Interview: Chairman to Amsouth Asset Management
>> stocks continue their rally, reaching fresh five-year highs today. it appears there’s little investor concern about higher oil prices, even rising interest rates. similar to the late 1990’s when investors spoke about a goldilocks economy that was just right for stocks. have a look. here’s the s&p 500 since the beginning of 2004. then the fed gone began raising interest rates in the middle of that year as oil prices were surging from $30 to today’s price of $67 a barrel. so as you can see, rates and oil have hardly hurt stocks. so, let’s put this question to our guest, brian sullivan, chairman of amsouth asset management. he joins us from buriming ham, alabama. welcome.
>> thank you, lori.
>> can we use the term “goldilocks” to describe what’s been going on in the stock market ?
>> i think you could. you could also say that the stock market is taking its cue from the consumer. you would think with interest rates rising and oil prices rising, that the consumer would have given up the ghost years ago, yet they have not. the stock market just keeps plugging along.
>> you sound like you’re surprised, especially about the consumer and of course we had the services industry report today coming in stronger than expected. do you expect the consumer to run out of steam at some point?
>> we think the consumer will continue to grow. their spending but probably at a slower pace. there are a few things in the consumer’s favor but they’re not as many as you would hope for, if you were looking for the consumer to stimulate the economy. we actually think business spending is the most positive aspect about the economy. incorporations have a lot of cash on the balance sheet and are likely spending it. cash on balance sheets have stopped rising and that has helped, we know, the economy along a bit.
>> if you look at gains so far this year, energy, metals, small and midcap indices fueling the gains. a big part of your outlook for this year is that these trends are now overstated and they’ll transfer into―while international was strong in past years, now domestic stocks. you’re looking for large cap value stocks, if i’m not mistaken. when do you expect to see this transition?
>> we’re thinking that the economy is likely to slow later in the year or at least we’ll come to expect it to slow at some point later in the year. and at that time, growth is going to be priced at a premium. it’s not really priced at a premium right now. and these trends, the international stocks, small cap stocks and value versus growth have been in existence for six or seven years now and we feel like they’ve gotten ahead of themselves. they’re overdone. we don’t really know when the trend will turn. but we think it’s gone on far enough, it’s gone on a bit excessively and we think as the fed tightens this year, possibly with a little extra inflation from some of the factors you mentioned a minute ago, that we’ll see growth return as the economy sags a bit.
>> let me ask you, have you unloaded some of your small or midcap stock holdings?
>> yes, we have. we use an asset allocation model and we’ve taken 10% out of the 20% that we had in small and midcap. we’ve also taken 10% out of our normal 20% that we have in international. and we’ve put the bulk of it in large cap growth stocks.
>> let me switch gears and ask you about bonds. we’re seeing a steepening of the yield curve, long-term interest rates are going up, now. are you feeling more optimistic about the bond market right now?
>> we are more optimistic about the bond market . we think that most of the pain is beyond us. but we’re not optimistic about the bond market . we still think stocks are going to be a better mace to be unless inflation really heats up and the fed becomes oppressive. if that were to occur, then all bets are off and the bond market might be a great place to hide. but as it is right now, with inflation at 2% and the fed funds rate at 4.75, we’re comfortable with stocks in an overweighted position and actually have an extra 15% there versus our normal 50/50 mix.
>> so we’re enjoying good times, especially if you’re a bull. what are you, though, most worried about. you mentioned inflation. that remains to be seen. we’ve got high elevated oil prices, metals prices are soaring, gold is up there. what will curb this? what factors are you watching?
>> the one that is the most concerning is the employment cost index. if we get inflation in wages, then we’ve got embedded inflation, we’ve got real difficult inflation to deal with. and the fed will get more aggressive. in last couple of fed tightenings, they have allowed rates to get up to be 3% above inflation, which is now 2%, and that would call for 5%. but prior to that when they were trying to fight inflation, they would get the real rate of fed funds well up above these levels.
>> brian, we have to leave it there. thanks so much for bringing us your analysis and insight.
>> thank you.
>> our thanks to brian sullivan, chairman of amsouth asset management. massachusetts has planned to provide health insurance to all of its citizens, poised to be the first state in the nation to require residents to buy insurance, much like states require drivers to get car insurance. the states will ask businesses to help foot the bill for uninsured but the supporters say the plan asks others to make sacrifices, as well. peter cook has a special guest to discuss the plan.
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Listen Interview: Republican Governor
>> the plan was approved by the democratically controlled massachusetts state legislature after months of negotiations with republican governor mitt romney. governor romney joins me from boston to discuss the legislation. thanks for the time today. good to see you again.
>> thank you, peter. good to see you.
>> a lot of states and the federal government have been trying to deal with this issue. how is massachusetts approaching this differently?
>> well, it’s always been a dream of both republicans and democrats to find a way to get every citizen health insurance and we’ve taken republican principles to get that dream actually a reality. and the idea is that we’re not going to have a government takeover of healthcare. we’re also not going to raise taxes on businesses or anyone else. instead, we’re going to have new lower-cost products available for our citizens and those people who can’t afford to buy even low-cost health insurance, we’re going to help them pay for that insurance through a subsidy. the idea is, everybody’s going to get a product they can afford. we’re requiring them to have insurance and by virtue of that, we’ll get to a point are we don’t have to have cost shifting or businesses currently insuring their employees picking up the costs of the uninsured. everyone will have insurance.
>> let me ask you about the questions raised about the proposal. some critics say, on paper this sounds great but the reality is, the state doesn’t know how much it will cost because you don’t know how much insurers will charge to cover those currently uninsured. is there enough money, do you believe, to cover those premiums? s?
>> the answer is clearly yes. we see premiums but we are putting money aside. these are private companies that will offer products that have different levels of deductibility, different co-pay amounts. we’ll also have a directed network. this allows them to create products which are much lower cost than those currently available under state law in the commonwealth and by reforming our insurance market , we’re finding that we’re going to be able to provide insurance to folks that have long wanted it but haven’t been able to afford it and truly at overregulated market .
>> estimates i’ve seen, as many as 550,000 people in massachusetts right now without health insurance. is it your expectation that this plan, if everything works according to plan, that every one of those 550,000 would be covered?
>> we’re look for every single person to be covered. that’s every citizen, of course. there may be illegal aliens who don’t buy the product although they can get it. visitors to the commonwealth, also, can buy the product. it’s not required for u.s. citizens alone. again, it’s a private, market -based insurance product available to all of our citizens, entirely portable. it’s available to part-time workers and interestingly, the heritage foundation worked with us on this to create a vehicle to make sure that as people buy these products they’re paying in pretax dollars so you don’t have to have your employer pay for your insurance to make sure you get the right tax treatment.
>> i want to ask you how this proposal deals with small businesses. the plan, as i understand it, calls for businesses to help pay for covering the uninsured, pay for covered the uninsured by assessing a fee $295 a year for every employee not offering insurance. that can add up for small business owners, can’t it?
>> we have an assessment for all of our employers in the commonwealth, including those that do provide insurance. it’s typically invisible to them but it goes to help pay for free care in our state, an uncompensated care pool. in the past, this fee hasn’t been applied to the very companies sening employees to the uncompensated care pool, namely those not offering insurance. in the future, they’ll have to pay this fee. for those employers that don’t provide any coveragerapher for their employees. no longer will employers providing insurance for their employees have to be paying the cost of the uninsured and it means that everybody’s getting treated the same.
>> do you thing plan will provide a model for the rest of the nation?
>> you know, i think some aspects of this will be picked up by other states. i just spoke today with one of the leaders from louisiana, in fact, work working on a similar plan. michigan, pennsylvania, also looking at similar provisions. the idea here is that we’re spending a lot of money as states providing free care to people who don’t have insurance. when you take that money and use it to help them purchase insurance that’s theirs, you’re actually doing a much better job getting people preventive care, primary care and probably end up saving money at the same time. no new taxes, no government takeover and healthcare for all our citizens, an answer that’s been waiting to happen for a long time.
>> you’ve indicated you will sign the legislation into law but you have a line-item veto in massachusetts. do you plan to use that line-item veto? how might you change the proposal in the coming days?
>> well, the bill is very similar to that which i filed about a year ago. and so i will certainly sign the legislation. will i amend some portions or veto some portions? that’s very possible. there are 140 pages. i have my legal staff as well as health and human services taking a close look at it. i may have adjustments but my legislature is 85% democratic so my ability to make major changes is somewhat limited but i’ll take a hard look and net-net, the heart of the bill is what i proposed a year ago and it makes a huge difference for the people in our state and i think it will make a very positive impact on a lot of people’s lives.
>> is this the kind of healthcare proposal that someone considering a run for president might like to run on?
>> i don’t know. i’ll have to ask them. but i can tell you, it’s the kind of thing you hope you see happen more and more in government, and that is republicans and democrats came together―we’ve worked together over a year now to see if we can’t solve a serious problem. it’s a problem-solving approach of going across partisan lines. we had the heritage foundation helping out, senator kennedy’s office helping out. republicans and democrats working together to get the job done that’s been
