Interview: Chief investment strategist at harris private bank
>> crude oil rose in the last half hour of trading after the government released a report showing offshore output in the gulf increased. crude at the close, up .8%, $61.84 per barrel. here’s what happened over the past five days. a decline of 6.6%, $61.84, your closing price for a barrel of oil this week. for other energy movers, gas falling for the seventh straight session, the longest slide in more than two years. comes as high prices reduce consumption and threaten global economic growth. as for heating oil, up .5%. natural gas futures down 1.1%. on the energy story, noting that the house of representatives approved a republican-sponsored bill to speed the expansion of oil refineries, the vote, 212 to 2.10. the senate has not introduced a similar bill, at least not as of yet. well, after big declines this week, stocks pared losses on the back of the stronger-than-expected jobs report. inflation, a very big concern for investors. let’s take a closer look at how this could play out in coming days and weeks. joined by jack ablin, chief investment strategist at harris private bank joining us from chicago. how important was the jobs report for investors?
>> i think on the surface it calmed concerns but device honestly, the data is probably still mixed up. i don’t know what analysts really put together to come up with that 135,000 jobs downturn so i’m not sure how solid the data is but it certainly calmed fears.
>> did it calm your fears?
>> well, you know, it’s funny, i really wasn’t all that worried going into this week. i know that the downturn has been troublesome for a lot of investors. we have a bunch of fed governors gating their gums but i think the inflation story and growth story is on track. the fed, there’s no indication that the fed would give up raising interest rates anyway. i don’t think the story changed from week to week quite frankly.
>> when you look at the performance for the major benchmarks this week. do you say the declines are justified or not justified?
>> i will tell you, ellen, that for accounts that i had that had cash, new accounts coming in the market , we use this opportunity to―for a buying opportunity, quite frankly.
>> where specifically were you doing that buying?
>> we did really a broad-based approach. keep in mind, i think it was yesterday or perhaps the day before, the emerging markets were down something like 3% on the news here and it seems wholly unjustified given the fact that not only the emerging markets but international markets are cheap relative to our own that that was a pretty good buy a couple of days ago.
>> jack, it’s interesting, you talk about the accounts where you had cash available to be investing. what are you hearing from clients? are people willing to put new money in the market or feeling more cautious?
>> first of all, we braced our clients saying that this year we don’t expect more than, say, single-digit return out of the s&p and we’re still on track for that forecast so already we had our clients pretty well conditioned for meager results out of the financial markets this year. that said, we’ve got s&p earnings forecasts up 17.8 for the third quarter which would represent the 11th consecutive double-digit earnings growth for the s&p so we still have some solid earnings on the top side and reasonable interest rates on the denominator so valuations are still pretty fair.
>> let’s talk about the bond market . you talk about the interest rates. what about the yield curve. increasingly, you have people saying we’re getting closer and closer to the yield on the 10-year, falling below the yield on the two-year, which to some signals recession could be imminent. what do you see?
>> i would say that 90% chance we’re going to have an inverted yield curve by january or february and here’s my take on that, ellen. if you believe that the two-year treasury is a good forward-looking indicator of what the fed is likely to do and we have had certainly every reason to believe that it has, if you believe the fed will tighten two more times to 4.25 year-end, that’s going to take the two-year, anticipating more tightening, up to, say, 4.5 to 4.75. given the fact that we have a 10-year treasury rate at 4.35, either you have to find a condition where 10-year treasury rates will escalate or the curve will invert. i believe the fed is prepared to invert the curve. does that mean recession? so far, every indication that i would suggest based on history would say, yeah, we’ll have a recession. if the curve inverts by february, we’ll have recession by 2007.
>> jack, thanks so much for the joining us.
>> thank you, ellen.
>> have a good weekend.
>> you, too.
>> jack ablin of harris private bank. we’ll talk more about the jobs report because for the first time in more than two years, the economy lost jobs in september. is katrina to blame for everything? we’ll look at this question and get more answers ahead.
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september account thated. than expected. benchmark indexes lower for the week, the s&p recording its biggest weekly decline since april. a major setpack for research in motion. in a story heard first on bloomberg, a u.s. appeals court rejecting the company’s bid for a second challenge of a ruling that the company’s blackberry email device infringed on patents held by a different company. shares were halted and resumed at 2:00 p.m. the closing price down 3.6%. bob bowden will have details on the story. here’s what happened in the stock market on friday, gains of five points for the dow -- to our top story, again, reported first here on bloomberg, research in motion, maker of the popular blackberry email device losing an appeal before a federal court today in a patent infringement case. r.i.m. shares now down for 8 of the past 10 sessions. bob bowden has more on that story.
>> happy friday, ellen, yes. hitting a 52-week low, r.i.m. shares. last march, the chairman of ontario-based research in motion had an agreement, press releases reporting that r.i.m. had made an agreement to pay n.t.p. $450 million to settle its patent dispute over the technology to push email messages to wireless black beres - blackberries. in june, the parties reached an “impasse” prompting an appeal. today, the u.s. court of appeals for the federal circuit of washington denied r.i.m.’s request for a rehearing, letting stand the lower court’s ruling that r.i.m. infringed on n.t.p.’s intellectual property. analysts say even if r.i.m. is allowed to keep selling blackberries, it could be bad news for r.i.m.
>> the blackberries that push email have become critical to a lot of businesses and telling people they can’t use a blackberry tomorrow would be a big problem. nonetheless, that doesn’t mean r.i.m. would get away for free. it would be a serious problem for r.i.m. they could be slapped with infunction or―injunction or serious penalty.
>> r.i.m. said it will ask the judge to force n.t.p. to accept the former settlement terms to end the suit. while shares of research in motion frp halted in most of the middle hours of the session, finished down 3.6%, hitting at the 52-week low. in palm shares, palm, which sells the treo, a competitive device to the blackberry, a wireless unit that is used as a phone or receives emails.
>> hurricane katrina helped sweep 35,000 jobs out of the economy last month, the first monthly drop in two years, but only a fraction of the loss amounted. also important to note that the jobless number was driven higher. the unemployment rate driven to 5.1%, more than economists expected. the 10-year note rose even after the jobs report -- in the meantime, the jobs report sent stocks higher and with that, the s&p halted the longest losing streak since january. june grasso will join us with more on the message in the markets . june?
>> the s&p 500 is down 2.7% this week for its largest weekly decline since april. the dow jones industrials worst weekly performance ensued and the nasdaq composite had its biggest drop since april. the selloff in stocks was accompanied by a drop in the 10-year treasuries. one of the reasons, a drum beat of statements from federal reserve policymakers about inflation.
>> i think the markets this week have been braced by the fact that if you make the analogy the economy is the patient and the fed is the dollar, the markets per bracing for the concern that the doctor is prescribing the wrong medication for the patient.
>> while crude oil prices fell 7% this week, energy prices were a concern for investors bracing for the impact home heating bills may have on consumer spending this winter.
>> the housing market is softening and energy prices will hold back consumer spending. 4.25% seems like a good spot where the fed will stop but they’ll keep tightening until they see softness in housing and consumer spending.
>> just as energy prices affect the consumer, they affect corporate profits.
>> corporate earnings are probably going to be nailed by higher energy and raw material costs on one hand and higher interest rates on the other hand and that’s why we’ve had a pullback in the last couple of days.
>> during the week, the traders raised bets that the federal reserve will increase its benchmark lending rate to 4.5% by the end of january when alan greenspan steps down as chairman after more than eight years.
>> want to look at the stock market , trading activity for the day and the week. deborah kostroun filed this report from the big board.
>> stocks closed virtually unchanged. however, we snapped a four-day losing streak so a little bit higher on inflation concerns for the week. for the week, however, big losses for the dow, s&p and nasdaq. starting out in today’s session, the market was up at least 60 points, didn’t close that level as the economy lost fewer jobs in september than expected with that good payroll report, really showing the fed probably will continue raising interest rates. gasoline fell for a seventh straight session, the longest slide in more than two years, gasoline down 14% this week. a different story in crude oil, up 24 cents at $61.60 after a five-day slide, crude oil rebounding from a two-month low seen yesterday on concern that refineries shut along the gulf of mexico will leave the u.s. with insufficient heating oil stockpiles this winter. crude oil down 7.3% this week. looking at what we did see, energy stocks down all this past week. however, in today’s session, that was the biggest gainer in the s&p 500 and it looks like a bloomberg survey of traders and analysts showed crude oil prices may decline next week because of high fuel imports coming into the u.s. in this weekly chart, down 7%, the worst performer in the s&p 500. what you did see, integrated oil, natural gas, oil services all higher after being down for the last four days, but, remember, about 18% of refining capacity does remain shut in the gulf of mexico. quick headlines after the close of trading, the new york stock exchange saying they are going to suspend trading in delta air lines and of course delta and other airline stocks certainly have been reeling from the high energy prices. also, delphi, worst performance in the s&p 500 on the day and also for the year. a lot of speculation that delphi may file for bankruptcy. i’m deborah kostroun.
>> treasury secretary john snow travels to asia on saturday on a trip that may show a change in u.s. priorities. two days in japan and nine in china. snow’s last trip to asia was three years ago and that time he did not even visit china. now, china’s fast economic growth represents a challenge to u.s. dominance in the world economy and a surge in imports from china in recent years has contributed to a record u.s. trade deficit. some manufacturers and lawmakers say mayy of china’s gains are the result of unfair government policies. when we come back, we’ll look at that stock market . as we’ve been pointing out, the benchmark indexes lower this week on concerns about inflation. coming up, we’ll speak to the chief investment officer at harris private bank.
