Interview: Old Second National Bank --- Binder, Joel ---Chief Investment Officer
>> michael rigas, whose father and brother were convicted of conducting a massive fraud were spared prison. rigas was given 10 months of home confinement and a $2,000 fine for his role in the scheme. a federal jury in new york found the company founder, 81-year-old john regular as and timothy, the former finance chief, guilty back in july 2004 of looting adelphia to fund $50 million in cash advances by 1.6 billion in securities and repay $252 million in margin loans. prosecutors called it one of the largest frauds in history. well, as we said that the market closed out the session today, and the outlook on the news why intels wasn’t such big news as least earlier today. joel binder, chief investment officer.
>> thank you.
>> the indices started to lose steam late in the session. did that change with the view on intel, or did investors start focusing on other factors like interest rates?
>> i don’t think that―you know, losing fortunate steam late in the day had any impact or was the result in any way over deteriorating opinion of intel. this was a company specific item we think, and certainly news that’s been known for some period of time. rather, we think that the increase in interest rates in europe yesterday for the second time in three months, the rumors that bank of japan may be increasing rates before year end, higher level on the 10-year, something we haven’t seen in a year or more, put pressure onto equity market as the day wore on.
>> big swings in the markets , all week, in fact, considerable squings, up and down is there uncertainty in the equity markets right now?
>> certainly there is some. we’ve got―we came out of fourth quarter that was decidedly weaker for g.d.p. than most people expected. we think largely attributable to rita and katrina, as well as a decline in the sales of ooze. the first quarter, we’re having a strong economic number, where we may well have g.d.p. at 5-5.5 pest, rising rates gives some cause for concern, especially since 40% of the economy is related in one way or another to house examining housing certainly rates in part to interest rates, although we think the strong employment numbers and continuing increases in wages will mitigate that, so we look for housing to soften, but not to fall off the edge of the cliff.
>> i’d like to ask you about intel. should we count the company out, or is there room for a comeback?
>> there’s room for a comeback, but certainly this is a pattern of late in terms of forecast and even earnings may be growing, but growing disappointing to consensus. intel has a number of things going on its behalf. not the least of which is the fact that it’s a very large company with an incredibly strong balance sheet. we would hope they wouldn’t have to cut prices dramatically, they have the ability because of the strong manufacturing basis to cut prices, to retain margin share or get it back. in addition, they are looking to get out a new chip architecture the first half of the year and potential that that can regain market share. they announced their joint venture with apple in terms of supplying chips to apple’s new laptops, and we think that’s also indicative of a lot of potential.
>> joel, know intel makes up 1.25% of the portfolio. you may add to intel more aggressively, because it may be getting cheap. intel closes at $20.32. at what price will you continue to buy intel?
>> i think even at these levels it’s attractive for further accumulation, if they were to fall anything significantly below here, get below the high 1 the range, we would add to it. but we think this is a stock with an 18-24-month time frame, that’s our usual investment horizon. the stock offers a lot of opportunity.
>> you prefer enterprise or business-related technology names, likesis cork over some of the consumer technology stock is there anything other than protection from a slowdown in consumer spending? tell me about your strategy.
>> certainly there’s the concern that consumers may curtail the rate of growth in spending. more importantly, as you will recall, we had a huge corporate investment leading in the y-2-k, concerns that equipment on hand wouldn’t be able to handle potential changes. there’s been a diminished investment and productivity, especially from a productivity standpoint, with strong balance sheets and cash on hand, we think corporations will spend money to enhance productivity. sis could would fit that bill, and so would an oracle, which has a pattern in the last several months of a lot of acquisitions, all in the enterprise software area.
>> joel, thank you for joining us today.
>> thank you.
>> once again, our thanks to joel binder, chief investment officer at old second wealth management. general electric chief extive jeffrey immelt is showing his faith in his company, putting money where investors can see it we’ll explain after the short break.
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
>> here is deborah kostroun live at the new york stock exchange.
>> one of the things that traders were talking about today, they were talking about the fact that the dow had really weathered the storm here in the markets . performed quite well with very disappointing forecast from intel, still performing quite well. here in the last few minutes of trading, we saw a little bit of trading. however, our volume, 1.5 billion shares, not a whole lot of thrust behind that if you take a look at the laggards. what we did see was late-day weakness from semi conductors and telecom names as well. aparts makers were lower all day today, that was led lower by news from dana that they are filing for bankruptcy, the fourth major supplier of parts supporting general motors to go bankrupt within the past 13 months a lot of talk today centered around technology. technology was the best performer in the 10 industry groups in the s&p 500678 very surprising what we saw. a one-day chart of a.m.d. it hit a 52-week high. tumbling throughout today’s session. if you get into the story of what was going on with a.m.d., intel cutting prices by as much as 50% to win back sales. and nobody wins when have you a price war. so a.m.d. really kind of by the end of the day seeing a very poor performance. steel stocks, big talk on the trading floor. one of the big things we have been seeing, steel has been rallying over the past six months, all of the takeovers going on in europe, and a.k. steel and mainly because the company in talks to be acquired by us u.s. steel, at an 11-month high. a lot of combinations in the steel industry. all this week, we’ve been talking about potentially higher interest rates, banks, third worst performers in the s&p 500. 10-year yield since, highest since last march, energy prices were higher once again. crude was higher helping out energy stocks as well. lori, back to you in the studio.
>> thank you very much for that. intel headliner today as the company reduced its sales forecast, also expressing some concerns about margins. bob bowden joins us, but earlier, intel seems like investors were shrugging off bad news, we can see from the chart here, that gave we.
>> it’s almost the reverse for this chart. intel had been down lower and finished well off lows. happy friday to you, lori.
>> you too.
>> they did not offer much in the way of explanation for that forecast cut. second half of 1% in the press release. lower forecast is primarily due to weaker than expected demand and a slight market segment share loss. which market segment they were talking about, they kind say, to which companies it slightly lost share, no elaboration, but most assume this means advanced microdevices. they see fiscal revenue in 8.7 to 9 pts 1 billion, the previous forecast, 9.1-9.7, the low is now the best they hope to do this quarter. the analyst number at $9.42 billion, mid point of the previous range this quarter’s gross margin would be adversely combected. think equity partners, eric ross cut his railting to a sell and put out a report that he titled poised at the edge of disaster. about intel that was―that report was written earlier today. he told us there’s still more bad news in store.
>> i think when you look into the june quarter, could be a tougher quarter, because pricing pressure might come to bear, as i believe that intel will begin to panic and offer rebates. you’ll see pricing declines that will bring both revenues and margins down in the same direction.
>> but there was an opposing viewpoint. a portfolio manager at vaughn total management says such a big cut only produced a mild market reaction, because intel shares are already so cheap with respect to earning.
>> intel is trading around 16 times ‘06. i think that’s cheap, versus the market in general, when you compare that against a.d., that’s trading at 30 times ‘06 numbers, you can buy intel for half the multiple of a&d. that’s a deal.
>> finishing down.8%. a.m.d., had been up earlier in the session, finished down 4.4%. you see intel down 18.5%, versus a.m.d., up 29% so far for 20 on 06.
>> this wasn’t the only thing weighing on the nasdaq. let’s check in with robert gray.
>> lori, thanks. take a look at the chart behind me. this is an intraday chart. remember, intel news came out at 9:00, traders had plenty of time to digest before the market opened. the market opening lower, right around 2:00 during the session, we saw the nasdaq come within eight points of nearly five-year high. s&p was within a points of a multiyear high as well. and weakness coming in and closing lower, but holding above 23006789 intel fallout taking down a lot of semiconductor names. a.t.i. fell 3%, second number two to intel. altera fell 1.5%. they have a mid quarter update coming next week. dell falling 1.5%. dell uses exinclude civil intel chips in its computers if there’s less demand for intel chips, perhaps investors saying there may be less demand for dell computer. no vell shares falling 17%, a software consulting and seller, selling the linux operating system. their forecast falling short of analyst estimates. those shares down on the session. banking index falling on today’s session. concern with the treasury yields higher, reports out of lehman brothers looking for higher interest railingts. so this was a problem for the bank stocks most sensitive to higher interest rates, as mortgages and loans may low down. the transports rose to a record on today’s i.s.e.m. nonmanufacturing survey, showing the economy healthy, comments from fed vice chair, roger fergson, saying the the economy is on track. and google shares moving bup half of one percent a day after the analyst meeting. a lot of analyst concerns about the growth and so it’s going forward. it’s a nasdaq, lower on the day but higher on the week, back to you.
>> john macis planning to put more than 600 million in costs during the next two years. according to an international memo, mack said we believe reducing $600 million over the next two years is an achievable goal. mack, assigned chief financial officer to lead the effort according to the memo. northwest airlines reached a tentative agreement on pay and benefits cuts with the pilots’ union. it averlted a strike. the new labor contract will be voted upon by the union’s top council. the union threatened to strike. northwest won bankruptcy court permission to void their contract and impose $358 million in pay and benefit reductions. what’s in store for the technology sector? well, more on intel and impact on the market after this break. joe bender joins us next with his outlook.
