Interview: Allegiant Asset Mgmt---Stine, Brian---Investment Strategist
>> while some investors are worried about another year of modest stock returns, our next guest says equities are cheap compared to bonds and sees more room for stocks to rally in 2006. he is brian stine, investment administrative at allegiant asset management, helping to oversee $27 billion for his firm. welcome, brian.
>> good to be here.
>> you say equities are cheap versus bonds. some might say the stock market is overbought since november.
>> certainly the stock market ‘s had a remarkable rebound in november, helping put us in positive territory year to date. nevertheless, we think there’s more upside to stocks even perhaps this year but certainly in 2006.
>> does it have to do with asset class? we had mid and small cap indices leading, outperforming the past couple of years and now there’s talk that it’s time to snap up large cap names.
>> certainly, we prefer large cap over small cap. large corporations have record amounts of cash on their balance sheets that has to be put to work and we think that will be put to work in a way that will be shareholder friendly this time. having said that, though, we’re positive on all stocks relative to bonds. we think we’re in for a period of stable or declining interest rates which should support p.e. ratios and rising p.e. ratios generally means rising prices.
>> do you see value in fixed income?
>> we do. we are not negative on fixed income. we recommend an overweight in equities and underweight in bonds but we don’t dislike bonds. we think bonds will do ok, interest rates will stabilize and perhaps decline next year but we see much more upside to the equity markets .
>> you said you like utilities and banking stocks, both industries sensitive to interest rate increases.
>> that’s correct. we think there are opportunities in those sectors that offer nice dividends, so utilities, in particular some of the bank stocks, look relatively attractive given their dividend yields.
>> some of the financial indices are hitting record highs. do you think there’s more room to grow?
>> we do. we think the outlook continues to be positive not only for the economy but also for that sector, for the finance sector.
>> and you tell us you are cautious on energy stocks. you call them “dicey,” but this is a huge industry so which sector specifically would you avoid within energy?
>> we’re concerned about energy prices. we have the runup in oil and natural gas prices because of the hurricanes but when that happened, we started conserving gasoline, gasoline prices have dropped quite a bit. there have been a lot of speculators in those markets causing a lot of the volatility, the runup, so we’re cautious of that sector and therefore we would not want to be overweight energy at this point.
>> as far as the market as a whole, you do think there’s room for the rally to continue. can you give me a time frame on that?
>> well, we thought it would rally most of the year and it didn’t. it’s been a phenomenon this past month of november. we think, certainly, december we could continue to rally but we’ll probably be, over the next quarter, as the market comes to realize the fed is finished, we’ve reached neutral, interest rates stabilize and perhaps go down so we could see a rally in the near future over the coming months.
>> does the dow hit 11,000 before the year is out?
>> a good chance it will, yes.
>> so the bond market , returning to interest rates, pricing in at least two more rate increases. we heard from chairman greenspan today. let’s say we get three rate increases, will stocks be able to withstand that?
>> that will make it difficult for stocks. our own view is that the fed may stop at 4.25 or 4.50. 4.50 means the fed tightens twice more and when chairman bernanke takes over, he has a clean slate with the fed at neutral. if, however, it looks like the fed will continue, it could be a rocky path for stocks for a little bit until we reach the neutral rate.
>> speaking of greenspan, he warned today about the widening federal budget deficit and potential for serious economic ramifications. should we start thinking about protecting investments now?
>> no. we think it still looks pretty rosy. the economy is very healthy. your previous guest talked about employment growth. we think that will continue. certainly, we have a lot of things lining up for the economy and therefore stocks. we have energy prices that have stabilized, potentially can go lower. we have the fed almost finished tightening and we have a lot of stimulus because of rebuilding in the gulf coast that will hit the first and second quarters of 2006.
>> i want to ask you perhaps what might be market headwinds. we did have a lot of rosy economic data this week but we also learned that the retail sales and same-store sales numbers weren’t overly impressive. are you concerned about the consumer?
>> i thinke bit. ihe main risk would be housing as it might affect consumers. the risk would be if the fed goes too far and they hurt housing quite a bit, then that would put the consumer at risk in terms of supporting the economy. we don’t think that’s the likely path but that’s probably the biggest risk, if there is indeed a housing bubble and it turns out that it bursts.
>> brian, thanks for your time today.
>> good to be here.
>> brian stine, investment administrative with allegiant asset management. the nfl announced that the rolls stones who have a combined age of 247 years, will perform at the half-time show at the super bowl in detroit. and “money & sports” is coming up. up.
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Interview: US Labor Secretary---Chao, Elaine---Politician / Govt Official
35 points, closing lower on the day and the week. but in the last half hour of trading, we saw the s&p and nasdaq come back, closing on the s&p at 1265 and on the nasdaq, 2273. the nasdaq, the only index higher on the week. strict in the s&p in the semiconductor sector along with healthcare. the nasdaq was led higher by apple computer as well as starbucks. for more perspective on today’s jobs report and economic outlook from a bush administration official, michael mckee is with labor secretary elaine chao. mike?
>> thank you very much. obviously good news for the administration.
>> good news for workers.
>> the president coming out to the rose garden saying the economic horizon is as bright as it’s been for a long time but polls show americans don’t believe that. an america’s research survey out last week said that 50% of americans think the economy is getting worse and 43% believe we’re in recession. why the disconnect?
>> that’s certainly not true because this week’s jobs report caps a very good week of economic news. the third-quarter g.d.p. growth was 4.3%. far in excess of what was expected. productivity increases very high for an industrial nation like us. and there’s been widespread gains across all sectors so we are seeing an employment rate that is holding steady about 5%, which is actually lower than the average unemployment rate of the decade of the 1990’s. but overall, the economy is strong and growing stronger.
>> mr. bush has been talking a lot about iraq and immigration and other issues. should he talk more about the economy?
>> we hope the media. will help us about that, as well because he does talk about and he’s very concerned about ensuring the economic security of all americans but it’s hard to get the news out amidst the other clutter but let me also say that in terms of overall jobs growth, we have seen about 183,000 new jobs created every month since may of 2000. this is the 30th month of straight job creation and we’re also seeing average hourly earnings increase. in fact, in october, the average hourly earnings went up by more than 10 cents an hour, which is very good number that we’ve not seen in over a decade.
>> you mentioned that we have seen this many months of job growth but it has been sort of saw toothed. last two months were down. we’ve had a jagged pattern of job growth. are you convinced we are now in a solid recovery where we’ll see these kind of numbers month after month?
>> the last two months, job growth numbers were weakened because of the hurricanes, katrina, wilma and rita and it’s an impressive fact that our economy can sustain those blows and yet still continue with strong job growth. we’re seeing that the impacted areas in the gulf have not had as great an economic on the national economic scene as we originally feared. in fact, what we’re seeing now is a tremendous period of rebuilding and reconstruction in the gulf region to the point where we’re seeing a shortage of skilled and unskilled workers in that area.
>> what is the labor department going do to help the people out there? is there anything the federal government can do to move workers into that area?
>> it’s up to individuals as to where they want to go but the department of labor is very much engaged in getting immediate income assistance to people who need help so before the winds of the hurricanes died down, we were already on the ground helping people access unemployment insurance, disaster unemployment assistance if they so wished and we’ve been very focused on getting moneys down to that region. i just signed off on $200 million to create about 47,000 new jobs in that region. what we’re seeing, again, is after every natural disaster there’s a period of rebuilding, reconstruction and that’s happening in the gulf area and we have a dearth of construction workers which leads me to the other point, which is, the construction sector has seen employment at an all-time high and we’re seeing a tremendous need for construction workers, the healthcare sector needs workers. other sectors that are seeking workers and that have seen employment growth that is above average are hospitality and leisure, financial and professional services. so what we’re seeing, again, very strong growth across all sectors but in particular, those sectors that i’ve just mentioned have seen very strong employment growth.
>> one sector where there is concern is the auto industry. the united auto workers says there’s a real possibility of a strike against delphi, idling general motors and their suppliers. anything the government can or should be doing to prevent a strike or if there is a strike, to step in?
>> we’re very concerned about the situation and in particular very concerned about the pensions of these large companies. manufacturing has been on the doldrums since august of 2000 and manufacturing worldwide has been on the decline, as well. we are seeing a skills gap in our country. we have the majority of new jobs being created requiring more education and more―higher skills so that’s why we’re very concerned and we’re very focused on getting training and increasing the educational levels of our work force.
>> just 30 seconds, quickly tell me whether or not congress will pass pension legislation this year.
>> we’re very concerned about the pension situation and the president proposed the pension bill and we will not sign a bill that will be weaker than current law. >> thank you very much, labor secretary, elaine chao.
>> thanks so much.
>> stocks, or bonds, large or midcaps? we’ll talk to an investment strategist who oversees almost $30 billion in assets. learn where he’s putting his money next year. stay with us.
