Interview: ABC
>> the san antonio spurs won their third nba championship in the past seven seasons last night but that did not translate into a big win for abc prime time. it was the second lowest ratings ever for an nba championship. and that brings us to this week’s “money & sports.” this week, we’re joined by our bloomberg news reporter. the ratings a surprise. what does it mean for the league and then what does it mean for abc?
>> ratings are relative these days. everything is down. there are so many distractions, on the internet, cell phones, people don’t watch like they used to and ratings inevitably fall even though the spurs have been winning, but they won the night by far, dominating last night, prime time game 7 got a huge audience but overall audiences and advertisers happy.
>> what about abc? abc and espn, $2.4 billion spending over the next six years for the right to air these games. are they getting their money’s worth?
>> probably because they had the seventh game and could sell ads at the higher rate they could charge and advertisers and the network both worry about a sweep. so fact that it went the distance, though the teams and markets weren’t the biggest, the ratings were ok for what they had.
>> other big news on the nba front had to do with the labor agreement. what are the highlights here? what was the surprise?
>> the surprise is that now greece athena highhigh schoolers won’t be drafted. after this year, you have to be 19 to be drafted. the commissioner, david stern, believes you should be more mature before you get into the grind of the nba, physically, emotionally, and every way, going through the glut of high schoolers as we’ve had through year’s past, also a tougher drug policy with more drug testing through the season for both veterans and rookies and a shorter contrast so salaries don’t run away as they have been.
>> let’s turn our attention in the last minute or so to baseball. you have rising advertising prices. why is that―why are they able do this?
>> there’s really nothing else going on, no football yet, basketball is done, hockey is done. everything’s done, just baseball. this is the all-star game, so they’re able to get maximum price, usually linking that ad to other sports events in the year so it’s a win-win, again, for advertisers, as you as they have that dedicated audience.
>> what indication do we have, if any, yet, what will come in the fall and winter in terms of ad rates?
>> ad rates should rise every year for every sport. college football, those are the advertisers sought―pretty good economy for pretty good ad rate increases.
>> now with concerns economic growth may be slowing, any talk they won’t be able to get those increases?
>> that takes a lot of catch-up. most ads are already sold for the super bowl in 2006 so maybe not until 2007 will that be felt. there’s a delay in how the economy today affects ad buying tomorrow.
>> allan, thanks for joining us. every friday we look at “money & sports.” now we’ll take a quick break. when we return, we’ll catch up on the latest world and national news headlines and the “world’s biggest mover” segment. today, tin.
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Listen Interview: Westwood Holdings
>> we’ve been talking about the oil price pressure on stocks. also, today, in terms of the declines we saw, a report showed an unexpected drop in orders of business equipment. this underscores what david spika has been saying about the stock market . david is an investment strategist with westwood holdings group in dallas and joins us as we wrap up our market at midyear series. david, want to start in terms of the oil backdrop. is that, in fact, the biggest stumbling block to investors in the stock market seeing gains from here?
>> i think it is right now. the rally you saw the past few weeks was the market realize that we could live with $50-a-barrel oil but the market is now wondering about $significant-a-barrel -- $60-a-barrel oil.
>> when you look at the declines from the major indexes, on a percentage basis, the biggest we’ve seen if 10 weeks, are you surprised by the extent? do you think it should have been cheaper?
>> i wouldn’t say i’m surprised. the market will be volatile transitioning from a high-growth phase of the recovery into a more moderate growth phase of the recovery. investors are grappling with that, with higher energy costs and grappling with the fed raising interest rates but we are bullish on the market in general, seeing 3% g.d.p. growth in the second half and think stocks can move up from here.
>> bullish, but are you changing your strategy, then, in the $60 environment?
>> no, the way we’ve hedged against high oil prices in the last couple of years is being heavily weighted in the energy sector. we’re bulls in the energy stocks, they’re producing a lot of cash flow, they’re sound and the market is not giving them credit for the price of oil. even if oil goes down to $40, energy stocks can produce.
>> are you boosting the weighting of energy stocks in the portfolios?
>> we haven’t at this point. if we see a significant run in the energy sector, we’ll review valuation levels but we haven’t seen that yet. the market is still not giving the stocks credit, but if we get to a point where we think investors are more bullish on energy, pricing in higher levels of crude oil, we may look to turn back our exposure.
>> what do you think heading towards the second half of the year, that the major themes will be?
>> energy will be a major theme. i’m hearing more people say get defensive, the market is getting weak, the economy is slowing down. i think that will be a theme. we don’t think that’s the appropriate theme. we still think the industrial part of the economy has strength. we’re still big believers in the growth coming out of china, india and emerging markets and the impact that will have on the industrial sector here so we think those things that worked in the first half will continue working in the second half.
>> let’s focus on the industrial theme you think will play out. certainly, it’s a contrarian pick and you had that report today on the durable goods orders indicating perhaps weakness there for the industrial sector. so what specifically are you thinking will 2k3w5eu7b?
>> we’re bullish on commodities. companies that produce copper and produce energy, of course, are industries we think will continue to do well that saw tremendous demand for commodities in the immerging parts of the world and we’re bullish from a general electric benefitting from demand in china and india. these are companies that will grow as china and india grow. it is a contrarian bet but as value managers, we feel pretty good about where we are right now.
>> what other contrarian picks do you have?
>> we are―i don’t know that it’s so much contrarian but we are underweight the healthcare sector and when people start talking about being defensive, a lot of times what they do is jump on to pharmaceutical stocks and healthcare stocks because they’re not necessarily economically dependent but we don’t see value this right now. we see a lot of headwinds for the healthcare sector and are significantly underweight in that sector.
>> overall, what gains are you anticipating in the second half?
>> from this point forward, we think the market can move another 3% to 5%. we’re not looking for huge outsized gains. we think the market will probably trade in a fairly stable range. the one thing that may drive stocks out of the range we’re in is an expectation that the fed is done. once investors believe the fed is done, if the economy is still growing at a reasonable rate of 3% or so, we think that will increase optimism and the market could break from this range and we could see higher gains than we currently expect.
> such as?
>> anywhere from 5% to 10% to higher. if you look to 1995, the market rallied 38% that year. we’re not looking for that but we’re looking for a gain that will be reflective of increased investor optimism realizing, yes, the fed’s done, they haven’t killed economic growth with increased rate hikes, the economy continues to be strong and stocks continue to be the best asset class among major financial asset classes.
>> david, thanks for joining us. our thanks to david spika, investment strategist with westwood holdings group. we’ll talk more about the economy and the bush administration still hopes to overhaul social security and tax code. but will the administration have to money to do this? coming up, we’ll speak with white house budget director josh bolten.
>> sales of new homes rose in may to the fastest pace since october, up 2.1% to an annual rate of 1.29 million. april’s number had been revised lower. that may increase spurred by mortgage rates below 6% and improving job market . also today, the biggest jump in more than a year for orders of durable goods. but it was only because of demand for aircraft. take out aircraft and transportation equipment, and bookings slipped .2%, the third decline in four months, all playing out in the bond market . what happened today, 10-year treasuries rising. reporting the biggest weekly gain in more than two months of the oil also a concern as investors worry the economy will slow. here’s the 10-yearr note, yield at―two-year note -- to get more on our special markets at midiary coverage -- midyear coverage, the bush administration still with hopes of overhauling social security and tax code but will the administration have the money to do this? peter cook is at white house, standing by with josh bolten, white house budget director. peter?
>> thanks very much, ellen. we are joined by josh bolten, white house budget director. thanks for your time today.
>> thank you.
>> i want to ask you at this midpoint in the year, the budget deficit situation, good news in may, the monthly figure, $35 billion, better than many economists expected and congressional budget office saying the figure for the year could be as low as $350 billion. do you have a figure in mind as to what the daest might be this year? >> we don’t have final figures yet. i’ll be announcing those in a little less than a month in our mid session review. all of the figures you cited are right. the deficit picture simm proving and it’s the result of what we see in better economic growth, stronger revenues coming in to the treasury, which is helping improve our deficit picture dramatically while we restrain spending.
>> is it possible the figure could be lower than the congressional budget office estimate of $350 billion?
>> i don’t want to speculate on precise figures yet but april and may were very good revenue months. people are making money and paying taxes, which is what we want to see and it’s coming from both the individual income side, from the corporate side, showing good, across-the-board economic growth in the country and when you go back, you have to credit the tax cuts the president put in place that help restore growth in the economy and are turning around our budget deficit picture so i think we will be headed well on the path toward cutting the deficit in half by 2009 as the president has committed.
>> any concern that some of the figures here may be due to one-time changes. for example, the repatriation, being able to bring back profits from abroad at a reduced tax rate. any indication that is helping?
>> our economists saying we have a bulge in revenue, we can’t count on that bulge year on year so when we put out the figures in a little less than a month, you’ll see a dramatic improvement in the budget deficit figures in 2005 and projecting a more moderate improvement in the out years but it will show us well on the path toward doing better than cutting the deficit in half by 2009. if we get that deficit down around 2% of g.d.p. range or lower, i think almost all economists will tell you that’s a very comfortable place for the country and this economy to be. we want it ultimately to be to zero but we’re on a good path.
>> let me ask you about the spending in congress. the highway bill, the president has threatened to veto a highway bill above $200 billion. is he still prepared to veto anything above $285?
>> i don’t want to talk about veto when they’re making such good progress. last year, the house passed a bill with $375 billion over six years and the senate came in at $320 billion and this year the president said we need to keep it
