Harris Nesbitt --- Busch, Andy ---Global FX Strategist
>> let’s check on treasuries. the 10-year up slightly, yielding 4.58%. the five-year today was up 2/32, yielding 4.57% and on the shorter end, the two-year up one tick, yielding 4.67%. the dollar rose to its highest level in about six weeks against the euro. there are indications reports on retail sales and manufacturing will show the economy rebounded from a fourth-quarter slowdown. the dollar, weaker versus the yen and euro and slightly higher against the pound. nail-biting continues on wall street. stocks closed out another jittery day worried about what fed chief ben bernanke will say to congress two days from now. many investors expect the fed to raise rates going forward but not by as much as our next guest, andy busch, for-ex strategist with harris nesbitt. you’re calling for 6% interest rates by early 2007. that’s a full percentage above what most economists are forecasting. what’s going on?
>> you have to understand how most economists make their forecasts. they look at the fed funds futures market and go, hmm, i guess they’re right. so that’s the starting point, they don’t do their homework. my estimation is based upon the fact that most brand new fed guys coming in need to prove themselves to the market and the only way you you can do that is by raising rates longer than people think. fed funds futures market is pricing in 100% chance of 4.75% and 50% chance of 5% and it’s queasy beyond that. i think there’s a very good chance that the fed will go beyond neutrality to a tightening mode which would take us about 100 points above where neutral is so that’s why i’m placing my emphasis.
>> i hear a lot of implications that bernanke has to be hawkish coming out of the gate. but hasn’t that been overdone that the fundamentals may be important?
>> we’re in a alito stage -- late-stage economic growth cycle and bernanke knows inflation comes from labor and costs of labor are going up, running textbook for what could potentially be very inflationary and that’s why as you’re in the late stage, you have more workers hired that are less productive and more expensive and that’s what we’re seeing already. on wednesday, we’ll have bernanke speak. don’t expect anything crazy out of him. he’s basically going to reiterate what the fomc minutes are for january that are going to come out the following week so i expect him to walk a plaintive iv―paint -- plaintiff line. he does need to talk tough about inflation. the market ‘s pricing that in. i don’t expect fireworks from him.
>> do you think the job market is too hot?
>> i think it’s getting hotter. i don’t think we’re stopping at 4.9 or 4.8 but will keep going for a while. where this is going to stop is when the fed really gets into tightening mode, somewhere above 5%. there are a lot of good things going on. the cap-ex numbers for 2006 should be pretty good, from what we’re seeing. the big downer, of course, which would offset that is home equity and home equity refinancings. that provided a lot of money into the economy between 2004-2005, somewhere between 300 bill to $600 billion. we know that’s not going to be there anymore because home equity refinancings, tied to the prime rate, have dropped to the floor. it’s a question of what will pick up the slack for the economy.
>> i want to pick up on the dollar. the dollar hitting a six-week high against the euro and you predict rising interest rates. we also have key reports on retail sales and manufacturing. how will this influence the dollar moves?
>> clearly, right now, it’s helped the dollar. at the beginning of the year, when we had the fomc minutes come out and people were excited about the fed stopping raising rates or easing back into the june and beyond period, the dollar took it on the chin pretty hard but as the economy is showing more strength, we’ve seen the dollar come back. the market has priced back in the rate hikes for the march and may period. you’ve seen the dollar move down quite well. the only thing holding it back here to some extent is equity investment in japan. we’ve seen a lot of money flow over there and also foreign central bank buying of the euro. i’ve seen a study recently that out of 56 central banks, 23 of them have added to their euro reserve holdings and that means there’s a bid for the euro every time it sells off. we’re in no-man’s land so it will take a while for the -- everybody to realize that the fed is serious about continuing to raise rates.
>> would you advise buying dollars right now?
>> i’d advise selling gold. i don’t like gold very much and that’s probably the best play out there.
>> appreciate that insight, andy, thank you very much for joining us. andy busch of harris nesbitt. there is much more coming up. stay with us.
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Listen Market briefing--- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
Merrill Lynch & blackrock---Margaret (slow)
>> welcome, from world headquarters in new york city, i’m lori rothman. shares of blackrock had their big oft gain in almost four years today. merrill lynch is in talks to acquire a stake in the third largest manager of bond funds. merrill lynch also closed higher today on word of a pending combination, perhaps. with a gain of 1.5%, $73.83 a share. we could perhaps hear of an agreement on the deal as soon as tomorrow. margaret popper will have the latest details and we’ll bring you analysis from james ellman, fund manager with seacliff capital. here’s a look at the closing numbers -- the dow losing 26 points, 10,892. i.b.m., alcoa, altria among the laggards on the industrial average. the s&p 500 lost four points today to close at 1262. the nasdaq lost 22 points under pressure from apple and google to close at 2239. bad weather in the northeast causing a light volume day today. news after the bell from palm, maker of the trio mobile phone. said its board approved the 2-1 share split to increase common shares outstanding to more than 100 million. the shares will trade at the split-adjusted price on march 15. palm up over 2.5%. news from 3m after the bell, as well. the maker of more than 50,000 products is raising its quarterly dividend 9.5%. it plans to buy back as much as two billion dollars worth of its own stock. the quarterly dividend of increased to 46 cents a share from 42 cents to be paid on march 12 to investors who held shares as of february 24. checking 3m, in extended hours, up 60 cents. it may be a bit of a slow start to the week but tomorrow we have retail sales numbers as well as a report on industrial production. on wednesday, traders have been telling our deborah kostroun that ben bernanke’s testimony will be a highlight this week. deborah has more with this report from the trading site.
>> it’s all traders could talk about in today’s session, a lot of anticipation about bernanke’s testimony to congress on wednesday and, in anticipation of that, we saw our lowest volume at the nyse this year. so getting off to a slow start for monday. but also, you have to remember, we have the heaviest snowstorm ever recorded in new york over the weekend. this week, we have a slew of economic reports with retail sales tomorrow and also, industrial production. then, of course, crude oil down six out of the past seven sessions and really sitting around $61 a barrel. the fact that crude oil is lower and not helping out this market has traders scratching their heads. get being back to bernanke, james paulsen with wells capital management says, for a trader, the chairman’s comments will be very important but ultimately, the strength in the economy will dictate what ben bernanke and the rest of the fed does. if it stays strong, they have no choice but to continue to raise rates and if goes weak, they can pause. changes in the leadership of the market so far this year. looking at the best performers in january, especially the small caps, not only were they good performers in january but they’ve been good performers in the past few years. the s&p, it was up 2.6% and energy, that was a big story, also last year, performing quite well. but look at what we’ve done in february so far and we aren’t even halfway done but small caps lagging the s&p and especially energy stocks. you the stocks that were once the leaders, really lagging right now so we’ve had this change in leadership. also, gold, another big change in leadership there, falling to a five-week low after the dollar strengthened against other currencies. the dollar rising on speculation that government reports this week may indicate a strengthening economy. i’m deborah kostroun at the new york stock exchange.
>> and robert gray has details of google and competition concerns leading the nasdaq to its lowest close so far this year.
>> investors and traders saying continued concerns over the earnings growth as well as interest rates roiling the markets again. the nasdaq composite closing at its lowest level of the new year in 2006. we had cleveland fed president saying that economic data in january suggesting that strong growth continues and this echoes sentiments from the fed president from chicago, moskow, last week, saying something dollar. traders saying they believe interest rates will continue rising, according to james monahan, senior actor trader at a.i.g. sunamerica. we saw the lowest volume on the nasdaq so far in the new year. some of that could be attributed to the blizzard on new york city and other parts of new england. decliners well outpacing advancers and weakness in small caps. there was concern over earnings in computer-related shares. google leading the way lower. an article in “barron’s” over the weekend suggesting the stock could fall in half over the next year as it faces mounting competition from microsoft and yahoo. we saw shares of many stocks, including yahoo, and other computer-related shares, such as apple, which have disappointed investors with earnings reports and forecasts over recent weeks, leading the way lower today. winners continuing to fall this year including sandisk, marvell technology. we did see apple, a month ago, closing at a record high, down more than 20% since that time. starbucks falling from a record on friday after they were downgraded to neutral from buy at lockheed martin. • at lockheed martin. the call was―lehman brothers. at the nasdaq, i’m robert gray.
>> bucking the trend today, merrill lynch and blackrock, shares of both companies higher today on news they may team up to create a trillion dollar fund manager. margaret popper is here to tell us more. margaret?
>> thanks, lori. merrill may sell its asset management business to blackrock in exchange for 49% stake in the newly combined fund manager. sources familiar with the situation said the deal could be announced as early as tomorrow. blackrock shares rose almost 8% to close at $141.99 and merrill shares climbed almost 1.5%, closing at $73.83, on today’s news. the transaction would allow merrill lynch to separate its fund management arm from retail brokerage at a some when investors and regulators look ascant at brokers to push their own investments.
>> i think investors were wary of that anyway. you can’t get your inhouse guys to sell our mutual funds. you can’t get the third-party brokers to sell the mutual funds because it has a merrill lynch name on it so merrill was contemplating moving to the print ton―princeton brand.
>> a combination of merrill lynch investment management and blackrock would form a fund management company with a trillion dollars in assets. blackrock would get bob doll to pick stocks, the president of merrill’s asset division and well respected chief investment manager. a deal between merrill and blackrock would be the biggest transaction merrill c.e.o. stan o’neal has done since taking the top job. blackrock shares had already jumped 21% this year as morgan stanley’s c.e.o., john mack, negotiating to buy a controlling stake. those talks ended last week over price, according to a person familiar with the matter. merrill lynch is a passive minority investor in bloomberg lp, the parent of bloomberg news.
>> perhaps this deal could be confirms, they’re saying, as early as tomorrow.
>> it’s pretty much expected at this point.
>> thank you very much. after-the-bell news on centant, an earnings report for cendant, owner of orbitz and avis rent-a-car. saying the fourth-quarter profit rose on the sale of a marketing service unit as well as a tax benefit. the net income rose to $537 million or 53 cents a share from $357 million or 33 cents a share a year ago. sales rose to 4.32 billion from $4.03 billion. as far as guidance for the first quarter, cendant says they see the first-quarter core operating revenue growth in a range of 6% to 8%. cendant sees first-quarter earnings per share from continuing operations from a range of 11 to 16 cents a share excluding separation costs. much more ahead including fed watchers calling for interest rates to go to 5%. our next guest is calling for 6%. we’ll ask him why, next.
