One on One With Jeffrey Saut, Chief Investment Strategist at Raymond James
Monday, February 13, 2006
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SUSIE GHARIB: Our guest tonight tells investors we are in a low-growth, low- return environment and he expects the markets to muddle along. Joining us now, Jeffrey Saut, chief investment strategist at Raymond James. Hi, Jeff.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening.
GHARIB: So tell us about this muddling along part. What exactly do you mean by that?
SAUT: Well, I think that the peak in year-over-year GDP growth occurred in the first quarter of 2004, 4.7 percent and the think the economy has been in a slowing motion ever since. I have been saying that I thought sometime in 2006 we would get a sub 3 percent year-over-year GDP report, but we already got that in the preliminary fourth quarter of last year.
GHARIB: Now, a lot of investors were very concerned today about comments made by one of the Fed presidents about, you know, more interest rates possibly coming our way and also a lot of anxiety about the first public comments that we`re going to be hearing from new Fed Chairman Ben Bernanke. What is your view on all of this and the outlook for interest rates?
SAUT: Well, I think the historic precedent has been set by -- at least my 35 years in this business -- by every new Fed head except Arthur Burns. They have come into their new position in a hawkish mode and they have tended to raise interest rates until there`s been a financial accident. You recall when Paul Volcker came in, we had a mini crash. When Alan Greenspan came in, we had a real crash. So I have been wrong on interest rates. I thought in a financentric economy that the Fed would stop somewhere around 3 1/2, 3 3/4. It now looks to me like they`re going to keep with their historic modus operandi and probably continue to raise rates until there is an accident.
GHARIB: So, Jeff, what is your strategy in this kind of market scenario that you`re telling us about. What do you do? If you`re expecting higher interest rates and you`re saying the market`s going to muddle through, what are you doing in your portfolio?
SAUT: Well, just because the major market indices tend to trade sideways, doesn`t mean you can`t make money. I think it`s a mistake to have an overly optimistic, bullish view. I also think it`s a mistake to have a hardened pessimistic view. Sector selection, good stock selection and your ability to cut your losses quickly produced over 13 percent return on the focus list that we managed last year and a 22 percent return on the analyst best picks.
GHARIB: Now, you told me that you are already beginning to unload or you have been unloading a lot of your energy holdings, stocks in the energy sector. What`s your thinking there? And do you have any of the big oils in your portfolios right now?
SAUT: Yes, we do. We have a long-term bullish call on energy. We have been bulls on not just oil and natural gas, but coal in particular. So about three or four months ago, sensing that oil was making a peak, if you will around $70 a share, we cut back 20 to 30 percent on our energy stocks, sensing that you were going to get this seasonal weakness in the first or second quarter of this year. Longer term, we continue to think energy is a place to be well over weighted.
GHARIB: All right. The other, a lot of buzz today in the markets about Google, the stock dropping 17 points. What`s your view on Google?
SAUT: I just don`t understand the valuation, Susie. It`s -- I was brought up as a (INAUDIBLE) type investor and I don`t understand it so I totally missed Google.
GHARIB: So it has never been in your portfolio?
SAUT: No, ma`am.
GHARIB: And you wouldn`t even be buying it at these levels?
SAUT: I don`t know how to value it.
GHARIB: OK, what about Pfizer? A lot of market activity on Pfizer today in reaction to what the company said on Friday about its outlook for 2006.
SAUT: We`ve been pretty lucky with the big cap pharma in that we`ve avoided it for the past three, 3 1/2 years, thinking that it was a value trap. The FDA has pretty much told you that the new drug applications that are going to come through, 65 to 70 percent of them are going to be granted to biotechs so I think that`s where the break through comes from. And I think the growth, other growthy type names would be the hospital equipment makers.
GHARIB: Real quickly, we have a few seconds left, if you had to name one stock that you`re really strong on as a long-term investor, what would it be?
SAUT: We follow Canadian Oil Sands Master Trust up in Canada. The Canadian oil Sands is the second largest gas find - excuse me, oil find on the planet and it`s a secured source of energy.
GHARIB: And do you own it, Jeff?
SAUT: Yes, I do.
GHARIB: All right. Thank you very much for coming on the program.
SAUT: My pleasure.
GHARIB: We`ve been speaking with Jeffrey Saut, chief investment strategist at Raymond James.
