Tisch Sounds Alarm on Stocks, Debt as Complacency Reigns Supreme

  • Loans probably available for ‘fleet of zeppelins,’ he says
  • Loews CEO explains why he scaled back share repurchase in 2016

Jim Tisch, the chief executive officer of Loews Corp., warned that investors who bid up the prices of stocks and bonds aren’t accounting for the risks, given global uncertainties about taxes, regulation and trade.

“The movement of these markets is in stark contrast with many unknowns of our current economic and political landscape, both here and abroad,” he said in a conference call Monday discussing the company’s results. “It’s a major disconnect, and it concerns me.”

Tisch said he was sharing his cautious view to explain why the company repurchased only $134 million of its stock in 2016, about a 10th of the total from a year earlier. Loews jumped 22 percent in the 12 months ended Dec. 31, helped by gains at subsidiaries including Boardwalk Pipeline Partners LP and commercial insurer CNA Financial Corp. Stocks have been rallying since 2009, with the gains accelerating after Donald Trump won the U.S. presidential election. Trump has threatened measures that could limit imports and has sent mixed signals on some plans.

“The markets are priced for perfection, and they have been that way for quite some time,” Tisch said. “Complacency reigns supreme. However, my experience has shown me that this state of affairs won’t go on indefinitely.”

The S&P 500 Index is trading at about 21 times earnings, compared with an average ratio of about 17 to 1 in the past decade, according to data compiled by Bloomberg. The premium that investors demand for risky bonds has narrowed versus safer Treasuries, and leveraged loans posted a return of about 11 percent last year.

‘Fleet of Zeppelins’

“Key credit metrics such as leverage and coverage ratios are showing signs of weakening,” Tisch said. “The leveraged loan market has been overrun by such massive inflows of capital that you could probably get a loan to buy a fleet of zeppelins at this point.”

While Loews has been adding hotels at its lodging operation, Tisch has refrained in recent years from expanding by acquiring new companies. He said the valuations that private equity firms have been willing to pay for leveraged buyouts has frustrated his search for takeovers. New York-based Loews went “pretty far down the road” last year toward making an acquisition, but the parties were unable to reach a deal, Tisch said, without identifying the other company.

Still, Tisch said he will “continue to kick the tires” searching for the right company to buy, even if it becomes physically grueling.

“One of our shareholders recently asked if my foot is getting sore,” Tisch said. “I have to admit it is.”

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