One on One with Simeon Hyman, Equity Strategist, Lehman Private Investment Management
Monday, November 19, 2007
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SUSIE GHARIB: Joining us for more analysis Simeon Hyman, equity strategist at Lehman Private Investment Management. Hi, Simeon, thanks for coming on the program.
SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN PRIVATE INVESTMENT MANAGEMENT: Thank you very much.
GHARIB: Let's talk about some the headlines that drag down stocks. That downgrade by Citi by Goldman Sachs, what does that tell you about what is going on in the market?
HYMAN: Sure, there is no question that the credit woes are not over. It is going to take awhile for all the skeletons to come out of the closet. It's going to take awhile for credit market conditions return to normal. So we're going to be seeing this for quite some time. And it is absolutely going to continue the pressure on the economy.
GHARIB: And then what is your view of the financial sector? Are you telling your clients to stay away from it?
HYMAN: Well, you know, things have gotten beaten down so far that you know perhaps there are pockets that are cheap enough to begin to look for opportunity. I think it really presents itself similar to the market as a whole. What we have is a cheap market and weak economic conditions. And those really compete with one another. I think if the economy manages to avoid a recession, just a little bit of growth, a little bit of earnings growth and a couple of cuts from the Fed could really produce a broad-based strength in the equity markets overall. But if we do have a recession, that's a challenge offset by the fact that equities are, you know, so relatively inexpensive at 14 times forward earnings, that we could sort of muddle through with a flat equity market even if we do have explicitly a recession.
GHARIB: You bring up recession a couple of times. I mean what do you think? What are the chances that the economy could slip into a recession?
HYMAN: Economists are roughly forecast about a one in three chance of a recession, so it is a real chance. The housing market is not getting any better. It is going to get worse before it gets better. The consumer is weak. The reports we were hearing we think are on target. But there are pockets of strength. HP today is an example. True growth companies are having a little bit of an opportunity to show their differentiated performance in a slow-growth environment. And companies that have strong balance sheets are able to use their liquidity in an environment where there is very little liquidity to be had. And that could be in the form of share buybacks or it could be in the form of equity-like injections into some of these troubled companies.
GHARIB: With all the uncertainty about the economy and what you are even saying about the housing sector, Lehman is still forecasting for the S&P to rally to 1630 by the end of the year. It's now at the 1400 level. What's going to drive that kind of buying?
HYMAN: Well, you know, similar comments to some of the sector comments we heard before I came on, it's not going to take much to spark a rally. Because you know, any sense that we are going to have just a little bit of growth and not a stellar Christmas but an OK Christmas, you know, at these market valuations level can really be enough to spark a rally. We don't need a lot at this point.
GHARIB: OK, Simeon, just to wrap it up, tomorrow the Fed is supposed to release its minutes from the October policy meeting. And it is also going to give an economic outlook. What kind of market reaction are you expecting tomorrow?
HYMAN: I think the minutes aren't going to tell us too much that we don't already know. We as a firm see three more 25 basis cuts over the course of the next six to eight months. I don't think we're going to see anything in those minutes that are going to tell us anything that is too different. We know the economy is weak. We know the credit market dislocation is having its impact. And finally, some inflation pressures such as weight pressures are ebbing enough to give a little room for the Fed. So that should -- I don't think offer too many surprises.
GHARIB: All right, interesting analysis. Thank you so much for coming on the program.
HYMAN: Thank you for your time.
GHARIB: My guest tonight Simeon Hyman, equity strategist at Lehman Private Equity Management.
