One on One with Jeffrey Saut, Chief Investment Strategist for Raymond James
Monday, November 26, 2007
|
|
|
|
SUSIE GHARIB: Joining us now with more analysis on that big sell off on Wall Street Jeffrey Saut, chief investment strategist at Raymond James. Hi Jeff.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening.
GHARIB: So are we in a bear market?
SAUT: It depends on where you stand as a function of where you sit. According to Dow theory, we have been in a bear market since July -- I think it was July 19. It indicated that last week when you had the transportation and the Dow Jones Industrial Average record new reaction lows below their August lows.
GHARIB: It surely feels like a bear market. What's the real problem here?
SAUT: I think it's a mirage of problems here. I think the main question is the American consumer finally sated with debt. Is he so up to his eyebrows in debt so to speak, is he unwilling to take on any more debt? When you combine that with the contagion factor which I still think is unknowable -- I've said that for months now -- with the housing situation, you're not going to see any resolution on that until we get into the spring selling season. And the political environment that is going to torque up in the new year is kind of like the perfect storm Susie.
GHARIB: So is the economy headed for a recession? I'm sure you've heard a lot of economists are predicting that. There's not consensus on it. And some say that even the markets are signaling that a recession is ahead. What do you think?
SAUT: It really depends on what your definition of a recession is. I can make a fairly cogent argument that the employment population growth is about 1 percent a year and therefore if GDP growth falls below that 1 percent employment population growth, that you're not up-taking all the people that are available for employment and therefore you're in a recession. That is not most people's definition of a recession. If that is your definition of a recession, then, yeah, I think we're going into a recession.
GHARIB: Some people say the solution here is for the Federal Reserve to take decisive action. It needs to cut interest rates starting with this December upcoming meeting. What is your thought on what happens with interest rates? Would it help?
SAUT: Well, I think again I think the question is, is the American consumer sated with debt? If the American consumer is unwilling to take on any more debt, the Federal Reserve would have to drop interest rates substantially from here to reignite the refi after-burner in the real estate and housing environment. I don't think the Fed's willing to do that right here. So I think they're going to try and ameliorate the situation. I do think they're going to continue to cut rates if the economy continues to deteriorate, but again they may at this point be pushing on a string.
GHARIB: So what do you think, Jeff, it's going to take to turn the markets around? What needs to happen?
SAUT: Well, I actually think that on a trading basis in setting the stage for the year-end rally that we're -- odds are pretty good that we're going to put in some kind of trading low this week. You had the initial selling stampede that ended on August 16. You had the typical sharp throw- back rally that ended somewhere in mid September and now you're involved in the downside retest of those August lows. If you look at the headlines in the papers in today's "Wall Street Journal" or over the weekend in the "New York Times," these are the kinds of headlines you see at trading bottom. So I'm actually getting pretty excited about putting some money back to work.
GHARIB: So if someone did want to put new money into the market, number one, is this the right time? And number two, where do you invest it?
SAUT: Well, I think you stay fairly defensive. I think you try and stick with cheap stocks under the premise that good things happen to cheap stocks. I have recommended on your program before Johnson & Johnson around 60, 61, 62, it was actually up today. It had the highest free cash flow yield that it's had in 20 years, decent dividend, very disparate businesses and it's a defensive type name. So names like that I think will do well going forward.
GHARIB: Should investors stop putting money in bonds or just stay with stocks?
SAUT: I'm afraid of bonds at these levels. I mean, if the bond market keeps rallying here, it paints a much higher probability that the U.S. economy is going to slow and slow substantially.
GHARIB: All right. In terms of ownership on Johnson & Johnson's, any disclosures for yourself or your firm?
SAUT: We write research on it. We have a "strong buy" on it and I own it.
GHARIB: OK. Fair enough. Thanks a lot, Jeff.
SAUT: You bet.
GHARIB: My guest tonight, Jeffrey Saut, chief investment strategist at Raymond James.
