2004 thesis
Interview: Miller Tabak---Boockvar, Peter---Equity Strategist
>> the department of agriculture says nine of 82 cattle sought in an investigation of a single case of mad cow disease in the u.s. have been located. the nine animals have been quarantined at the washington state dairy farm where the mad cow case was discovered. d.n.a. tests attempting to match the stricken cow with its apparent origin in canada will begin today at labs in canada and nebraska. results may be available early next week. cattle futures in chicago fell by less than the market limit for the first time in five sessions today, easing a plunge that began when the u.s. last week reported the discovery of that first case of mad cow disease. cattle futures have dropped 16% since that was reported december 23, including declines by expanding market limits. that chart shows the intraday. we’re within a nickel, now, of where cattle prices were back in may when the first canadian case was reported and the subsequent canadian beef ban happened in the u.s. back to stocks we go. 2003 closed the year in the plus column. haven’t seen that since 1999. our next guest says that equities may also have a positive year in 2004 but rising interest rates may not have the effect that some think in the u.s. markets. milton ezrati, senior strategist at lord abbett & company is joining me now here on the set. thank you very much for coming in here.
>> pleasure to be here.
>> new year’s eve. talk to me about this. i was reading in my notes here, is it fair to sum up your 2004 thesis as stocks will rise, the dollar will fall and bonds will be mixed?
>> i would say, yes, that’s a fair way to put. certainly treasuries. there are opportunities in bonds with an equity component like junk, excuse me, high yields and convertibles but the treasuries mixed, flat at the long end and possibly capital losses on the shorter end.
>> and the dollar?
>> the dollar has―has been for years under a weight from our trade deficit. up until recently, the relative investment opportunities, as bad as they have been here in the united states, have been worse elsewhere so money has continued to flow here and now the difference is not as great and a lot of money is staying home in europe and the dollar is falling under the weight of the trade balance.
>> do you think it will be as big, bigger or less of a factor factor in the markets, the dollar -- less, more or big next year as it was this year?
>> the dollar has only had a minimal effect. it’s a talking point but hasn’t had much of of an effect on stocks in the united states. it has had a great effect on trade and will have a great effect on trade. it has not had on stocks and i doubt it will next year. it’s proceeded in an orderly fashion and if anything, has been a boost for the u.s. economy and will continue.
>> what is this thing we are talking about, a missed call, if you will, that people may be misreading the bond market?
>> people know that the federal reserve is under pressure to raise rates as the economy improves. we at lord abbett expect them to raise rates in the second half of the year gradually, it is an election year and they don’t feel a great deal of pressure but they want to adjust and there’s a natural tendency to say when the fed’s raising short term rates that will occur across the board and that’s not necessarily so especially now when long rates have such a huge gap over short term rates.
>> the fed has never moved less than three times in any direction when they start moving rates, either cutting or tightening. what would be your forecast for rates when they start moving?
>> i think they will rise and will continue to rise. i think the fed will probably make two moves in the second half of next year. that’s a bold forecast and the fed always humbles us. two times in the second half of the year and probably continue as we get into 2005. it’s a long way from where we are now to tightening but the fed’s going to move in that direction. yoing we’ll face a great deal of pressure for some time as the fed is not afraid of inflation.
>> another calendar forecast is where is the s&p 500 going to be at the end of next year? we have done a recent survey and equity strategists, the average was looking for only 3.5% of a dozen strategists on wall street surveyed, but you’re looking for 15%?
>> we think the market is still―a lot of people are cautious because price-to-earnings multiples are high but we don’t see the fear there because bond rates and cash rates are low and even if the fed acts, it will be historically low and we think the market has a lot more room to move up with the expanding economy. still less drama than this year, but a good year.
>> we’ve been talking about with guests about this change of leadership in the market. technology for the month, one of the laggards and now we see industrials and energy leading the way. will we see this next year?
>> i think we’ll see cyclicals lead, away from technology. commodity-type stocks , industrials, media, transportation, things tied to the economy directly.
>> we have to leave it there. milton ezrati, folks. thank you for joining us, senior strategist at lord abbett & company. it’s official, telecom was this year’s worst performing group on the s&p. but some analysts expect that to change in the new year and we’ll explain and give you one bullish analyst’s top pick within that group.
