Interview: Senior fund manager at federated investors
>> thank you. for a closer look at the bond market ahead of tomorrow’s fomc meeting, i’m joined by joe balestrino, senior fund manager at federated investors. he manages about $7 billion in fixed income investments for federated. joe joins us from pittsburgh. hi, joe.
>> hi, lori.
>> let’s pick this up where suzanne left off. the yield on the 10-year approaching the 4.6% mark. does this signal a turning point?
>> i think we’ll see more of the same. it’s a virtual lock we’ll see 25 basis points tomorrow and i’d say the same for december. so we’ll close the year at 4.5%. they’ve been citing mire economic―higher economic activity and higher inflation.
>> we did get the core p.c.e., the fed’s preferred gauge of inflation .does that add to your commentary?
>> it was .2 and 2% year over year, slightly above expectations. there, again, you’re expecting something, you get a little more than that. it’s the reason why they’re raising rates so we believe they raise rates into next year.
>> tomorrow’s meeting will be the first since ben bernanke was appointed to succeed alan greenspan as fed chief, of course. how do you think greenspan will hand the reins to bernanke?
>> i think he’ll largely be done. not that that’s necessarily been his plan but he’s been moving in the “measured measured pace” for quite a while. we anticipate a 4.5% fed funds rate is handed to mr. bernanke and then it’s what the data shows. it’s conceivable that mr. bernanke’s move is initially down.
>> bernanke does have significant pressure to prove himself as an inflation fighter so even if greenspan leaves the fed funds target at 4.5%, is there any chance bernanke could take it beyond that?
>> there certainly is. at that point in time, it’s the tug of war and who will have won, will higher inflation continue to see through to the system or will the higher inflation and cost pressures we’ve seen already hurt the consumer, not to mention the heating of homes in the northeast taking money out of folks’ pockets and one of those will have rolled around by the time february rolls around.
>> the inflation-adjusted spending falling in september and we learned today energy prices fell. energy prices significantly lower for october. does this encourage you that inflation may be subsiding?
>> not really. it is lower from the peak but the peak is miles higher than we were talking six or nine months ago and it’s the impact of that with the lag effect, like monetary policy, it has a lag effect and we’ve not had the consumer hit from the initial runup from energy prices so the $10 off the top is not now meaningful for consumer spending, i don’t believe.
>> we have to take a quick break but would like to ask you how in the climate of rising interest rates you can make money in the fixed income market . please stay with us as we ask joe that question.
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Listen Market briefing --- Lori (slow)
Dell --- Bob (fast)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
the company said earnings and revenue this quarter would miss analysts’ estimates. bob bowden joins me with the story.
>> thank you. the release hit the wires at 4:07 p.m. new york time sending dell shares lower. dell is predicting operating profits at the low end of the previous forecast. specifically, dell sees 39 cents a share for the fiscal third quarter. when the second-quarter earnings were released, dell forecasted a range between 39 and 41 so the new number is at bottom of that range. the thomson financial estimate is at midpoint of that forecast. the new member missing the forecast. going on to revenue, dell now seeing third-quarter revenue at $13.9 billion, completely missing the $14.1 to $14.9 billion previous revenue forecast given in august and not surprisingly, the new number missing the average analyst estimates, like earnings in the midpoint of the fourthorecast. they’re announcing a one-time charge in the fiscal fourth quarter, working out to 14 cents a share of net income, a one-time charge. 2/3 of this charge, or about $300 million, is related to the cost of a faulty vendor part used in optiplex desktop computers. we have this reaction from chuck jones with steinroe, saying “all of a sudden, long-term growth rate expectations have ratcheted down for dell.” in extended hours, dell down 5.5% right now at $30.10, the latest quote on dell’s shares. a little perspective, the dell shares hit a two-year low last friday, just the previous session to today. that two-year low price was $30.82 so at $30.11, we are below the two-year low if we trade at that level tomorrow. h.p. shares, the most-compared stock to dell, down 19 cents and two of dell’s suppliers, intel and microsoft down 45 cents and 14 cents respectively in extended hours.
>> going to the closing numbers, another day of gains for wall street’s benchmark averages. the dow jones industrial average closing up 37 points, off session highs. the s&p gains over 8.5 points and the nasdaq, more than 30 points. for the last 30 days, major indices lower for the month of october. but as deborah kostroun tells us, the two-day rally helped to close the month with a bang.
>> many traders have been focused on the monthly declines for the month of october but the last two trading days of the month have helped stocks stage their biggest two-day rally in almost a year. for the s&p 500, our biggest back-to-back advance since november of 2004. one of the things that got us started was friday’s g.d.p. report helping to alleviate concern about high fuel prices possibly curbing growth. tomorrow, the fed will be meeting. what we’re likely to see, the fed to increase interest rates to 4%. oil closing below $60 a barrel for the first time in three months since july 28, that very notable today. and, of course, the indexes still declined in october and many traders asking what is next. dick mccabe, technical research analyst with merrill lynch, said since 1960, the s&p 500 has fallen in october 22 times and 18 of those years, the benchmark s&p posted an increase in november and december with a combined average gain of 5.9%. he said adding all of that up, the prospects appear to be favorable for a year-end rally. looking at the gainers for october in the s&p 500, transports performing well, banks and financials also performing well. we did get a lot of positive earnings from many of the banks and financials. if you look at the laggards on the month, energy stocks, semiconductors and also auto stocks. for the month, energy stocks lower as crude oil lost 9.8%. also, gasoline was down 28% and, remember, of course, crude oil closing at $59.76 a barrel n.today’s session, what we did see, retail stocks performing very well. wal-mart, the biggest gainer in the dow jones industrial average after they said october same-store sales rose 4.3%, beating their own forecasts. i’m deborah kostroun at the new york stock exchange for bloomberg news.
>> thank you. and a broad-based rally helped nasdaq to its best two-day gain since july. robert gray has details from the market site in times square.
>> the retreat in energy prices combined with more than $19 billion in mergers and acquisitions announcements today helping to push the nasdaq higher, adding on to friday’s gains, it was the biggest two-day advance for the nasdaq since middle july, two days within a seven-day advance for the nasdaq composite. we did hear from the managing director of equity trading at legg mason, saying the end of the fiscal year for a number of mutual fund companies in today’s session on october 31 so there was a lot of portfolio buying, he said, many people adding on to positions, helping to increase the buying in today’s session. we saw advancers outpacing advancers by a five-to-two ratio with above-average volume on the nasdaq. all of the industry groups participated in the rally with the internet group strong as well as biotechs. semiconductors, which did not participate in the rally on friday, did rally in today’s session and the transports, the strongest on the day. within the gainers, google rose to a record. also, apple computer rising to a record, as well, as it said its itunes music store sold a million videos in less than three weeks of offering them on the website. we have m&a activity on the nasdaq, including bon-ton purchasing saks’ northern regional stores for $1.1 billion. they’ll focus now on selling the fifth avenue luxury unit. we saw in the media deal, comcast buying susquehanna communications cable tv and broadband unit and cumulus media buying from susquehanna its 33-station radio business, teaming up with bain capital, blackstone group and thomas h. lee partners for the $1.2 billion acquisition. at the nasdaq, i’m robert gray.
>> thank you. crude oil and heating oil tumbled and gasoline fell to its lowest level in almost five months. warmer-than-average weather may cut consumption in the u.s. northeast. crude oil at the close, down below $60 a barrel with a loss of $1.46 a barrel at $59.76, the closing price. among other energy movers, nasdaq down more than 4.5% and heating oil closing off 3.8% and natural gas futures down 6.5%. continuing the october slide. despite lower crude and natural gas prices, energy stocks rose today in concert with the general market rally after valero energy reported third-quarter earnings topping analysts’ estimates. in the entire s&p 500, the single very best performing stock year to date is valero energy. up again today after there was nothing not to like in its earnings report. now, the headline earnings number was $4.37. that’s after an accounting adjustment related to its purchase of premcor. that’s nearly triple the $1.57 a share in the same period last year. the $4.37 exceeds the analysts’ estimates by 14 cents a share. one factor helping valero last quarter, higher prices for products such as gasoline and diesel. for example, the average wholesale price of a gallon of unleaded in last year’s third quarter was $1.26. this year’s third quarter, up 52% to $1.91. phil mcpherson, director of research at c.k. cooper and company.
>> the refining business obviously is a sweet spot for investors right now mostly due to what we’ve heard over and over again, that we haven’t built new refineries in the last 30 years and refined product is a scarcity. these companies have the capacity to increase existing facilities, which is going to be the only way we’re going to eventually make up for the refining capacity shortfall.
>> valero also benefited by retooling its refineries to focus on more sour crude. the lower grade higher sulfur alternative to light sweet crude because sweet crude rose in price faster than sour so the gamble on sour paid off. mexican meiya sour crude, $15.27 a barrel cheaper than west texas intermediate sweet crude on average last quarter, compared to $11.61 cheaper in the same period last year. 70% of valero’s crude oil need are presently of the sour variety. analysts estimate profits at $3.67 for the fourth quarter. valero up $5.74 today. still ahead, investors getting ready for tomorrow’s federal reserve vote on interest rates. we’ll hear from joe balestrino of federated investors. learn what he thinks the fed will say in their post-meeting statement. stay tuned.
