Continue to lighten the exposure in technology
Interview: McDonald Financial---Caldwell, John---Chief Investment Officer
>> chico’s f.a.s. reported record quarterly earnings after the close of trading today. profit hit 28 cents a share in the second quarter. analysts had expected earnings of 26 cents a share. revenue came in at $173.4 million, topping the thompson financial consensus estimate. in the regular session shares of chico’s f.a.s. hit a 52-week high, closing up 90 cents at $28.90. in extended hours trading the stock is up $1, 3.46%, almost 3.5% there. the new york stock exchange providing details about its executive compensation for the first time. exchange chairman richard grasso has received a one time, $140 million payout on his retirement account. he’s agreed to a two-year contract extension of $1.4 million a year, a million dollar annual bonus. the disclosure follows criticism that grasso is overpaid. median salary in 2002 was $1.58 million. nasdaq stock c.e.o. will earn more. william donaldson earns $142,000 a year, federal reserve chairman alan greenspan makes $172,000. even though the next guest has a large exposure to industrial and investment stocks he sold stocks in those areas. he’ll tell us why he continues to lighten his exposure in technology. john caldwell at mcdonald financial joins us from cleveland.
>> it’s a time when people are talking optimistically in stocks and the economy, and you are selling. can you tell us why?
>> it’s a valuation call. we’ve been overweighted, a lot of the economically sensitive groups going back to last fall, expecting the second half recovery to gather some steam. as we are seeing that now, we wonder if a lot of the stock prices that are out there don’t already reflect that. i think that’s what we are doing is selective paring of what we consider good quality poor holdings.
>> you are looking for value. where are you finding value at this point?
>> it’s tougher and tougher to come by. we are very much a bottoms up driven organization, and we are trying to get our individual investors positioned for the long term, but in this market environment it’s very much a short-term trading oriented kind of environment. we are at logger heads to a certain extent, trying to figure out what is the right course right now for our investors.
>> ordinarily i understand you do about 60/40% breakdown between equities and fixed income. now you have about 5% in cash coming out of the fixed income side. is that part of that strategy, the difficulty of finding value in the idea that you have to be flexible?
>> no question. we may actually see client accounts that run above 5%. because we are bottoms up oriented it’s finding those specific stocks to buy. in this environment we are probably making fewer sector calls than we were even six months ago. and as we looked at the fixed income markets where we are underweight our benchmark, the risks of yields rising over the course of this year were still pretty significant in our view. so we are pretty comfortable sitting on that cash. now, were we to see bond yields move up more, we might put that back to the bond market. if we see a september swoon like the market is prone to, we maintain that flexibility to put money back in the stock market.
>> i want to ask you about that. how long is your horizon in terms of this kind of strategy? are you expecting a september swoon?
>> history is on our side in thinking that, but we are really trying to position our investors for the long term. however, we have to take into account what could possibly happen here in the near term, as we try and buy stocks at the appropriate price. i mean that’s an important discipline to maintain, and we think that the market may be forgetting some of the lessons that they learned over the past couple years, that valuations do matter, and it’s really more of a tactical move that we hope to alleviate or change in a three to six-month time horizon as we try to position our clients for a 12-month-plus type of horizon.
>> do you have any kind of particular breakpoints, any numbers to put money in, take money out of the stock market or even on the bond side?
>> in terms of the stock market, we think that we are in a trading range. this is going to be a low return environment for some time as we continue to work off the excesses of the late 1990’s, we wouldn’t be surprised to see the s&p 500 trade in a range of say 850 on the low end, up to about 1100 on the high end. now with the market sitting around 1,000, if we were to see a little more upside from here we might be a little bit prone to take money out of the stock market even further after having spent a good portion of this year overweight equities, if we were to see a pullback,ed september being the worst month on average for stocks over the past 100-some-odd years, again history is on our side, we think that we’d have a chance if we saw the s&p get below the 900 level, to find a little bit more value out there.
>> all right. thank you very much. john caldwell, chief investment strategist at mcdonald financial. we have some breaking news now from d.t.e. energy reporting its effects on its earnings from the blackout a week or two ago. blackout effect, $23 million to $26 million, in terms of revenue they see an effect of 14 cents to 16 cents a share on their earnings. they are reaffirming their forecast for 2003 operating earnings per share, however. just in time for the back-to-school season, corinthian colleges came out with quarterly earnings today. we’ll talk about that when we get back.
