Interview: Phone calls
>> the government has reportedly been secretly collecting the phone calls of millions of americans. michelle makori has the detail.
>> good morning, suzy. “u.s. today” reports that the national security agency is using the information to analyze calling patterns in order to track down terrorist activity. an unidentified person familiar with the n.s.a. program calls it the largest database ever assembled. it includes detailed records of calls made to family members, coworker, business contact, and other. the paper reports that the information is being provided by at&t, verizon, and bellsouth. qwest communications declined citing legal concerns. president bush has ordered the creation of a task force to fight identity theft. the president met with some of the nine million american who is had their identity stolen, calling their tales horror story. iran’s president says that he’s willing to talk with the u.s. about his country’s nuclear program, but there is at least one condition. mahmoud ahmadinejad says that the before negotiations, he wants u.s. to, in his own words, drop its bad attitude. in iraq, three u.s. soldiers have been killed by roadside bombs. the soldier’s convoy was hit southwest of baghdad. and president bush says he will fine a―president bush will sign a $69 million tax cut bill that will keep the economy strong and you growing. the measure was approved by the house yesterday. it would extend for two years the tax rate on most capital gains and dividends. another proviolation would exempt 15 million people from the alternative minimum tax, but only for one year. there could have been a greater chance of preventing the july 7 terrorist bombing in london if more resources had been given to security. a report released today shows that u.k. security services knew of two of the suicide bombers before the attacks. and there will be no television commercials for beer, lingerie, and contraceptive this is month in poland. why? because the pope is in town. the network does not want commercials that will conflict with live coverage of the papal visit. that is taking place from may 25 to may 28. the network’s list of unacceptable ads also includes those for explosives and flammable materials. suzy, back to you.
>> all right. thank you, michelle. coming up next, united health may restate earnings, and profit goes up at j.c. penney. we will tell you what changes brought in more sales. that’s next.
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Listen Interview: Gold
>> pfizer’s antismoking drug wins f.d.a. approval today for chantix. it’s one of five products that fiser is planning to start selling this year. the company says they could generate over $1 billion in sales by the year 2010. over the past year, though, the stock is still down about 9% from last year. the next guest was bullish on gold in march. now he is looking for a catalyst to sale. meantime, he has his eye on overseas equities. let’s bring in kevin karin. kevin, what looks attractive to you out there right now?
>> well, we’re seeing opportunities in the larger cap segment of the u.s. equity market and the pharmaceutical sector looks attractive and some of the large cap technology companies like dell looks attractive so in that category in terms of the u.s. equity markets we have moved away from smaller microcaps and focusing on mid and large caps and technology and health care being the top sector there is. at the same time, we also like emerging markets because of what’s happening in the dollar and the relative performance of the economies in terms of the fundamentals getting better compared to the united states. the commodity market , we have been long gold and own gold for our investors, but think it’s getting a little pricy and beyond what we consider fair value and if there was to be a correct, we would be looking to scale back the positions there. for the meantime, we will let it run, but the we they are beyond what we consider to be fair value.
>> you liked the metal back in march. it’s moved up a lot since then. why scale back on something that has done so well and has had such a great run?
>> that is why i’m a little hesitant to sell it. it is in an elastic market , a relatively small market , and a awful lot of money chasing the commodity whether it’s from the central bank looking to deploy foreign currency reserve and industrial metal and the jewelry industry looking for demand coming out of newly moneyed countries, that is all part of the process. speculators are part of that process now, too, and it is a relatively tight supply and hard to get new gold out of the ground and the large central banks are not net sellers anymore. it creates a tight market for gold and can spike beyond here, but we do think that relative to stocks and relative to bonds, $650 is probably the right number, but given the momentum and the tightness of the market , we would be hesitant to sell unless we saw it roll back on itself.
>> the other thing, kevin s you brought up central banks and we saw what happened yesterday and the market trying to decide what the fed is trying to broadcast to everyone. nonetheless, though, julie was talking about earlier how some people at these levels of interest rates are finding the yields and the returns in the bond market more attractive with reward taken into consideration than equities. would you forecast that if rates stay at these levels that this will be a negative thing for equities?
>> our forecast is for the yields to move slightly higher from where they are. we note that the uptick in the inflation expectations and priced into the tips market in the last couple of months is something we need to watch and i’m sure the fed is watching it. the spike in oil prices and other commodity prices are also being watched by the fed and they have gench themselveses a lot of latitude to do what they need to do with whatever comes down the road by way of watching the data and being nebulous about how they address the end of rate cut. whether it’s one more rate increase or two more rate increases t fact of the matter is that the fed is now rewarding thrift or savings and money fund deposits, for example r much more generous than they were a year ago. on the other side, debt is becoming much more costly, so whether you are a company financing debt or individual financing debt, that is becoming much more costly. we expect savings rates to rise and ultimately the economy can sustain this because we have been here before in terms of this level of interest rates and equities can perform as long as we don’t see a material acceleration or higher interest rates.
>> to be realistic, though, you have equities performing and the dow already at 8%. is there going to be a tug of war? it s it a matter of if bond yields continue to go up, then that is going to put a lid on equities for the time being?
>> at the extreme, you are absolutely right. if we see 7% or 8% type interest rates, it puts a wet blanket on the economy. it creates competition for against other asset classes like equities, but keep in mind that the companies of the united states by and large have generated tremendous amounts of free cash flow and have grown earnings consistently and well above expectations. the expectations out there are relatively reasonable, and most importantly, the earnings yields on a forward basis for the s&p is something close to 6%, well in excess of where the bond yields are currently and gives the equities room to run. as long as we see continued expansion of the economy, this is our expectation, assuming we don’t see a breakout of inflation to meaningful new highs, i think equities will perform very well.
>> kevin; thank you very much for being with us today. we appreciate it.
>> when we come back, we will tell you about reports that the government has been collecting details on your private phone calls. stay with us.
