Interview: Michael Odlum (helping to oversee $14 billion in assets with security benefits corporation
>> former worldcom accountant betty vinson knot five months in jail and five months of detention for aiding the $11 billion fraud that drev the company into bankruptcy. she also received three years’ probation. vinson is one of five worldcom executives who pleaded guilty to fraud and assisted the prosecution of bernie ebbers. also sentenced today was accountant troy norman, given no jail time, however, did receive three years of probation. each faced 15 years in prison. turning to the markets , today’s jobs data exceeded economists’ expectations but led to losses in boat the stock and bond markets . signs of positive economic growth strengthening concerns the fed will continue to raise rates. in this environment, where should investors be putting their money? let’s put that money to michael odlum, helping to oversee $14 billion in assets with security benefits corporation, joining us from topeka, kansas. what do you think today’s report means for the stock market ?
>> ellen, i think jobs reports are very important, but when you’re looking at just the monthly numbers, they usually -- they don’t mean that much in actuality. you have to go back and look at trends over time. however, the market does react. and the numbers were stronger than generally expected. we think that goes in line with what we’re seeing in terms of corporate earnings in the second quarter, the surprises―the upward surprises are there still and we think that we’re seeing economists revising upward their estimates for growth for the economy in the second half of the year. so we think this is actually a good backdrop for the stock market and for stock investors.
>> however, though, have the gains we’ve seen recently played that out already? those earnings numbers have come in twice as strong as expected and that rally seemed to have petered out in the last few days when it comes to stocks so perhaps is that priced in already?
>> it could be. to a certain extent. the prices are still pretty reasonably valued right now. based on some history. and we think that if the earnings come in, continue to come in more than expected generally among investors that you’ll see surprises and that will reflect positively in the stock market , at least for the next six months. longer term, it’s not the same necessarily.
>> when you talk about that value, then, in the stock market , where specifically are you seeing that?
>> we’re seeing in healthcare stocks, some selected technology stocks and actually in general industrial sector where we’re seeing evidence that capital spending is beginning to increase. we think that will benefit some of those industries. we think the retail side is probably not the area you want to be in, nor financial, because of the, we think rates that will be rising over time.
>> before we get into more detail on what could fall, narrow it for us in terms of pockets where you see opportunities for gains. you talked about specialty technology and healthcare. cunarrow those fields for us?
>> well, in healthcare, it would not be pharma, it would be more the services side. in technology, we’re actually interestingly looking at companies in the midcap area, for example, that are very good at providing services that can make companies more efficient, make them more efficient from -- from an energy-use point of view, as well. you could almost call that a technology energy play. but we’re seeing some valuations there that look very attractive and they’re performing well but we see continuation for the next six month or so.
>> more specifics in terms of retail. when you talked about industry groups that could decline, retail is also broad. where specifically do you see risks ?
>> the main reason for that thesis is that we see the consumer spending, which has been extremely strong, as we all know, historically and in recent months, not continuing to be that. it’s kind of what we think will be an impact that ultimately the fed having increased rates, pull down a little bit of the growth in the economy and the consumer will feel it. countering that is the fact that we think wage pressure on the inflation side actually can benefit consumer spending but we’re not looking for a lot of additional impact, positive, unforeseen impact, for example, from consumer spending. it can only go so far and we think we’re getting close to where it’s no longer going to be surprising on the upside.
>> michael, thanks so much for joining us.
>> thank you very much, ellen.
>> michael odlum. let’s take a quick break. when we return, we’ll have this week’s edition of mohs. the network that brought you the tour de france expanding viewership. mike buteau joins us from atlanta with details.
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Listen Market briefing --- Ellen (slow)
Delphi --- June (slow)
Interview: Senior fellow at the council on foreign relations
across the board. you have the dow down .5%. as for the s&p, that index down, as well, coming off a four-year high seen earlier this week. the nasdaq also lower today. keep in mind, the s&p and nasdaq both also having their first weekly drop in six weeks. concerns today the fed will continue to raise interest rates coming on the heels of a jobs report for july that came in stronger that anticipated. delphi said it has borrowed $1.5 billion from banks to cover expenses of the june grasso has more.
>> delphi made the announcement a day after chief executive steve miller suggested the company faces bankruptcy if it could not restructure a labor agreement with general motors to cut costs. miller said if someone were to publish that the u.a.w. and g.m. decided not to help delphi, my cash burn would accelerate and things would be over pretty quick. delphi, which pays workers $27.50 an hour, is seeking a cut in labor expenses from general motors and u.a.w. miller said possible cost cuts include early retirement or a lump sum payment in exchange for accepting a lower wage or leaving the company. delphi’s decision to tap its $1.8 billion credit line may be an effort to put pressure on g.m. sanford c. bernstein analyst brian johnson said miller will likely play bankruptcy brinkmanship, i think he’s very serious about it if he can’t get what he wants. spokesmen frp u.a.w. and g.m. declined to comment on the talks. g.m. has also had three consecutive unprofitable quarters. its bonds slid to junk status in may. delphi sales fell nearly 7% in the first quarter as g.m. built fewer cars and trucks. delphi’s talks with g.m. follow ford’s agreement in may to bail out its former parts unit, visteon, number two u.s. auto supplier. analyst johnson says that without concessions from the union and g.m., it’s a question of when, not if delphi will be bankrupt. back to you, ellen.
>> june, thanks so much. that july jobs data suggests companies are gaining confidence and that the economy does pick up steam. ben bernanke, chairman of the white house council of economic advisers, says the president’s policies are working.
>> overall, the economy continues to grow strong and it’s worth mentioning here if you talk about the current number where we’ve come from. a couple of years ago, after the fall in the stock market , after 9/11, after the corporate accounting scandals, the economy has been in shaky condition. we’ve had the president has had four tax cut and stimulus bills, the federal reserve has cut interest rates. it really works. since may 2003, we’ve had almost four million new jobs.
>> for more perspective now on today’s economic data, we bring in gene sperling. he was president clinton’s top economic adviser and is now a senior fellow at the council of foreign relations, joining us from our washington bureau. we had those comments from ben bernanke, many economists today with a positive picture of job creation in the united states. what’s your take? how healthy, in fact, is job creation?
>> i think this is a solid number today, 207,000. it was about 27,000 above expectations. we saw some increase of 42,000 upward revision. but i think we should try to keep things in perspective. we still, for some reason or another, have an overall a fairly weak job recovery, even if you look at the last two years where we’ve seen positive numbers. it’s still actually half the rate of job growth that we normally see at this part of the recovery. in other words, it’s been about 3% growth when we’re used to seeing 6% growth if you look at the last year, it’s been 185,000 average. again, that’s somewhat solid but still significantly less than we normally expect in this period of a recovery. so i think things have certainly gotten better and you’re certainly starting to see some more firm, solid job numbers coming in but historically, it’s still one of the weakest job recoveries that we’ve ever had and i think as a result of this, there’s still a decent amount of slack in the labor force and i think if you’re worried about inflation, that’s probably pretty good news but also may give us sense as to why a lot of typical workers still don’t feel particularly strong or positive about this economy even with a few quarters of positive g.d.p. growth.
>> gene, what do you think it will take for employers, then, to pick up that pace of hiring and perhaps get closer to the historical number you cited?
>> well, i think that we’re in a time, particularly with high healthcare costs, et cetera, where businesses don’t want to just feel that things are picking up a little. they want to look out and see a fairly stable, long-term environment. and we all hope that will take place. the downside is, i think, there still is significant risk in the long-term economy. when people look at the current account deficit, at the fiscal deficit, when you have somebody like paul volcker seeing a 75% chance of a hard landing, at some point over the next few years, those might be the things that would still keep some employers from being still a bit caution but i think we still have to say these are certainly better numbers than we’ve seen, it’s just that there’s a question that really hasn’t been answered. i hate to sound like i’m at the passover table, but why is this job recovery different than all other job recoveries? it’s been historically weak and this is improvement, but we can also see it in the wage numbers. wages are essentially flat.
>> gene, i’m sorry, we’re going to run against that commercial break. thanks so much. gene sperling, senior fellow at the council on foreign relations.
