In no particular order, here's a smorgasbord of 10 key thoughts from my conversations last week with some very seasoned Wall Street professionals. The sources are some of the better thinkers whom I've known over a 30-year period. The overall impression they give is that this is still a sluggish market with downside of around 10%.
1.) We are late in the credit cycle. Be careful about fin-tech stocks such as LendingTree (TREE). "The best ideas have come and gone," one family office chief information officer said. "In 2008 and 2009, there was real opportunity. Now, many are reaching out on the risk curve and more entrants are coming into the space. It's often just a matter of which company has the best technology and data."
2.) Another sign of a difficult credit market was demonstrated on a deal last week in which KKR (KKR), the seller, had to reduce its asking price by 20% to attract more buyers. "The credit market has seized up, and we had to get more equity to get the deal to clear," said an investment banker from one of the top five investment banks.
3.) "We probably should short FedEx (FDX)," a top hedge fund manager offered. "Amazon (AMZN) and its drone efforts will put more and more of a squeeze on FedEx's margins. It's inevitable."
4.) Oil prices are not going back up anytime soon. "Iran needs money," this hedge fund guru said. "Saudi Arabia needs money. Venezuela needs money. Russia needs money. The U.S. is a free market and not incentivized to increase prices. China is not turning around on a dime. It's too early to bottom-fish in energy stocks."
5.) It's hard to make a buck driving a taxi, too. The economics for an Uber driver are brutal, a savvy private equity investor offered. "It looks like an Uber driver would have to drive about 40 hours a week just to break even," he said. "There is more and more competition daily from Lyft, Via, Gett and the Medallion taxis. Uber, for instance, just cut its prices in Manhattan by 15% last week. That's less for the driver. But the killer is that a driver also has to pay about $8,000 a year in insurance that is required by the New York City laws."
6.) Launching a private equity fund is less fun -- and less profitable. It's getting harder and harder for private equity funds to get investors to pay management fees on committed capital. They want to pay the fees only on invested capital or they don't want to pay the fees at all and they just want to co-invest. Further, any fee they might pay probably is going to be negotiated down. The days of 2% management fees and 20% of the profits on committed capital are basically gone.
7.) Look for some refining subsidiaries to be sold by the majors, one of the top refining investors told me. The majors need the cash, and it can't get much better for the refining industry with these extremely low oil prices.
8.) The recent oil price of about $27.30 per barrel is now cheaper than a KFC family bucket of chicken, which retails for about $28.40. Those types of headlines and comparisons must mean we are getting near the bottom on oil prices.
9.) A leading insurance company CIO sees 2016 this way: "It's a lousy market where there is no place to hide. This will be a tough year," he said. "We just have to make sure that we have the right allocations to weather the storm and be in the right groups for when there is a turn."
10.) A leading transportation analyst told me three months ago that his industry data was telling him that the U.S. was going to be in a recession in six to nine months. I checked in again with him last week, and he still feels that we will be in a recession by mid-year. "We just revised fourth-quarter GDP down to 0.7%," he said. "S&P earnings have been weak for two quarters and aren't likely to surprise on the upside. It's sluggish out there at best."