Interview: Westwood Holdings---Spika, David---VP/Investment Strategist
>> stocks slumped for a second week, here, on concern the fed will continue to raise interest rates to curb inflation. is this the picture my next guest is trying to get across to investors? he is david spika, equity tryst at westwood holdings. david joins us from dallas. welcome.
>> thanks, lori.
>> we’ve had an interesting week starting with the fed statement tuesday, inflation concerns that followed. we saw metal prices soaring, bond yields up. how does all of this factor into your equities outlook?
>> well, i think it’s a little bit muddled at this point. we talk about an inflection point and the market clearly has not been pricing in a slowdown in the economy. we’ve seen that in the first quarter, reits up 15%, small cap stocks up 14%. industrial cyclical companies getting valuations that really indicate investors think the economic expansion will continue for a long time. so i think the fed meeting this week may have been the message that the market and investors needed to sit back and say, hey, maybe this expansion is not going to be as robust, maybe we are going to see things slow down and you’re going to start seeing rotation in the market and maybe slower pace of gains.
>> so the losses we’ve seen in stocks the last couple of weeks, you expect this to continue with a projected economic slowdown?
>> ygs, i think clearly, the equity risk premium, the difference between the expectation of stocks and the risk-free rate, the fed funds rate, has compressed particularly in the past two to three months and investors aren’t getting the premium they should and have historically gotten to invest in stocks relative to fed funds rate so at this point you’re seeing money going into cash and bonds. clearly, commodities continue to rally. there’s inflation fears and a lot of things up in the air and i think stock investors will be less confident the first few months of the quarter.
>> to give investors confidence that stocks continue to rise despite the fed’s interest rate tightening policy or are you saying this is the inflection point where we’ll see a shift now?
>> i think we’ll see the shift now. i’m not saying we’re bearish but the market ‘s had a nice run since it bottomed in october all that in the face of continued increases of the ped rate and the market keeps thinking the fed will say they’re done. on tuesday, chairman bernanke bakley indicated they would continue to raise rates and will continue to be data dependent so the market needs to step back and say the economic pace of growth can’t continue and we need to be more cautious.
>> what industries will lead the market through the transition?
>> we’re still big believers in the industrial cycle. maybe i’m talking out of both sides of my mouth. but we think the energy complex is still very attractive. you’ve seen crude oil stay above $60 the past several months. market seems to think that’s a level the economy can live with. energy stocks still aren’t reflecting anywhere near the $eighty-a-barrel -- $60-a-barrel crude oil price. from a valuation perspective, we like energy and related industries, like the tanker industry which is under understood by the market .
>> soaring prices in metals this week. what is your outlook there?
>> we’re getting leery on the metals industry. we’ve been big investors there. we’ve done very well. we still think there’s good fundamental reason to own metals and metal-related companies. the problem is that you’re starting to see estimates for metal prices go up very, very high and the bandwagon people start to jump on. i saw a headline on one of the news programs today, “should you own metals in your portfolio.” and clearly when you see those, you have to be leery. we think metals are strong but the frorth froth is beginning to rise and you need to be more cautious.
>> our thanks to david spika, equity strategist with westwood holdings. still, much more ahead on tonight’s edition of “after the bell.”
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Listen Market briefing --- Lori (slow)
NYSE --- Deb (fast)
Nasdaq --- Robert (slow)
welcome, from world headquarters in new york city. i’m lori rothman. stocks slumped for a second week, now. there is concern the federal reserve will continue to raise interest rates to curb inflation. let’s go right to the settling numbers. our top story, delphi, the auto parts company, is asking a bankruptcy judge to throw out its labor contract, will fire more than 8,000 workers, get rid of most of its contracts plants and rewrite contracts.
>> this puts the auto workers a step closer to a strike that could cripple g.m. delphi’s filing with the bankruptcy judge escalates its confrontation with the u.a.w., which has yet to agree to a new pay and benefits contract. the union’s president says the filing killed the momentum of negotiations. indeed, today it appeared there’s no basis for continuing discussions, he said. over at g.m., c.e.o. rick wagoners says he disagrees with delphi’s decision to get the court to get rid of the u.a.w. contract. g.m. expects delphi to honor its public commitments to avoid disruption to g.m.’s operations. but morgan keegan analyst pete hastings says delphi is moving in the right direction.
>> they finally started the clock ticking. they also did a nice job of balancing a hard-ball approach with a softer approach of calling it a dual-track, saying they want to continue the negotiations. the plan looks terrific in terms of the scope, coming out smaller, more focused with a shot at being profitable if they’re able to execute on all these.
>> let’s look the plan of delphi’s, to close 21 of the company’s 29 factories, to fire 25% of tos salaried employees worldwide, eliminate 45% of delphi’s corporate officer positions and scrap or revise more than 400 g.m. contracts. the plan is to transform the company into a high-tech company that pays lower wages and employs fewer people. the u.a.w. rejected the latest pay cut offer. the u.a.w. said today it would be impossible to avoid a long strike if the court throws out its delphi contract. analysts say a prolonged walk-out may push g.m. into bankruptcy by cutting off the flow of auto parts and shutting down its factories. but there are months of bargaining left ahead. u.s. bankruptcy judge robert robert drain will hear arguments on voiding the u.a.w. contract on may 9 and is not expected to rule on that until june at the earliest.
>> what’s the latest in the saga?
>> we expect on monday g.m. may announce an agreement to sell control of gmac to investors led by cerberus capital management, according to people with direct knowledge of the matter. the group offered g.m. about $11 billion in january for 51% of gmac so we may get word of that on monday.
>> thank you very much. lost in the headlines about jerts is what’s going on with ford motor, struggling under heavy losses and now some analysts say its product strategy is flawed. pimm fox is here with more. what’s ford’s problem now?
>> some of the analysts that i spoke to say that ford’s changing product mix is going to put the company in an even more precarious position. i spoke with joseph amateuro with calyon securities and he was saying that by de-emphasizing the mid and large s.u.v. market , this will make it very difficult for ford. they’ve been trying to get into the small and mid sized automobile market . that’s really the sweet spot for a lot of the foreign competitors―companies like toyota, honda, nissan and kia motors. and it will be difficult to change consumer perceptions about which company makes the better small and mid sized car. and that will be difficult for ford.
>> what about ford’s s.u.v. market ? this has been such a big money maker for ford.
>> that’s right. that’s also a big concern. they’re going to go head-to-head against a whole new revamped product line from g.m. and that will make it even more difficult for ford to sell those high margin products. the explorer, for example, it really hasn’t had a major revamp since 1995 and sales have dropped considerably. g.m. will show off its silverado in september and october and according to a j.p. morgan report, sales of ford’s sport utility vehicles may slump even further as they face more competition from g.m.
>> what about the pickup issue, the ford pickup issue?
>> the ford f-series, the f-150, it’s been a very popular light truck for ford and that’s going to come under some pressure, as well. that’s looking a little bit older. we’re seeing shots there. that’s facing competition. the f-series accounts for, as you said, 20% of sales volume. the percentage decline of sales for that particular vehicle were 4% last year and as ford relinquishes a big price advantage, that could shave about a dollar per share off of ford earnings and ford has been discounting the super duty pickup trucks.
>> pimm as we watch ford shares in trading, they were down 2.5% but with ford we haven’t seen the shareholder revolt as we have in g.m. why is that?
>> the ford family owns about 40% of the voting stock of ford motor company and they are behind the revamp and new industry. so, so far, they’re in the driver’s seat.
>> pimm fox with the latest on ford. switching back to today’s performance on stocks, the markets closed out a disappointing week. deborah kostroun joins us from the big board with a wrap-up of today’s trading action.
>> as we close out today’s session, the dow jones industrial average closing on its lowest level of the day with late-day selling in the last 30 minutes that caused us to be down 40 points, but, remember, the low today, down 43. but stocks down for a second straight week and of course that’s really on the concern about interest rates on the rise. remember, the fed did increase interest rates, pretty much leaving the door open that we’ll likely see more of those. even though for the past couple of weeks it hasn’t been looking all that good, the s&p 500’s best first-quarter performance since 1999, up 3.9%. and the laggards this week, a tough week for the s&p, banks and utilities. that shouldn’t be surprising in a week where the fed did increase interest rates and bond yields surging, they’re up 18 basis points, the yield on the 10-year note 4.85% and the translation in the market , all the interest-rate-sensitive stocks among the worst performers of the 25 industry groups in the s&p 500. banks are lower, utilities, also interest-rate-sensitive, down 2% this week and those also lower. and energy stocks, they had a pretty good week. crude oil―over $66 a barrel. now we’re going to check in with robert gray at the nasdaq.
>> thanks so much. nasdaq bouncing between gains and losses throughout the day but not able to put in a new five-year high today as we did the past two sessions. today closing just a little bit lower, down about one point, with below-average volume and less volatility than might be expected. we heard about that from traders with google’s inclusion to the s&p 500 at the close. we did see advancers outpacing decliners in the session. speaking of google, google managed a small gain in the session, up .5%, about $1.50 as they are now a member of the s&p 500 beginning on monday’s trading. internet stocks as a whole up a little bit but one of the weaker groups in a quarter where the nasdaq composite was the outperformer of the major indexes. nasdaq up better than 6%, outpacing the dow and the s&p. the internet index down 5% in the first quarter. apple shares rising a little higher today after the international federation of the phon graphic industry saying it expects digital downloads to continue to rise in the coming year and google’s itunes having its one billionth song sold recently. and genesis microchip disappointing with its forecast. that’s it from the nasdaq.
>> robert, thank you. wrapping up a busy week and busy quarter. to give us perspective, david spika, our next guest. stay tuned.
