One on One with Jeffrey Saut, Chief Investment Strategist at Raymond James
Monday, April 16, 2007
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SUSIE GHARIB: The Dow was only 66 points from its all-time record high, but our guest tonight says the markets are quote, building to a fall. 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: So are you saying that today's rally is what they say on Wall Street is a head fake?
SAUT: No. We've been suggesting that the markets felt like they were going to trade higher to us. I have just been probably too cautious on this move due to the valuation concerns I have.
GHARIB: What's behind this move?
SAUT: I think there's a lot of liquidity out in the system and that liquidity is finding its way into not just financial assets but hard metals, base metals, cement, a lot of hard assets and I think that investors' risk appetites have increased. I think that is the real driver of asset classes.
GHARIB: You said that you've been cautious. Is there -- are there some issues out there that worry you that are giving you pause?
SAUT: I'm concerned about the dearth of capital expenditures by U.S. corporations. I'm concerned about -- looks to me like increasing movement towards protectionism and regulatory issues within the government. Those are -- and productivity looks to me to be on the wane. I think first quarter productivity is going to be meager at best.
GHARIB: Well, let's look at some of the things on the positive side here. Just as we reported a moment ago, consumer spending continues strong with those strong better than expected retail sales. Isn't that a positive for the economy and for the stock market?
SAUT: It sure is. And one of my mantras has been to never underestimate the ability of the American consumer to spend money, even if they don't have it.
GHARIB: Some market strategists and economists have also been saying that in some sectors with the economies slowing down that the Federal Reserve most likely will cut interest rates by the end of the year. Where do you stand on all of that interest rate cut debate?
SAUT: I'm getting disparate readings from the economy. I can't -- and have said this for the past few months, I can't figure out if we're going to slow to a muddle, slow to a recession or actually re-accelerate. I think the Federal Reserve, if you read their latest statement out of their minutes last week, I think the Federal Reserve is in the same boat. I think they are going to do exactly what Ben Bernanke said. They're going to be data dependent. Until it shows a dramatic move one way or another, I think the Fed is going to stay the course.
GHARIB: And we also have corporate earnings right now that everybody is focusing on. Some have been coming in better than expected, but overall, it's expected that earnings for the quarter are going to be up maybe only 3 percent. What does that all mean for the future of the market?
SAUT: Well, I think that earnings momentum is indeed slowing after like 14 quarters of double-digit earnings growth. I think that's another reason given the fact that we think interest rates are going to stay where they are or potentially even move higher. I think that's another reason to be fairly cautious on the aggregate indices. That said, Susie, I do own a lot of stocks here.
GHARIB: All right and you've been buying other stocks. Tell us what kinds of stocks that you're buying given this environment.
SAUT: I'm trying to stick with themes that make sense to me in situations that aren't all that affected by the economy, a slowing economy. We just recently added Johnson & Johnson to the focus list. It's selling at the highest free cash flow yield in 17 years. I think that's non- economic impact. We've been adding to international positions where we think valuations are better and that you're going to get outsized growth in
the various markets around the world.
GHARIB: Are you investing in individual international stocks?
SAUT: I have been using and recommending to our client base to use MFS international diversification fund. The system there is MDIDX because it gives you broad diversification. You get small, mid and large play around the world. You also get value and growth and you get a bunch of different countries.
GHARIB: Do you do stock or does your firm do any business with MFS and also with J&J?
SAUT: I own MFS international diversification fund. We do do business with MFS and we do not have an investment relationship with J&J.
GHARIB: Real quickly, a few seconds left. Financials today were the leaders in the market. Are you buying any of the banks or brokerages?
SAUT: I like the brokerage stocks because the biggest wealth transfer in history is occurring as regrettably my parents pass on and the baby boomers inherit the wealth.
GHARIB: All right. We'll leave it there. Jeff, lots of information. Thank you so much.
SAUT: My pleasure.
GHARIB: We've been speaking with Jeffrey Saut, chief investment strategist at Raymond James.
