Bullish on retailers
PanAgora Asset Mgmt---Peters, Edgar---Chief Investment Officer
>> we’re back, folks. car makers are facing a cost of almost $5 billion and that’s as new safety rules are adopted. regulators propose adding devices such as head-on protecting air bags to reduce deaths from side crashes by as much as 11%. the regulators are seeking to reduce injuries from crashes involving a higher riding vehicle, such as a light truck or sport utility vehicle when they plow into a smaller car. passengers in cars die 29 times more often than occupants of the truck. u.s. highway deaths topped 43,000 last year, hitting a 12-year high. our next guest recently shifted his investments back into financial stocks, since higher interest rates seemed to be right on the horizon. also because he says financials pose opportunities now. he’s also bullish on retailers and industrials 6 ed peters, chief investment officer at pant dsgora asset management. he admitted he’s an asset allocator and likes volatility, a day like today. why is that?
>> an asset allocation is a disparity between the returns of stocks and bonds and that’s what we’re getting. while we’re bullish on certain sectors of the stock market , as you pointed out, we’ve actually cut back on our equity allocation so we have a slight underweight relative to our neutral weighting. it looks like now is not a good time to buy. i disagreed with barton biggs statement that the market is as oversold as it has been in 20 years. the market may be oversold in the short-term. but certainly for the slightly longer term, over the next year or so, the market looks like it may be fairly valued right here.
>> what’s interesting is as an asset allocator, you have a heck of a lot of money in bonds right now and nobody, including the world’s biggest bond fund manager likes bond. i’m referring to bill gross. 45% in bonds and 55% in stocks.
>> that’s right. well, no―yeah, 45% in bonds. and we like bonds because we think they’re oversold at the moment. all the action, as far as the fed goes, is at the short end and historically, the spread between the six-month treasury bill and the 30-year bond has been 150 basis points. well, right now it’s 450 basis points. so, once the fed starts raising rates, there’s very little likelihood that the long end of the yield curve is going to shoot up. at this point, it’s likely to say where it is.
>> we looked at the long end of the yield curve t 10-year note today surging to a 22-month high, 4.81% the 10-year bond. do you think that’s due to institutions selling their bond positions? is that an opportunity?
>> yeah. that’s what it looks like to us. the bond market at the moment, you know, the real yield on bonds is quite high. higher than it’s frankly ever been. and it’s unlikely that we’ll get a surge in inflation to justify that kind of rise.
>> explain that, how it’s higher than it’s ever been.
>> well t real yield for bonds is typically, again, roughly 100 basis points, 150 basis points. and right now we have bond yields of 4.8% for the 10-year, over 5% for the 30 year. but we have inflation at less than 2%. so, that’s an incredible inflation premium. much more than we’ve had in the past. and what’s anchoring that is the fact that people think that because the short end of the yield curve is going to come up, but the long end has to go up in peril, but that’s not the case.
>> we’ve been looking at financial stocks along with the market in general. just getting hammered. you like bank of america specifically. how are they going to do better when rates go up and consumer borrowing slows down?
>> we think the actual impact on earnings is going to be very small at this point. it will be a long time before we actually see that. and the financial group has taken a hit as if the fed is going to raise interest rates by a hundred basis points by the end of this summer. that is hardly unlikely. that would hardly be a measured response to inflation. we think that financial stocks in the near term are oversold. having said that, again, total commitment to new commitment to equities is not something we recommend at this point. it’s not something we’re doing. we reduced our equity allocation somewhat overall. we prefer it among the stocks we like. we think that the financial stocks are a good buy.
>> you also told our producer that you―right now that off tilt. you favor growth stocks versus value.
>> right.
>> would google fall into that category as a growth stock in would you buy google in the i.p.o.?
>> no. what we like is growth with -- growth at a good price. and most of the tech stocks are not selling at a reasonable price.
>> including google?
>> including google. the reason we like growth stocks is during a period like this where you have high volatility, the market tends to not like dogs, or stocks that underperform. they like stocks that have outperformed. and so that’s why we tilt to growth. again having said that, one of sectors we do like are industrials, stocks like caterpillar, which recently took a he. but we think because of growth in the economy and because the economy itself is stabilizing, that’s one area which will benefit quite well.
>> and you mentioned caterpillar share, down 5% on monday. they’re halfway back after today’s move. but we’re hearing a lot about the industrial group. any other particular group that you like? actually, ed, i have to leave it there because we have to take a commercial break. thank you politely to cut you off abruptly. ed peters. thank you very much. well, dell is expected to deliver another strong quarter tomorrow. we’ll have a preview on dell. when we return.
