One on One with Jeffrey Saut, Chief Investment Strategist at Raymond James
Monday, August 21, 2006
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SUSIE GHARIB: Our market guest tonight says what keeps him up at night is not what`s gong on in Iraq or Iran, but what`s happening in the housing market. Joining us now to explain, Jeffrey Saut, chief investment strategist at Raymond James. Hi, Jeff.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening.
GHARIB: Well, tell us why housing is at the top of your worry list.
SAUT: Well, it`s been a tremendous creator of jobs over the past few years. It also has a lot to do with the wealth effect that the American consumer has kept him and her spending over the past few years and Florida has been a pretty good prism. It led us into the real estate boom and right now it looks like it`s leading us out.
GHARIB: So we`re expecting two more housing reports later this week. Do you think they`re going to confirm the weakening in the housing market and are people going to feel even less rich after they hear those reports?
SAUT: I think they are, Susie. I think they`re not going to make particularly good reading. If you listen to some of the conference calls from WCI communities or Toll Brothers, it`s not particularly pleasant situation, especially down here in Florida right now. Sales year over year in Naples, Florida were down something like 48 percent back in June. And inventories are up and prices are coming down.
GHARIB: But let`s talk a little bit about the headlines that were making news today. Iran`s defiance and also higher oil prices. What is the impact, the long-term impact of these developments on the market?
SAUT: The markets have been pretty insulated so far against the back- up in the price of crude oil. It`s been offset to some degree by the drop in the long-term interest rate bond going forward. So, you know, I was kind of like your last guest. I think it`s a mistake to be overly optimistic. I think it`s a mistake to be hardingly (ph) pessimistic. We intended to buy on market weakness and then rebalance or sell part of those positions as the markets have rallied and that is consistent with our trading range outlook that we`ve had since October of 2001 for the S&P. GHARIB: Well some of the buzz in the markets today regarding those higher oil prices and also stuff that`s going on in Iran is that if oil prices continue this upward reach, that it may force the Federal Reserve to raise interest rates. Do you believe that that will happen, and if so, what impact will that have on the economy and the markets?
SAUT: I have said for the past few months that while the Fed may pause, I`m not so certain that the Fed is done. The history of the Fed since 1970 has been to raise interest rates until there`s been some kind of financial accident. And I don`t think Refco (ph) qualifies as financial accident. So I think the Fed could raise interest rates again. I think that oil is going to stay pretty perky over the next 12 months and could go substantially higher if there`s some kind of geopolitical event.
GHARIB: And let`s say that that scenario does play out. So what would be the impact on the market?
SAUT: I think the markets could test the lower end of the trading range and I think that the oil stocks that we are heavily over weighted as well as the natural gas and the coal stocks are going to do quite well over the next 12 to 18 months.
GHARIB: When we last talked, Jeff, that was back in June, you said that you had put a lot of your portfolios into cash. Is that still true today?
SAUT: We rebalanced a lot of our stuffed (ph) stock positions going into the May highs. We sold in January, February and March, kept paring back positions as the individual securities moved higher. So when it rolled over in mid May, we had about 40 percent cash in the investment portfolio and we put about 10 percent of that back into equities. So we`re still in about 30 percent cash.
GHARIB: What about bonds? You heard our report just a moment ago. Are investors better off with bonds or stocks that the point?
SAUT: I would always take stocks over bonds unless there`s a two or three standard deviation event like there was back in the summer of 2000, excuse me, 1982 when you had 14, 15 percent yielding government treasuries.
GHARIB: We have just 30 seconds. What`s your favorite stock that you`re buying that the time? SAUT: I continue to like the Canadian oil sands trust up in Alberta. I was just up there a few months ago and with most of the exporting energy companies, excuse me, countries that don`t care for the U.S. very much, it makes investments in Canada`s Tarsands (ph) I think pretty attractive.
GHARIB: All right. Jeff, thank you very much.
SAUT: Pleasure.
GHARIB: We`ve been speaking with Jeffrey Saut, chief investment strategist at Raymond James.
