Read on the FOMC remarks
Interview: Wells Fargo Private Client Services--Leach, Tim---Chief Investment Officer (slow)
>> stocks finished the day higher as the federal reserve kept benchmark interest rates at a 45-year low. tim leach, chief investment officer at wells fargo private client services joins us, overseeing $125 billion and comes to us from our san francisco bureau with his view on the markets. thanks for being on the program.
>> welcome.
>> the big news is not much about 1% was left unchapgd. most people expected that. but the remarks about the economy. what was your read on the fomc remarks.
>> i think the primary message and what most of the street players were focused on is the fed continues to be a very very strong supporter of the recovery going forward. i think that’s where this exuberance in the market came from.
>> isn’t the fed always a supporter of the recovery? are you saying the fed is predicting a recovery and they are seeing it? didn’t they talk just as much about disinflation fears. >> you are right. if anything they are saying that the economy is still rather weak and that’s why they have to remain as accommodative as they are. no, what i meant is that the fed is staunchly in support of a recovery. and therefore gives i think market players that kind of expectation that sooner or later the fed’s accommodative position is going to work.
>> it’s certainly been an accommodative position with 1% for the fed funds rate. now that we know we are keeping that as the rate, is this what you think they should be doing?
>> absolutely. absolutely, bob. we’ve got a―you know, in a post bubble 9-11 global issues world that we’ve got, this is not a normal recovery period. we’ve really got to have a tremendous amount of stimulus in order to get this engine kicked back into gear. the fed for the last couple of years had been acting on their own. now we’ve got fiscal stimulus, low interest rates working concertedly. that’s what its going to take to turn this around.
>> the market has shown trendlessness of late, if that’s a word. over the last eight sessions we’ve seen four upsessions and four down sessions. what do you make lately of the recent term of where the market is heading and what investors are thinking?
>> well, i think one of the issues, bob, something i’ve been focused on for some time a the market after the war really took off, and with the market kind of anticipating a very sharp recovery and valuations have gotten fairly rich in here. i think what we are seeing is that the market has kind of reached the end of its tether until we get the proof that this recovery is going to be as strong as the market at least had hoped.
>> i’ve heard your comments in the past on valuations, and oftentimes you invoke tech stocks as the area of your biggest concern regarding valuations. talk about the tech stocks in the nasdaq.
>> well, on―tech is clearly the big winner over the last six months or so. and with nasdaq valuations on a forward p.e. basis of say 30 times at this point, you know, trailing up above 40 at this point, certainly we are up in that rarefied air and i’m very concerned about that. i think that some tech stocks have really gone beyond what would be safe zone for us. we are being very picky and choosy in here for our clients’ money right now in tech.
>> now, the investors, a lot of tech investors continue to slug off your concerns about valuation, though the nasdaq has outperformed the s&p 500 for 13 of the last 15 sessions. today the nasdaq rose 2.25%. and the pro tech investors say this to people like you. they say that because tech companies became so lean the last few years, that any small increase necessary revenue will lead to very dramatic increases in profits for the tech companies. and that’s why p.e. is not a good metric for tech companies now. to that you say what?
>> i say that while that leveraging effect is true, the premise here is that we are going to be back into a cycle of wholesale tech investment across the board as opposed to replacement purchases of technology. and to date all we’ve really been seeing in my mind has been more replacement cycle technology purchases. so we haven’t really seen that kind of proof of a new bull cycle in technology, at least not yet.
>> you are also an advocate of cyclical stocks though you do have some remarks about the economy, it seems as if you are not sure you are seeing weakness still. perhaps i’ll put it that way and you can correct me if i’m wrong. yet you do like cyclical stocks . explain that for me. cyclical stocks perform best during a rebound, yet the rebound is not sure yet; right?
>> the rebound is not yet cemented in. that’s exactly right, bob. but i am an optimist. so in our view is there is --
>> why cyclicals?
>> because that is the area that’s going to move, though it’s moved fairly well so far, there is going to be more gain there as this recovery does firm up and really gains momentum into next year.
>> and let’s talk about the consumer in the last seconds. you cite the mortgage refinance party is basically over. you call unemployment our key vulnerability. is the customer piller about to crumble that has been holding up the economy.
>> i don’t think it’s going to crumble. i think it’s certainly of concern, because the consumer has really been living off refinancing to a certain extent. the refinancing boom it seems is over, with refinancings down from 80% of their peak. i think for the consumer to continue to be a healthy part of this economy, there is going to have to be a transition from the whole housing and refinancing side of the picture over to employment. there has got to be job growth for the consumer to really remain an active part of this overall economy.
>> tim leach, chief investment officer at wells fargo private client services. thanks for being on bloomberg.
