Interview: Oscar Gruss & Son---Aronstein, Michael---Chief Investment Strategist
>> welcome back. the dollar today rose more against the euro in one month. expectations increased that the federal rehe serve will raise rates than the european central bank. the dollar gained for a second day as the yield advantage of u.s. treasuries over european government debt widened to the most in four months. the bank of japan begins a two-day meeting in a few hours. it may reduce the cash it makes available to the banking system. that is according to a bloomberg news survey. japanese prime minister koizumi is urging the bank of japan to be careful when ending its five-year deflation fighting policy. u.s. productivity fell last quarter for the first time in about five years. the labor department says it declined at an annual rate of half a percent. that’s .1% less than reported earlier. labor costs rose 3.3%, the most in a year, and almost triple the pace of you july through september. checking bonds, on the heels of those reports by the close, 10-year up 6/32, yield lower today, clearly above 4.7%, 4.73 as you can see. checking the shorter end of the curve, two-year yielding 4.75, unchanged. stocks fell for a fourth day today after texas instruments says first quarter sales won’t meet its highest forecast. adorgd our next guest guest, is a developing theme. market leaders will turn and become market laggards. our guest is michael aronstein with oscar gruss and son.
>> thank you for having me.
>> you’re talking about a major shift in opinion about the direction of market leaders and what not. this is a great place to start if you can tell me more about that.
>> the big renation trade or the big liquidity driven trade that began in 2001 or 2002 and really lasted until the end of january is in general beginning abate. some of the leadership sectors that took advantage of the fed policies are starting to show signs of exhaustion, we look to january as kind of a buying panic in a lot of the asset classes that had led the bull market from 2002, emerging market stocks, emerging market bonds, commodities, a lot of pro-cyclical categories, where the enthusiasm developed three years into the mission. and people really, we believe, have gone overboard in terms of their commitment to these areas, when the process began in 2002, were very, very low risk. they were selling very cheat. now, some of these emerging markets are up five, seven, 10 times, the commodities are no longer cheap relative to product costs. you’ve had a seismic shift in attitude, we think a topping process in that whole theme is actually being completed now, these stocks are apt to embark on something of a bear market .
>> interesting moves in both of those sectors today. oil will continue its move lower as opec says we want to keep barrel prices below $60. and emerging markets , really a significant gap down in many of the countries. so is this indicative of what you’re talking about? and why today? why did we see such a gap lower today in?
>> in the last two or three days, people have sort of capitulated to the idea that the fed is going to be raising rates ad infinitum. i don’t think that’s going to be the case, but sectors that are sensitive to the fed’s rate of liquidity took it hard. and that in conjunction with the rest of the major central banks globally beginning tighten has attracted global liquidity where it’s beginning affect assets, pretty seriously.
>> some of those in addition being to what you were talking, you and i were talking about hougs. how you see the breakdown happening.
>> that’s the corps of it. that’s where liquidity had its most profound effect in the morning market and there into the price and activity in property, particularly in single-family homes in the united states. and any withdrawal of the what i would say liquidity bubble, that’s the real bubble. any kind of contraction of that is going to be felt most profoundly in u.s. property sectors. we’ve compared that to technology in 2000, really a sector where you have way, way overcommitment, too much individual money. people buying things on the expectation, not that they are going to get a return from the operating characteristics, but they can turn around and sell them to someone else for a higher price, for no particular reason other than that’s been the trend in all of my years of doing this, i have never seen a speck la tiff episode like we’ve seen in housing, with a soft landing, we’re very much in the hard landing, accelerating decline state when it comes to the appraisal of the property markets .
>> you might be in a minority. your company might be slim in terms of calling for a hard landing. i think most people are calling for a gradual, soft landing. the fed, of course, under greenspan was talking about urging mortgage lenders to tighten loan standard. the markets pricing in―i’m sorry. at least a couple more interest rate hikes. in our remaining time if you could just quickly address that.
>> for all of the jaw-boning the fed did, the mortgage market really got out of hand. the creativity in financing, a boom, knows no found. we saw that with venture capital in 1998, 1999, 2000.
>> i have to interrupt you. this is my mistake. we’re just about out of time. we want to thank you so much for joining us.
>> certainly.
>> stay with us. much more ahead.
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Listen Market briefing --- Lori (slow)
Enron --- June (slow)
NYSE --- Julie (slow)
Opec --- Su (fast)
welcome from world headquarters. i’m lori rothman, is “ after the bell.” former chief financial officer andrew fast you on testified in houston today. he is seen here arriving at the courthouse, told the jury that the former c.e.o. jeffrey skilling wanted to use an off the books partnership, to, quote, give me all the juice you can on earnings. bloomberg’s june grasso is at the houston courthouse. we’ll get an update in a moment. we want to show you the set lick numbers. market is closing. dow jones industrials up 20. nasdaq down 17 points. a choppy session across the board. the mid and small cap indices where the russell 2000 and the s&p 500 small cap 600 index posted the worst declines of the year so far. we see russell 2000 off 1.5%, and the small caps off 1.4% and s&p 400 down 1.3%. we saw weakness in energy, don’t forget opec report saying they are trying to keep prices below $6 on on 0. we also saw weak innocence telecom and semi conductors. in terms of positive industries, though, industries that added to points, banks were strong. on the industrial average, the leading gainers on the dow today, proctor&gam behl, bowing and honeywell. let’s go to the top story story. the highest-ranking former executive at enron says his old bosses told him to use accounting schemes to inflate earnings. and draw fastow took the stand for the first time in the six- week old trial, and june grasso is outside the courthouse to bring us to up to date.
>> andrew fastow has been silent in the four ½ years he has been kicked out of enron. he let the jury in on private conversations he had with jeff skilling as the prosecution teams to show that skilling and lay were both involved in the accounting flaws that led to the demise of enron. he said that enron board actually approved the off-the-books partnership that clearly created a conflict of interest for him. he testified that fastow -- excuse me. fastow testified that skilling said get me as much of that juice as you can, meaning use the equity from the off-books partnership to inflate earnings so it could make its books look better if there was any kind of smoking gun today, it was the global galactic list. fastow claimed that skilling had guaranteed him he would never lose any money on these off the books transactions, and the prosecution came out with hand-written notes that fastow had made of these so-called side deals with skilling. the problem was, the defense had not seen these notes before. fastow said he had forgotten about it and found it hidden in his safety deposit box. the judget let it in over objection of the defense attorney. the prosecution also spent some time on fastow’s plea agreement, because it is slightly different from the other ex-enron employees who testified. he is getting the maximum, 10 years in prison for the two counts of fraud that he plead to. he said is he not expecting any kind of consideration or recommendation from the prosecution for his testimony, that he did this for his family. now, because the defense has squarely placed the burden of enron’s collapse on fastow’s shoulders, you can expect that the cross-examination is going to be long, perhaps longer than the direct, very intense. back to you, lore yism
>> june, thank you. weakness today in energy stocks once again held back the market . we did see pockets of strength, julie hyman is at the big board.
>> hi, lore yism thanks. we’ve been talking about, really toward the end of the session, saw pairing through the declines, and the dow ended the day in the green. look at this internal statistic in the market , volume, is quite strong today, almost 1.7 billion shares, is above the average that we have seen thus far this year. however, as you look at breadth in the market , it was not positive a three to one decliners versus advancers. some of the decliners coming in the form of semi conductors, philadelphia semiconductor index, one of the biggest drags in the market today. that is because of texas instruments. a ripple effect after that company came out with a poor revenue forecast it was disappointing to some investors ask, and that really bled throughout the day. energy stocks weak. williams company, which fell yesterday after being downgraded by wachovia, today, continuing to decline after saying one of its units were restating profit it led percentage declines. halliburton one of the big carolinas. you should know that williams is not primarily an oil company, but deals mostly with natural gas. also, we were talking weak innocence maul and mid caps that contributed to the drop. bank stocks did well today if you look at the philadelphia k.b. w.index, it was trading at a record yesterday. it’s interesting, because what we were seeing in the bond market , we saw initially bond yields go higher today, hitting their highest since june 2004. but then they couldn’t necessarily sustain that, they came down a bit and we saw bank stocks rally back. also wanted to mention individual strength we saw in general motors today, helped out the dow jones. the company will freeze its defined benefit pension plans for 36,000 salaried workers, and the shares rallied on that news, helping out the dow. on a related note, we saw a move up in auto nation, one of the best performers in the s&p. they’ll sell 900 million of notes so it can repurchase 1.2 million worth of stock. >> clearly this morning’s economic data about lower productivity and higher labor costs stoking fears that the fed will continue raising rates further, that, of course, weighing on stocks in today’s session, texas instruments talking about weighing on them as well. yet another company talking about slowing growth, not going to be hitting the upper end of its range, that’s taking bullishness out of the market . take a look at the technical pattern. nasdaq composite falling below 50-day moving average it was unable in the most recent rally to take out the highs it touched back in january. it was nearly a five-year high for the nasdaq. as far as industry groups if we did see, of course, the interest rate concerns playing out. the worst-performing industry group, the financials, and transports falling, if the economy would slow down with higher interest rates, the transports not faring as well. semiconductors not performing well. texas instruments helping to send that lower. intel cutting its forecast on friday. shares down 1.5%, holding developers forum, talkinging up a new chip to run server computers faster with less powir. not impressed, falling 1%, zylink, shares falling, they did not raise and strategists including peter bookhart, they think this is as good as it will get, we will see declines ahead. back to you in the studio, lori.
>> thank you, take two interactive out with latest earnings. missing by wider than expected margin, coming in with a loffs 41 cents per share. thompson analysts were looking for 11 cents per share. they are blaming challenging compareson to its game a year ago, grand theft auto, san andreas, saying in the fourth quarter they do expect to return to profitability. so, again, wider than expected loss forte two interactive. and shares being bid lower in the extended trading session. more now on the two-day tumble in energy futures as investors anticipate that opec will continue to pump oil at near-record rates. nymex crude futures closed at $61.58. a drop of more than 1%. other movers, nat gas, the only exception today, rising 2%. natural gas futures, tumbled roughly 60% from their december record. here is bloomberg’s su keenan, she spent the day at nymex, she joins us.
>> the perception is that opec will not changeout put levels, and the president told shawn evers, that cartel will likely to pump at its highest rate in 20 years because there are too many variables right now. they will outvote venezuela eas oil minister who suggests that the markets are oversupplied, tomorrow the market will look to the energy department’s weekly inventory report. crude is expected to rise. measure can tile’s jean says the question is how stable, not how much.
>> more on the trading day and what’s ahead with michael aaronstein. he’ll tell us what he thinks the market is turning and the leaders we know today. stay with us.
