we've been getting does kind of hint at a strengthening recovery relative, as you said, to where we were back in March. The latest update we got today, too, on the retail sales front, stronger than expected there a 7.5% rise last month on top of the 18.2% jump we saw back in May, which was the largest gain since the government tracked all this starting back in '92.

So when you think about that being much stronger than the 5% economists were bracing for on top of-- I guess this might be optimism if you look at the rebound in China. As they reported, their GDP grew by 3.2% in Q2 this year. That was also stronger than what people had been expecting.

I mean, if we look at what happened there in terms of their stimulus working out, what could happen here if the cases start turning in the right direction-- I understand that's a big if-- but what does that kind of recovery on the retail front, and then also what we're seeing in China, maybe tell you about where we could end up here as we move forward in 2020?

DAN NILES: Yeah, I mean, I think you have a lot of moving pieces. One of the big ones, quite honestly, is what the US government decides to do when the CARES Act, the extra $600 a week that people are getting who are unemployed-- that's set to go away on July 31. So what does that get replaced with?

I mean, right now, 2/3 of the people that are unemployed are making more money being unemployed than what they were making when they actually had jobs. So we know that number is going to come down. The question is how much and then how does that affect retail sales.

And retail sales, I think the good news is that that's been a lot stronger than what people have thought coming off the bottom because, quite honestly, people don't-- you know, they're not going on vacations. They're not going out to restaurants. They're going to movies, or concerts, whatever.

And so they a lot more money to spend on items. And that's why you're seeing things like, you know, the RV makers, or the boat manufacturers, and, quite honestly, even auto numbers that have come out recently have been stronger than expected. And so people are using that extra income money, et cetera, for that.

But it's really important to see what happens before these extra jobless claims benefits expire on July 31 because that can be a huge game changer if Congress doesn't sort of do something to extend it, which I think they will. But we'll have to see what shape that is.

ZACK GUZMAN: Yeah, no, for sure. And I mean, when we think about how some of these stocks have traded as that question mark remains, we have seen strength in the tech sector, I think, because a lot of those companies might not be necessarily tied to a lot of that swing factor in terms of what next wave of stimulus or relief, I should say, we might get.

But on that front, obviously, last time you came on, you were talking about Facebook and some of the other tech companies you enjoy there. What's your take on how maybe investors might be rotating out of them as we've seen such a large run up. And then yesterday, obviously, the talk in tech right now was the hack at Twitter as a lot of high profile accounts, including Elon Musk's and Joe Biden's, were hacked there as bad actors really tried to get people to send cryptocurrency to a wallet there.

I mean, is that kind of similar in your mind to the pressure you saw Facebook under the ad boycott? Is this just kind of a temporary lapse at Twitter?

DAN NILES: Yeah, I mean, I view this as much more problematic in some ways than what we saw at Facebook because this is somebody taking over an account. And yeah, you're asking for money being set to a wallet for crypto. I mean, what's scary is that if somebody took over some of those accounts of these world leaders and said things like, you know, planning on launching or just launched an attack against China or launched missiles or something like that, that's the kind of stuff that you worry about because, you know, Twitter is being used as an information dissemination platform, rightly or wrongly.

And so that's what makes that scarier. And especially given that Jack Dorsey's account, CEO of Twitter, was hacked last August. So you would have hoped they would have put in, you know, better security measures since then. And getting this many people hacked all at once, that's also what's scary.

At least back then, it was, you know, the CEO of Twitter's account getting hacked. This is a whole bunch of important people in the world. And so that bothers me a lot more. But as you're seeing with the stock, if you and I weren't talking about it, nobody would even know that happened because, much like with Facebook where we said, look, this ad boycott, it really doesn't matter. We bought more when I was on your interview, I think, on June 29.

And the stock's gone to all time record highs because their business is pretty strong. And that's really what people are going to focus on when Twitter reports earnings. But this is clearly something they need to do for the safety of the world, to some degree, and get that under control.

ZACK GUZMAN: Well, it's just clear, I mean, obviously, we saw, as you said, Facebook came back after you talked about it last time you were on, one of those tech leaders. But you're also now kind of shifting into some of these areas that have been hard hit, not necessarily the ones that have come back as strong. Mainly, Ford and GM, those stocks down by about 27%, 28% year to date.

Unlike, as you said, the overall market relatively close to being flat. What do you think the opportunity there is in some of those automakers? And why not put some money to work here in Tesla? Because that's catching all the attention right now.

DAN NILES: Yeah, I mean, I think when you look at Ford and GM, I mean, they're trading-- Ford is trading at 0.2, 0.2 times EBITDA sales. You brought up Tesla. That's trading at 10 times EBITDA sales. At one point, that stock had quadrupled year to date.

So you know, you look at the dichotomy between those two. And I think everybody knows, you know, Elon Musk is this generation's version of Thomas Edison, right? The guy's absolutely brilliant.

But you look at the valuation of Tesla stock at these levels and, more importantly, you look at the way the stock is acting-- on Monday, the stock, Tesla's stock had sold off and closed down 16% lower than its high point during the day. And we actually ended up shorting it on Tuesday because we were like, this will help us hedge out longs that we have in areas like Facebook or our long positions in Ford and GM because, obviously, they're both automakers, two very different companies.

But this, hopefully, helps put a hedge into the portfolio. We were long Tesla at one point in 2019. I think, you know, it's a fantastic company. But it also quadrupled year to date.

And clearly, business is not up 4x year to date. So I think that gives you an opportunity. And we're rotating into some of this stuff. Like the auto manufacturers, where also sales-- you look at those retail sales figures-- they were really strong for autos, way better than I would have thought. And this is a way to maybe move into some of the more unloved segments that could benefit if the recovery keeps going forward.

ZACK GUZMAN: Yeah, I mean, we talked about that. You talk about the 8.2% jump in auto dealers. Now, obviously, a big boost here in terms of low interest rates and cheap gas prices. Obviously, Tesla wouldn't necessarily benefit so much from the latter.

But I mean, we have seen Tesla come back down about 13% in the last week since it hit that new all time high. And in case our viewers must have just-- in case they missed it, what you said, shorting Tesla would, obviously, catch a lot of people's attention, especially given that 13% move here. So I mean, is it more so you still have faith in the company, but, just timing wise, it seems like it's run too far, too fast?

DAN NILES: Yeah, and that's all it is. I mean, this is one of the greatest companies invented in the last decade. So clearly, that's not the issue. The issue is, for me, you know, I'm a hedge fund manager. And so if the stock goes down, you know, another-- underperforms by another 10% or so in the next week or so, yeah, we'll cover it.

And then we'll say, OK, maybe we'll put it back on later. So our only issue with this market-- and this is not necessarily Tesla. But Tesla is sort of an example of it-- is this market in some sectors, specifically technology, in my opinion, has gone way too fast, way too far.

And so you want to be just very careful of that when you've got people that have, you know, no understanding of what Tesla really does other than it's a great company and it makes cars, bidding this stuff up and tweeting about it and putting stuff out. We're trying to use this as a portion of the portfolio. We love the company long term. It's just, as you said, it's just really come up too far, too fast.

ZACK GUZMAN: Yeah, and always important to caveat as we know. The Tesla fans out there are some of the most outspoken. And mentions will definitely blow up, @DanielTNiles, the Twitter handle, by the way. Dan Niles, appreciate you taking the time to chat as always. Thanks again, and we'll chat soon.

DAN NILES: Thank you, Zack.