The inevitability of rising interest rates
Interview: Blaylock & Partners---Lowy, Gabriel---Analyst
>> well, it has been the biggest year for takeovers since 2000 and morgan stanley is closing in on mergers and acquisition leader goldman sachs. its lower fees that it’s using to do so. morgan stanley has handled about $206 billion in acquisitions this year versus $217 for goldman sachs. but morgan’s fees have dropped by about 27% from last year, and are 9% less than goldman’s, on average. morgan’s c.e.o. changed the strategy of putting ploft ahead of market share last year when the bank fell to eighth place among the major m&a advisors. morgan has earned about $600 million in merger fees so far this year versus $676 million at goldman. analysts say morgan wants the business more than it did a couple of years ago. well, our next guest takes a macro look at the economy and the markets . he’s bullish on stocks because of accelerated earnings this year. lincoln anderson is the chief investment officer at l.p.l. financial and joins us now from boston. thank you for joining us now, lincoln. talk to me here. what are the main themes and why you’re bullish on stocks is you think the concerns about rising interest rates, and i might say the inevitability of rising interest rates r overblown and that the market is overreacting.
>> well, if interest rates are going up and earnings are flat or falling, then rising interest rates are a big problem. on the other hand, if interest rates are starting to rise behind a fairly gentle fed tightening program, which i think we’ve got, and earnings are going up in the 15% to 20% range, those kind of growth rates are above 20%, then i don’t see―it’s a horse race that earnings will win. >> let’s talk about bonds. is this the year that people just absolutely stay clear of the bond market or at least the second half of the year?
>> well, i don’t think you ever want to stay completely clear of the bond market . you want to, you know, gauge your risks accordingly because you’re never quite sure what’s going to happen. and bonds are an important buffer against unexpected developments. on the other hand, i think there are areas where you can go to be less―pick up less risk than others. i certainly wouldn’t be out there in high quality 30 year bonds like 30 year treasuries at this point. durration risk is not a bet i’d take.
>> what is a quality alternative?
>> well, i think a quality alternative, paradoxically, is actually going into low-grade bonds. i think high yield is a good place to be. with an accelerating economy, you get an acceleration in earnings. so, there’s junk bonds. the improvement in the underlying quality of the companies help stabilize those yields and actually can deliver somewhat better total returns than in this kind of environment. in some situations.
>> you, like many people, are forecasting a quarter of a percent increase by the fed on june 30. what are you forecasting after that, though?
>> i think they’ll just keep right on going up. i think they might raise again before the election in august so then we’d be at 50 and then after the―and then hold until the election and then right after the election in december start in again, going up another 25. so at the end of the day, we’ll be up 100 or 150 basis points by this time next year.
>> and if you look at the―one of the great variables, if you will, on the economic recovery, i think most people agree that oil prices, how does that factor into your strategy right now?
>> well, oil prices hurt. i would be even more optimistic on the u.s. economy except when oil prices get up in the neighborhood of $40 a barrel, that really does tend to take something off―an edge off the growth forecast. so, i’m very happy to see the drawback into 38. i’d love to see oil prices back down 34. but i’m not holding my breath.
>> if we take a look, i put together a chart here on the bloomberg, and it shows the top 10 economic groups year-to-date. energy and consumer statementles at the top of the list f. we switch it over to laggardses, material, info tech, really the standout losers, really only two of three. info tech one of your favorite groups right now.
>> yeah. i think what we’ll see starting as we go from here and through the rest of this year is a real acceleration in capital spending ble hind the earnings increases we’ve seen over the last four quarters. companies are just starting to expand their technology budges. in that sense, i like that beat up group. on the materials side, i think materials took a beating lately just because we had such a huge run-up in commodity prices last year that now appear to be peaking out and coming down a bit. so, i think that’s a group with not a lot of staying power through the year.
>> let me ask you a quick question along the technology line, if you will, our final 20 seconds. your thoughts on google. would you bids for shares?
>> i think it is a wonderful concept and i am all for it. personally, it’s not really the business model for me. i’d rather―i’m more into software and medal. not the internet.
>> all right. lincoln anderson, thank you very much. appreciate you joining us and cover ago lot of topics in a little time. folk, that’s the chief investment officer at l.p.l. financial services. the trades gap wide tonled an all-time high in april. that could restrain second quarter growth. we’ll take a closer look up next.
