In the he short term it is oversold
Don Ross---Armada Funds---Chief executive officer
>> armada funds chief executive officer don ross says it really doesn’t get any better than this for u.s. Companies, enjoying generous profit levels. But that might change.
>> i think in the short term it is oversold. The question that intel is raising, though, is the fundamentals. The fundamentals were so strong year over year, sequential, any way to measure it. This is the first time we’ve seen the top line, obviously, suffer over the last probably five quarters, really, it has been increasing, calling into question margins which contracted and the whole profit picture going forward, how strong will it be versus expectations which are still high.
>> info tech is such a broad group. I put a chart on the bloomberg with semiconductors and semi equipment counsel 26 -- down 26% and 23%. But then you see software and computer storage really hanging in there relatively speaking, a lot better as far as technology is concerned. So of those groups, what’s your take on that?
>> well, obviously, one of the things driving that is the beta―the data, the volatility of the sector and semiconductors being the most volatile sector they have a beta to s&p of about two. What we saw in 2003 was a dash to trash. Cyclical stocks really won, high beta stocks, high volatile stocks with risk-taking and now we’ve had the reverse as we consider the politics, geopoliticals, and the sectors most leveraged to the ones hurting the most. I think if the economy stays better, the politics and geopolitics clear up, it is likely you’ll see the arrest of the year some of the higher beta semiconductor stocks in particular do better.
>> let’s talk about domestic politics, not geopolitics, if you will. Let’s talk about the election. You said stocks would rally if president bush is re-elected. Am i to assume they will stay flat or fall if senator kerry is?
>> we’re just looking at a partial derivative which is who wins the presidential election but the investment management company at armada funds, we believe taxes are a critical ingredient in the outlook for the financial markets and obviously the tax policies being promulgated by the two presidential contenders are quite different so all else held constant, we think the bush platform for lower taxes is better for the market equities at least in the short run.
>> what is behind this belief of yours that equity returns will be challenged over the next five to 10 years?
>> i think if you look at the overall landscape, the biggest problem we have is our economy in a sense is from old milwaukee in other words, it doesn’t get any better than this. So we really say the Fundamentals are good but the rate of gain will slow. That’s both economic growth and it’s certainly profit growth. Profits right now at a level of g.d.p. At the highest they’ve been in many years so there’s really one direction for those to go relative and interest rates also a final ingredient. How much lower can they go. If they go lower, it’s probably bad. So put fundamentals good but slowing, interest rates low but having to rise together with the valuation level that, while not rich, historically, on a price-to-earnings basis, is not a cheap level from which to start, we think you’ll get profit gains in the next five to 10 years in the mid but lower-type single digits, certainly not 10% to 15% we saw in the 1990 bull market .
>> the markets in general expecting a quarter-point increase in september, i think you fall into the camp for the federal reserve. I’m more interested in what will happen in 2005. What’s your forecast there regarding rates?
>> we have a forecast of the fed reaching 2.5% in june, up another 100 basis points from here. And matt, that’s probably where we at armada funds differ from the consensus. With the yield curve steep, that implies short term rates will rise. We think if the economy slows and uncertainties clear, the fed is not likely to take rates up to that 3.5% or 4.5% that would be implied in the yield curve by the end of 2005 and certainly by most forecasters. So we think the fed will be on the margin next year, more accommodative than is currently priced in but it’s a long time between now and then.
>> stockpileing and speculative buying caused the latest runup in crude oil prices according to bessemer trust’s christine callies. Does that mean prices are poised to fall now? We’ll hear what she has to say up next.
