One on One with Jeff Saut, chief investment strategist
Monday, July 16, 2007
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SUSIE GHARIB: Our market guest tonight says stock valuations are quote optimistically priced, but it's not stopping him from buying. Joining us now to analyze Wall Street's rally, Jeff Saut, chief investment strategist at Raymond James. Hi, Jeff.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening.
GHARIB: Jeff, how long do you think this bull run can last? Is this a short-term thing or does it have a lot more longevity to it?
SAUT: I think John Maynard Keynes says that the markets can stay irrational longer than you can stay solid. And I think the Dow Jones and S&P has surprised a lot of people including me this year. It's been a lot stronger than I would have thought. That said, we're having one heck of a year because of stock picking and thematic investment.
GHARIB: What is the significance of Dow 14,000, if that does happen in the next couple of days or whatever? What does that really mean for investors?
SAUT: Well, your prior guest, you know, said it's just another round number. I think there is some significance to it from a psychological standpoint. But as I suggested today, I think that where you stand is a function of where you sit. While the Dow is up substantially over the past, I don't know, 3 1/2, four years measured in U.S. dollars, if you change the measuring stick from dollars to euros, we're not even with where we were four, 4 1/2 years ago.
GHARIB: So what do you say? What does mean? What does that tell you?
SAUT: It tells you that you want to have some diversification in the portfolio at least in our view in non-U.S., non-dollar denominated investments.
GHARIB: Do you see this, Jeff, the rally that we've been experiencing over the last half year as a technical rally or is it a fundamental rally?
SAUT: I think it's both. I think there's a lot of momentum going on right now in the markets. I think there's a lot of chasing of alpha. I think there's a lot of liquidity that has been pumped into the markets and I think that investors' risk appetites which I think is the real driver of asset classes, is as wide as it's been in the past 15 or 20 years.
GHARIB: You're saying that investors are more willing to take on risk. We've been reporting over the last couple of weeks how nervous everyone is with the sub-prime mortgage crisis. You're saying they're still willing to take on risk?
SAUT: Yeah. Merrill Lynch publishes a thing called the financial crisis index that has 11 components that they try to measure investors' risk appetites. It shows that investors' risk appetites are about as large as they've been since the early 1990s.
GHARIB: Does that make you nervous knowing that investors are buying with abandon?
SAUT: Well, you don't see that in the retail environment right yet. You do see it in professional investors who are forced by the performance derby to commit all their cash to a rising market.
GHARIB: What could derail this market rally?
SAUT: I think a surprise on the overall earnings front if they come in softer than expected. I think a sharper rise than expected in interest rates, say the 10-year benchmark bond or note up to a 6 percent level. Obviously the geopolitical risk, but the thing that really worries me is a misstep politically inside the beltway towards protectionism, overregulation and intervention in various markets.
GHARIB: How important is that to investors, do you think? Are they paying that much attention to what's going on in Washington?
SAUT: No, I don't think they are yet. But if you look at the serious market fallouts, it has come a large degree of the time from political mistakes.
GHARIB: Let's move on real quickly. We just have a few seconds left. You've been buying up GE stock. Tell us why.
SAUT: I haven't liked GE for about eight years up until a few months ago. Now I think their non-financial earnings are going to grow to or above the financial side of the business. They play to the rebuilding of the electric complex, the water infrastructure which we think are major themes irrespective of what happens to the economy over the next few years.
GHARIB: Jeff, do you own the stock or does Raymond James have any connection with GE?
SAUT: We have no investment banking connections, but yes we do own the stock.
GHARIB: OK. Thank you so much.
SAUT: You bet.
GHARIB: My guest tonight Jeff Saut, chief investment strategist at Raymond James.
