Interview: Raymond James---Saut, Jeffrey---Chief Investment Strategist
>> austria’s bawag bank said it used offshore banks to hide losses from bond and currency investments. we spoke with the c.e.o. of bawag bank earlier and asked him if legal action will be taken against employees who knew about the losses.
>> at the time being, there are no legal actions. as far as i’ve been told, there are no―a bad investment is such, it’s nothing illegal. it’s a bad business case but it’s not something illegal.
>> the revelation of bawag’s hidden losses may have a ripple effect in refco’s bankruptcy case in the u.s. keep in mind, bawag is suing former refco c.e.o. phillip bennett to recover more than $400 million it loaned him. meanwhile, a judge is setting a tentative trial date for bennett. a u.s. district judge said the securities fraud trial can start in october. bennett is accused of hiding hundreds of millions of dollars in unpaid debt at refco. he is currently free on bail. u.s. stocks mixed for the week. what’s the catalyst to lift the market or is there no catalyst? what is an investor to do in this market climate jeff saut is chief investment strategist with raymond james and joins us with his view. jeff is in st. petersburg, florida, and is about to get on his boat. thanks for holding off on the trip to talk with us. in your most recent research note, you called the most recent market breakout a fakeout and you’re characterizing the market as a broadening top. do tell.
>> a technical analyst would classify at least in the dow jones industrial average, as it appears right now, to be a classic broadening top. you can read about that in the handbook on technical analysis written by edwards and mcgee. and consequently, while we were very aggressively bullish back in mid october and late october, right now i’m equally aggressively cautious on the major market averages.
>> is there anything to encourage you at all out of the fact that the dow has outperformed the nasdaq in the first quarter?
>> i’ve called it the solitary dance of the dow and i have seen that action before. what tends to happen when people get worried about the potential, at least a near-term market top, is portfolio managers tend to sell their higher beta stocks, which is characterized by the nasdaq 100, which is why it’s underperforming and since they can’t really hold a lot of cash, they tend to buy the dow stocks like i.b.m., where they’re not betting their jobs.
>> you said you were cautious so you’re not buying much these days. when do you expect to increase your positions? >> we have been buying things. there’s always a bull market in something and i think it’s time to at least consider reaccumulating some of the natural gas stocks, the natural gas has come down a lot in price and we’re looking at scaling into some natural gas situations over the next three or four months.
>> last time you were here, march 8, you were recommending coal stocks, peabody energy, massey energy, arch coal, all higher by 3% or more. are you maintaining those positions?
>> yeah, i think coal is still undervalued in the aggregate. more than 50% of this country’s electricity is still produced by coal. it’s a secure course. source. the u.s. has been called the saudi arabia of coal. it takes roughly a barrel of oil, roughly $45 to produce a kilowatt of electricity. natural gas takes about $30, $35, and coal takes about $20 to $25. so we think coal has the wind at its back, so to speak.
>> energy, commodities have worked out really well for you. there’s a notion that value names might now become counter-intuitively overvalued and a lot of strategists, portfolio managers are shifting into more growth names. do you see this? have you adjusted your interest at all?
>> we did. we pounded the table on mid and small caps for 4 ½ years from october of 2001 going into the end of this year. right now, large caps, not mega-caps, but large caps appear to be cheaper than mid and small caps. that said, i’m always looking for midcap and small cap ideas because they tend to give you the best earnings growth and best capital appreciation but from a strategic standpoint, i’m looking for more opportunities in large cap currently.
>> any other industries besides the ones you’ve mentioned?
>> i think the street will always pay up for growth situations. i have stayed away from the alleged growth stocks, names like i.b.m., microsoft, intel. and we’ve preferred to mine areas that are not as well known like rogers communication. one of my analysts follows that one and we were fairly aggressive with that back in october in the mid 30’s.
>> healthcare?
>> healthcare, we have avoided big cap pharma. i think they’ll bounce around in here but i don’t see any great shakes for big cap pharma. i think that the medical device stocks will be the growth stocks of the future. and the f.d.a. has pretty much told you that the big breakthroughs are going to be granted to the biotechs.
>> jeff, appreciate your time. thanks for joining us.
>> my pleasure.
>> jeff saut is the chief investment strategist at raymond james and associates. hockey playoffs just around the corner as top teams rally to compete for the stanley cup. one team with a less-than- perfect record was just sold for a less-than-record price. more on “money & sports” coming up.
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Listen Market briefing --- Lori (slow)
Restaurant --- Suzanne (slow)
Chart of the day --- Tom (slow)
“after the bell.” i’m lori rothman. tim horton, the canadian donut chain owned by wendy’s is the newest restaurant i.p.o. the stock gained nearly 22% on its first day of trading. bloomberg’s suzanne o’halloran has more on the deal and the outlook for the restaurant industry. suzanne?
>> thanks very much, lori. tim hortons raised more than $671 million in this deal. that’s after increasing the offering price 20%. the enthusiasm for the deal comes as they separate from wendy’s and prepare to expand.
>> we’re excited about the prospect of becoming an independent company, but, again, we’ve had a great relationship them. we have expansion plans for the united states. our goal is to have 500 stores in the u.s. by the end of 2008, up from 288 stores currently.
>> hortons will also continue expanding in canada, their largest market . as many as 4,000 stores are planned by 2013. the chain, known for donuts, also offers sandwiches and soups. although the i.p.o. was well received, some investors say cracking the u.s. market is no easy feat.
>> they have to compete against the likes of starbucks and panera bread and a line of businesses they will have to face as they try to grow their u.s. business. it will not be easy.
>> tim hortons follows the success of chipotle necks can -- mexican grill. the chain spun off from mcdonald’s in january. since the i.p.o., the stock has gained about 147%. these deals make it a good time to look at the sector and we found that investors aren’t just buying restaurant i.p.o.’s. casual dining stocks as a group are beating the market , up 9% this year, more than double the gain of the s&p 500. leading the rally, bob evans up 33%. cracker barrel, landry’s each higher. wendy’s was forced to spin off tim hortons after pressure from shareholder activist nelson peltz who may also pressure the chain to spin off its baja fresh restaurant group. shares of wendy’s have gained 14% this year. another catalyst for the group, home of the whopper, burger king’s i.p.o. plans to raise as much as $400 million later this year.
>> let’s continue our coverage of the new home sales report released this morning. how does the recent data fit into the long-term picture. here for our regular look at “chart of the day,” bloomberg news editor-at-large, tom keene. welcome.
>> it’s a great story, as always, a surprise today. we saw it drop down. you heard david seiders on earlier, the economist with the realtors association, saying we’re in a different game. that’s the concern here, is it a different game or is it a moderate slowdown or a sign of bigger things to come. it’s a great chart. these are regression lines, focus on the color. there’s the noise of the data and notice how the blue is flat and the green is straight up. this is about 1992. and before that, going back 30 years, we had ups and downs of the housing market and ebbs and flows and it was pretty big and wide and flat and here’s that housing boom story over the last 15 years, straight up and persistently up. you can see today, we come right down and perfectly touch what’s called a two-deviation line. it means we’re within the trend and it gets your attention and that david seiders said, we’re in a different game. what’s fascinating about this is we really don’t know where we’re going to go from here. you go economist to economist, they just basically said, there is a bubble. morgan stanley has concerns. they lowered their g.d.p. numbers today for this quarter off of the data but others say there’s no bubble, maybe an ebb, maybe a flow, things will be fine.
>> we talk about sales. we have to wonder about prices. prices are so high, 14-year high in terms of surge.
>> 14-year highs but you’re very correct that it’s not only about unit sales, it’s about the price of those sales and we’ve seen prices come off a little bit here but it’s very important to make the nuance between the boom we’ve seen, call it 10, 12, 14% annual growth, does that come down to 8% annual growth or in quote/unquote normal 4% to 5% annual growth or the gloom of an actual price decline. there’s very few people calling nationally for an actual price decline.
>> is there any way to compare the housing boom we’ve seen over the last five years to any other component? maybe the equity market ?
>> i spoke to robert schiller of yale university and he made sharp distinctions. dr. schiller says this is the same behavior. everybody at the time wanted to be a stock market expert and now everybody wants to be in real estate. lori, i expect you any week to leave bloomberg and go into real estate. that’s the way the boom is.
>> not in new york city.
>> but that’s the boom, silliness that’s out there and what dr. schiller is trying to say is there is that behavioral element of silliness. at the same time, there are differences. the big one is stocks you can get in and out of in blinding speed, where house suggest much thicker and it takes much longer for those transactions to occur.
>> we have the fed meeting next week. short-term interest rates are going up. bring it back around and tell me how this will affect adjustable-rate mortgages.
>> higher rates mean slowing in the market but the big idea is with those higher rates we’re beginning to see a shift out of the adjustable-rate mortgages much more towards the 15-year, 30-year fixed mortgages.
>> bloomberg news editor-at-large, tom keene, thank you as always. stay with us. the stock market ending the session higher slightly. the week, though, was mixed. will next week’s two-day fed meeting be a catalyst the market needs? we’ll ask jeff saut, chief investment strategist with raymond james.
