Insight on stocks and the market
Interview: Jacobs & Company---Jacobs, John---Fund Manager
>> a.m.r.’s american airlines will increase the number of seats on 23 of its planes to increase revenue. they told americans it will help them compete against low cost carriers and will lower fares between new york and california. the change today is part of the plan to increase revenue and cut costs.
>> first and foremost is the $4 billion in cost savings we’ve identified for our company. that is an extraordinary number to achieve outside of a courtroom. and nearly half of that, $1.8 billion, results from the sacrifices of all employees and pay benefit and work rule changes.
>> the world’s largest airline is trying to avoid bankruptcy after net losses of $5.3 billion in the past two years. for all the talk of how a weak are dollar could benefit manufacturing, improve exports and lift the economy, there are still skeptics out there. our next guest says a weaker dollar policy for the long-term is not a great idea. john jacobs, president and fund manager of jacobs and company is here to give us his insight on stocks and the market today. good to see you again.
>> hi, lane.
>> let’s start with the issue of the weak dollar or, as people are calling it, perhaps a policy of a dollar that is finding itself in this type of value situation. what’s your sense of whether this is going to be helpful or not?
>> i think what we are seeing here, i think there is a lot of political winds going on right now, you know, just the iraqi war. we know tensions between our primary trading partners france, germany and ourselves. what we are seeing here with the dollar dropping the way it is, the immediate effect will be good. companies will do very well, especially those that are international. but long term when this happens, you know, the long-term effects.u. know, they are a little unsettling long-term, as the leader bakeally of the free world and where we’ve gone here, i think right now it’s―there is just a lot of jockeying around here. think there are advantages in the market short-term for a weaker dollar, especially for the manufacturers that are multi national.
>> i think what gets lost is so much of the u.s. economy is based on smaller business which may not be affected at all by this dollar policy. it’s something we are talking about, more market-related, more multi national-related, to get any kind of a benefit for american companies.
>> that’s correct. that hits it on the head. what we are also looking at here we know we have a presidential election coming up not far away. i think this is one of the things that i think the administration is look being for―looking for to basically help stimulate the economy and give it a boost. especially after hearing chairman greenspan’s testimony today about maybe a little more of a weaker outlook. i think they are counting on that for some help.
>> are you getting a sense that the fed has its finger on the pulse? it seems theres been not flikting, at least, interpretation of what fed officials have been saying for the last several weeks. >> the question hit the head is when he described deflation. he was very humleble. he said we’ve never been there before. we are not sure what to do. with inflation we are very confident how to handle it. we’ve gone to the financial and intellectual community, and we think we’ve got answers. whether the fed is to make a move or not is yet to be determined. whether deflation becomes an issue is something else. but we are preparing for it and will be able to handle. you saw immediately after he spoke and answered that particular question the markets were down 40 points, they reversed, wept up about 40, they see sawed back and forth, it’s nervousness with the terrorist activity.
>> also with the runup we’ve seen over the last couple of weeks.
>> of course.
>> to bring that into some perspective i have up on the bloomberg a two-year chart of the s&p 500. clearly it’s got a ways to go as we look at the bloomberg from the point it was at two years ago. if i can zoom in here, perhaps we can take a look at a more recent move just in the past year oor at least since the beginning of the year and things have been very strong. what do you see here when you see it for the most recent chart as far as that support resistance?
>> what you have had here has been a very nice bullish channel which was basically violated on monday. ok? and the s&p was moving towards that 9-50, 9-954 level. that’s where it start todd hit resistance. that channel has been very very strong. now are you seeing where it’s been broken, it’s come off a little bit. it may come back and test the 891, the 900 level. but then i think you’ll see more of a trading range as we go here.
>> to go back to the two-year chart, we’re at a level that is seen more on the sustained side on the downside back in 2002. it rose to that level in the september time frame. it’s tested it over and over again only to just barely beat it, but now come below it. we want to look at that situation. in the meantime let’s talk about some of your picks in this market. you like g.e. here. g.e. has made comments about its overall situation. why are you looking at the largest company as far as market cap looking for growth?
>> two main points besides the forecast and what they’ve talked about.they feel they’ll hit their earnings but they’ve got two big benefits. one, the dollar will help them tremendously with valuation, no doubt about it. one of the biggest businesses, financing and interest rates lower and lower, they will benefit fairly significantly from that as well.
>> conoco phillips, another oil p-b you see more upside for this one as opposed to others. >> excellent management. it’s a place to go, a little better than a 3% dividend, nice upside, especially if you look at the 55 calls going out.
>> john jacobs, thank you very much. president and fund manager of jacobs and company.
