Economic data
Interview: Banc of America Capital Management--- Benson, Robert--- Equity Strategist
>> former enron chairman kenneth lay agreed to turn over documents to the securities and exchange commission as part of the s.e.c.’s probe into enron’s collapse which was the second largest bankruptcy in u.s. history. lay had refused to give up the documents, citing his fifth amendment right against self discrimination but changed his mind just before a federal judge was to rule on the manner. he agreed that the documents were corporate records not covered by constitutional protection. the enron collapse erased $68 billion of market value and marked the beginning of a wave of major accounting scandals. investors have seen substantial gains in the markets so far this year fueled by tremendous amounts of stimulus in the system. but as the stimulus begins to wear out, are the gains sustainable? that’s a question for the ages and one we’ll put to robert benson, chief market strategist at banc of america capital management.he joins us now from st. louis with his views. robert, appreciate your time. let’s get into it here. you spoke to one of my producers and said that the economic data was good but it’s all backwards-looking, in essence that it supports where we are but won’t carry us forward. is that accurate?
>> yes, matt, that is. and it’s the nature of economic data to be backward-looking as opposed to forward-looking. what investors need to see now to move the market higher than what it’s reached thus far this year is more guidance in terms of corporate profitability and economic strength moving forward in the year. we need to see the economy move away from dependence on fiscal and monetary stimulus and become self-sustaining and we’re seeing sign of that now.
>> as we pretty much closed up with the third-quarter earnings season, getting into the fourth-quarter forecasting season or confession season, as some call it, what are you expecting there? what do you expect to hear and will that be the catalyst to keep the market going strong into 2004?
>> investors really should be pleased with the earnings results that they’re probably going to get in the fourth quarter. in the last three quarters, analysts have been surprised by a higher magnitude than they normally are surprised by the strength of earnings. i think that’s going to continue through the fourth quarter. we haven’t really seen the fourth-quarter earnings estimates revised up as we normally do. typically the pattern is during the third quarter to the fourth quarter or the next quarter’s earnings be revised up. as you approach that quarter, you see them cut back down and the companies eventually come in higher with a positive surprise. we haven’t seen them move back up yet and i think investors will be surprised and investors pleased.
>> we had a huge jump in the consumer credit this month, the number coming out earlier was up $15 billion, triple what economists had been forecasting and that says consumers are still spending, which is great. but when are the corporations, th capital expenditures, when will that happen?
>> we’re seeing that happen now. it’s taken a little time. it’s not the fast rebound that many hoped for. but we are beginning to see businesses pick up in spending. we saw very strong employment gains as businesses are beginning to hire some people back, building up their employee base. we’ve seen several quarters now of fairly robust business spending overall. most of that has been tied, however, to technology, software and hardware. what we’re seeing now is the beginnings, the essence of businesses spending not only on technology but also on basic productivity means.
>> are you better off buying companies that are hiring people and growing and spending more or are you better off buying the companies that have been beaten up and cutting costs and squeezing more out of less?
>> i think you’ll have to look at each company on a stand-alone basis relative to the others and try to estimate which companies are going to give you the best bang for your buck going forward but i think we’re heading still for sector rotation, moving away from the technology stocks toward more defensive sectors such as materials and industrials.
>> so that’s where the bang for my buck will be, materials and industrials?
>> i think for a long-term investor, that’s the way to play the market at this point, yes.
>> any more specifics?
>> i think that united technologies, that’s a great name for that. they have a very wide and diverse product line and provide replacement parts and materials for airplanes. as airlines begin to use their planes more and more frequently and more miles placed on them, they’ll need those spare parts. when the times come that airlines demand planes back out of storage, united technology will benefit from that and the more seats being flown, as well. i would also recommend g.e. with a fantastic management team and good product line and in an excellent position moving forward.
>> i certainly appreciate your insight and information and we will have you back again. appreciate it. and have a nice weekend. that’s robert benson, senior market strategist at banc of america capital management joining us from st. louis. netflix led the rally in internet stocks this year but now investors say shares may have gotten too expensive. we’ll tell you why. plus, a look at the asian economy and a preview of japan’s g.d.p. report.
