view transcript

Katherine Ross: Tom Plumb, Portfolio Manager at the Plumb Balanced Fund joins me to talk about the Fed and sectors that he's got an eye on. So Tom, let's start with the Fed. There is one quote that I read, that I want to quote to you and see what you think. So you said the plum balance and believes that most economic data series that strategist and academics have built on old models and don't reflect the disruptive nature of software as a service and the Internet of things. So I'm wondering, does this mean that the Fed is looking at old models?

Tom Plumb: Well, I think every one of the people who are creating this monetary policy went to economics one o' one they learned about what happened in Germany in the 1930s and Fiat money debt and what that does to inflation. And they haven't seen those relationships. And so now they have to deal with the world as it is. And there's some changes because every one of us would have believed that inflation was going to pick up when we had government deficits like they are.

Katherine Ross: So how can the Fed improve their models?

Tom Plumb: Well, they obviously are always working on them because I think one of the main things is that they're seeing that as the governments liabilities grow. Those are also considered everyone else's assets. You know, so somebody else owns that debt and they're using it for different purposes. And I think right now they're trying to put this all together, but again, for them to see less than 2% inflation with the type of deficits we've had and the accommodation we've had from the monetary authorities, I think it's just causing them to moderately change every one of these models.

Katherine Ross: Now let's switch because I want to ask you about a sector that you've got your eye on now. Can you break down for our viewers what sector that is?

Tom Plumb: Well, we love financial technology companies because we've seen them expand world economics beyond government policies, beyond tariffs. Beyond all of the things we're talking about in the headlines. When you see what has happened with financial transaction processing, the ability to move money around the world safely, securely, and to actually make transactions expanded everybody's market.

Katherine Ross: Now, let's say I'm an investor looking to get into financial technology. Do you have any stocks that I should be taking a look at?

Tom Plumb: Well, one of our friends calls it MVP, Mastercard, Visa, Paypal. Those are three companies in America that are really at the leading edge. If you start to believe that the Chinese economy is going to recover or bottoming out here, you obviously have Alibaba and, and we, we chat or Tencent, those companies that are allowing people to make transactions immediately and to get credit, they're all available, and they're all pretty exciting.

Katherine Ross: What about any other stocks that I should look into getting into the end of this year?

Tom Plumb: Well, we think that there's some major and, and, you know, as much as the market has moved up, people are very anxious in your, all is, are anxious. The old cliche is the bull markets climb walls, a worry, and we're starting to see more and more. Everybody's negative, everybody's concerned. But there are some real trends. And even today, companies that we don't own, like merchs Procter and Gamble are showing that the old economics are coming into play and those companies are looking pretty attractive. They've made adjustments. But, for us, companies like, Discover, we believe benefits from lower costs of funds and continuing to use all of these financial technologies. And we also think that companies, like, for example, in the defense area, Lockheed Martin companies that have an incredible backlog have the ability as they're expanding the F35 to see their margins expand. And it looks like it's going to be there for years and years in the future.

Katherine Ross: All right, Tom, thank you so much for joining us,.

Tom Plumb: Thank you Katherine.

Ready to make some stock picks?

Tom Plumb, portfolio manager of the Plumb Balanced Fund, sat down with TheStreet to make some stock picks and to explain how he thinks that the Federal Reserve can improve their models.

Let's kick it off with the Fed. 

Plumb wrote that "most economic data series that strategists and academics have been built on old models and don't reflect the disruptive effect of software as a service (SaaS) and the Internet of Things (IoT)." 

So, when it comes to the Fed, how can Jerome Powell update the models to better reflect SaaS and IoT?

Here's what Plumb had to say:

"Well, they obviously are always working on them because I think one of the main things is that they're seeing that as the government's liabilities grow. Those are also considered everyone else's assets. You know, so somebody else owns that debt and they're using it for different purposes. And I think right now they're trying to put this all together, but again, for them to see less than 2% inflation with the type of deficits we've had and the accommodation we've had from the monetary authorities, I think it's just causing them to moderately change every one of these models," said Plumb. 

But, of course, the Fed isn't the only thing on investors minds. Plumb's fund has started to pay close attention to the financial technology sector. 

Plumb broke down why he likes MVP. And yes, that's an acronym for stocks, not "Most Valuable Player" and some other payment stocks that his fund is watching closely. 

MVP, as Plumb explains, stands for Mastercard (MA - Get Report) , Visa (V - Get Report) and Paypal (PYPL - Get Report) . 

Watch to see what other stocks Plumb likes as we head into the final half of 2019. 

Related. Trying to Wrap Your Head Around the Fed? This Expert Says Try Washing Your Hair