Credit Suisse Private Bank---Robert Weissenstein---Chief Investment Officer
>> all right, folks, we’re back. stocks zigzagged for much of the week, but since hitting a five-year high on may 5, the s&p 500 has slid close to 4% amid concerns, well, that the fed might keep raising interest rates, and that could choke economic and profit growth. over the past month, we’ve also seen just a wild, volatile ride in commodities and emerging markets . so as we head into the summer investing season, what factors could hold the market back or potentially give stocks a ride? for that, i’m joined by robert weissenstein, the chief investment officer at credit suisse private bank. we’re happy to have on you “market week” here today. let’s talk about this volatility in the marketplace. just a dramatic drop. you know, we’re three-plus years into a bull market here. these scare people, but they present opportunities.
>> absolutely. we just entered a period after a long period of transparency by the fed where investors are not clear in terms of what the next direction is. there are tremendous fears around inflation, what that might mean for g.d.p. growth across the board, so there’s a huge increase in volatility, which is what you typically see when you see a lack of transparency in the markets .
>> how transparent can the fed be? they’re data-dependent. what can they say, we’re done? i mean, they’re doing the right thing, are they not?
>> they’re absolutely doing the right thing. they’re going to make the next moves based on the data they see as opposed to continuing a measured course of raising rates, which has been the case now for a long period of time. we’ve gotten used to that. we’ve gotten used to our 25 basis points every single meeting. the likelihood is we don’t need to see that going forward, so they’re being very smart about holding back.
>> now, i’ve done a little bit of work that shows that people are soon, i don’t know when, going to start talking about -- begging for the rate cut. you ready for that yet, or is that too early?
>> probably not. that’s not likely. when we take a look at what the fed might do next, it’s more around the terms of a pause that they’re going to hold back, probably this next meeting or certainly the meeting after, take a look at what the data is, and then the next move somewhere after that is more than likely another increase, but it may not be on such a problematic basis as we’ve seen over the last several years. it will be in response to good g.d.p. growth and just a vigilance around inflation.
>> you mentioned g.d.p., and we’re going to see almost inevitably, we can’t sustain, what, 5.8% g.d.p. growth like the first quarter and the second quarter and the second half.
>> certainly not. but you can still have a very healthy growth environment, again, not just in the u.s., but on a global basis.
>> and that’s the great anomaly in the market right now. i’m hearing a lot of people say, you know what, we do these year-on-year and quarter-on-quarter comparisons, and sometimes you overlook the underlying fundamental strength in earnings and economics.
>> that’s right. the bottom line is we had a very healthy growth environment, and we probably will continue to do so. is it sustainable? probably not. but that doesn’t mean that we reverse trend or go into a difficult period. we’re in a very, very different environment today, just on a global basis. all of the dynamics that we’re used to from years ago have changed in terms of what can propel growth.
>> i got a chart together, we were talking about the volatility index, the v.i.x. index, and if we can show it, that will be great. the reality is this is something • because volatility, as you can see in this chart, had a spike that we haven’t seen in several years. now, that’s scary again to investors, but again, from your standpoint, that’s a good, healthy thing.
>> and i don’t know if it’s scary to investors or the fact that that is a reflection of the fear of investors at this point. and that really comes back to the lack of clarity that investors see in terms of what the next moves are. it does create opportunity. it means that there are strategies that you can implement that you couldn’t before. if you take a look within the options area, the premiums have come up tremendously over the past few weeks. secondly, it gives you entry points in the markets that have pretty good runs for a period of time. if you believe the fundamentals are going to stay in place, then you’re looking for opportunities like this to re-enter.
>> why wouldn’t they? i mean, there’s always the unforeseen, but you can’t price that.
>> you can’t price exactly what’s going to go on, and you have to take a look at what the numbers are, what the trends are, and have some level of confidence in terms of what that might be. you know, we take a look at some of the global markets right now, and we look at the u.s. markets , and valuations have come much more into line after this last correction. so if you have confidence that the types of earnings that we saw in the second quarter or this last quarter in terms of earnings reports, that that can continue, and we think it can, then you have at least fundamental reasons to work through this noise.
>> interesting that you use the word noise, because those are great opportunities. only about 30 seconds here.
>> i’m sorry?
>> that you bring up the word noise. i mean, that does offer great opportunities if you cover your ears.
>> absolutely. and the problem is that people get distracted by short-term noise all the time. that’s the biggest mistake that investors typically make. it’s very easy to get fogged in when you’re taking a look at all this conflicting data, but the reality is, if you can take a look past that period, there’s some tremendous opportunities.
>> and it’s always the case, but every time you’re in it, you have to revisit the fear.
>> yes.
>> the smart investor always buys on the dips and makes their money.
>> typically, as long as fundamentals remain intact, they also know when to pull out if they need to.
>> we are going to take a quick break, but we’re not done. we got a lot to talk about. i think it’s interesting you brought up the foreign markets . we’ll talk about that. we’ll talk about some of the groups that look good or not so good right now. we’re going to continue our discussion here on “market week with robert weissenstein from credit suisse private bank. that is next. stay with us.
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Listen Market Week---Matt (fast)
Week's key stock movers --- Bob (fast)
>> hello, i’m matt nesto, and this is “market week,” a review of the week that was as well as insight into what you need to focus on for the week to come. so let’s start with the key market themes for the past week. the dow, the s&p, and the nasdaq all set near-term lows on tuesday before financials and energy stocks and autos led a rally into the long holiday weekend. now, treasuries rose on signs of a cooling economy as yields on the 10-year note approached a one-month low. the dollar moved higher against the euro and yen for a second straight week on expectations the fed will lift rates a 17th time by the end of june. and volatility was the word in commodities. oil was higher, but gold and other metals facing selling pressure. well, stocks rebounded after two weeks of losses in a rally built on signs that the economy is growing, but not so fast that it’s going to boost inflation. bob bowdon is here for more on some of the week’s key stock movers. bob?
>> thank you, matt. the best dow industrial stock on the week happens to be the best dow industrial stock year to date. the answer is general motors, leading the rally, soaring 14%, almost 14% on that week, as you see the weekly chart there. there’s optimism that union workers for g.m. are accepting buyouts and retirement offers. merrill lynch and prudential equity both raising their investment opinion on g.m. shares. on the economic front, there was an unexpected jump in new home sales, and that pushed up the price of toll brothers, the country’s biggest luxury home builder, up 4.5% on the week. on friday, financial shares helped to fuel the advance as analysts recommended shares of goldman sachs, merrill lynch, and charles schwab. the gain in stocks came, by the way, after a volatile five days on the s&p 500, and, during the week, the s&p briefly erased its 2006 year-to-date advance. two stocks even outpaced g.m., though, on the week that was. discount retailer big lots jumping 16.5%, the most in 15 years, after that company reported earnings more than doubled analyst estimates. and the internet auction site ebay up over 15%, boosted by an alliance with internet portal yahoo that’s aimed at challenging google. but while stocks showed signs of strength on the week, some investors still questioning the pace of overall corporate earnings growth.
>> i think that the earnings growth rate will be modest, but the fact that we’ve gotten to these levels with―against these head winds is a testament to the strength of the u.s. economy. i do expect to see the markets end higher for the year, but this is a corrective mechanism in the market .
>> as we unofficially head into summer, where are we year to date? the dow up 5.25%, s&p 500 gained 2.5%, and, sadly, matt, the nasdaq fractionally lower year to date.
>> well, it ain’t over yet, though, bob. thank you very much. appreciate it. let’s talk treasuries here. the 10-year treasury moved higher this week on signs that the economy may cool and curb appetites for riskier assets. 10-year yields touched a one-month low or approached, at least, and the u.s. dollar showed signs of strength after japanese officials said they are still concerned about deflation even after a report showed that inflation accelerated for a sixth straight month.
>> if the dollar starts to fall, the risk of inflation starts to rise significantly. and in fact, if the dollar falls, fed hands may be tied in terms of raising rates. they may need to raise rates just to support the dollar.
>> lehman brothers is advising investors to bet the dollar will decline against the yen and other currencies of countries with trade surpluses versus the u.s. on the oil front, crude was up four of five days last week, finishing back above $71 again. the 3% weekly gain comes amid concerns that the standoff over iran’s nuclear program may reduce already tight global supplies. meanwhile, the summer driving season kicking off, and according to a.a.a., 31 million americans will pay about $2.86 a gallon for their gasoline. that’s 36% higher than a year ago.
>> where we go from there is really going to be contingent upon the ability of the consumer to continue growing incrementally gasoline demand. i think we will see that. and i think we also need to see whether or not we draw down dramatically in our crude oil stocks to process the crude oil into gasoline. i think both of those scenarios will play out. i’m looking for crude oil prices to potentially trade in the mid 80’s by the end of the summer.
>> prices could fall back as 39% of the analysts and traders and brokers that we survey weekly say crude prices will likely decline this week. now, that would also come as opec oil members meet next week in venezuela to review third quarter oil output. they’re expected to keep producing oil at current levels. precious metals recovered some of their losses late in the week, but overall, it was another tough week for investors that were betting gold would go up, or long gold. gold fell about $7, or 1% on the week. gold and other metals have been under pressure on speculation that higher rates in the u.s. may erode the appeal of the metal as an alternative investment. now, integrated brokerage services’ frank mcgee predicts that we’ll continue to see volatility.
>> probably the best piece of advice in these markets is to pare back your trading size. because of the volatility, you can get the same level of return for a smaller investment and take a lower level of risk. that’s the biggest thing. when the markets get busy, people tend to trade bigger.
>> now, since hitting a 26-year high in mid-may, the price of gold is down about 11% from that $732 peak. but as inflation creeps higher, investors may come back.
>> gold has become sort of the safe haven and an inflation hedge. silver to a lesser degree. they’re so correlated, we did not think we needed exposure to both. either/or would work for most people.
>> nonetheless, never lose sight of the fact that gold is up 60% in recent months, even with the recent selloffs. up next, robert weissenstein the chief investment officer of cred credit suisse will give us his views of where we’re headed. that’s next on “market week. >>
