Phil Dow of RBC Dain Rauscher & James Awad of WP Stewart Asset Management Offer Their Outlooks For Stocks
Wednesday, January 23, 2008
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SUSIE GHARIB: More analysis now on the outlook for stocks and what investors should be doing with their money. Joining us now Phil Dow, director of equity strategy at RBC Dain Rauscher and Jim Awad, chairman of WP Stewart Asset Management. Gentlemen, welcome to NIGHTLY BUSINESS REPORT.
PHIL DOW, DIRECTOR OF EQUITY STRATEGY, RBC DAIN RAUSCHER: Thank you.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: Thank you.
GHARIB: Phil, let me begin with you, looking at today's huge turn around, what encouraged you and what worried you?
DOW: It was exciting to see a lift in the stocks today. But really what worries me Susie is that you look at the most shorted stocks, those that were kind of the most hated, institutions betting that they'd go down. Those were the ones that were up the most today. So I think part of this rally was people beginning to close out short positions. My guess is there is more to come. But it makes me a little suspicious of the character of this rally, Susie.
GHARIB: Jim, how about you? What was your reaction?
AWAD: My reaction was this is about as volatile a market as I have seen in 40 years. It speaks to the amount of hot, fast money that's in the market. I think it was nothing more than a short covering rally. You will probably have three or four more of these before we get to the final bottom. And I think we're probably close in terms of prices but not yet in time. I think it's too early to have a sustainable rally.
GHARIB: Phil, I notice a lot of uncertainty out there. What do you need to see? What is the key thing whether we're talking about the markets or the economy to make you feel that the worst is over?
DOW: I'm not sure we're going to get any sign like that in the near term. But for sure we need to have better perspective on earnings and what earnings growth is going to be in '08. We will have a bit of that mosaic as this quarter closes and we get guidance from companies. But my guess is that that's going to be one of the critical linchpins to evaluation. Additionally I would like to see some serious investment buying rather than these crazy trading days like we have been seeing Susie.
GHARIB: Jim, this is a very confusing and nerve racking time for investors. Should they be putting more of their money into bonds and cash and less into stock holdings or sell some of their stock holdings?
AWAD: Definitely not in bonds. Bonds are not attractively priced relative to long term, which should be long-term inflation and relative to where yields have been over long periods of time. I can definitely see putting some into cash because we have to wait and see what the depth of the slowdown is, what the implications are for corporate profits and what we're going to have more in terms of break downs. So I can see having reserves, but definitely cash, not bonds. Bonds are over priced.
GHARIB: But we're hearing a lot of people Jim, saying that, oh, this is a great buying opportunity, some many bargain prices. Is it time to put new money into the market or should people wait?
AWAD: In terms of equities, if you're truly long term and remember the old theory of dollar cost averaging. I really think if you dollar cost average between now and April, 12-24 months from now I think you're going to look good. The problem is you could have more turbulence and maybe some weakness between now and April until we get through first quarter earning reports and get second quarter guidance and that will late March, early April. So if you're willing to be early, the answer is yes, but I want to emphasize, stick with quality. It's much too early to buy broken balance sheets.
GHARIB: Phil, a lot of people on Wall Street are saying that they're expecting that the Fed is going to do another big rate cut at its meeting next week. If that happens will that turn investors' confident to buy stocks or are they going to be fearful that boy, things must be really bad in the economy.
DOW: I think the Street is really expecting 50 basis points next Wednesday. If they don't get that, I'm afraid the market will go down. So I think the Fed is on a track of trying to build, renew credibility with the Street again and I think this is just one step next week. I don't think next week's actions can restore confidence.
GHARIB: Both of you, I know, have been through these market down cycles before. But we are hearing that this is a global economic event, that this is a global market sell off. Phil, how do you think this is all going to play out?
DOW: My guess is that the down side we're seeing now. But the benefit of it is a more stable demand picture from global markets and possibly people finally recognizing the U.S. hasn't lost its fastball. We got some great companies, great innovators with great operating margins and real ability to grow profits. So I think the outcome will be good, but we've got to get through some turbulence in the near term.
GHARIB: Jim, what is it going to take to turn investor psychology around from fear to confidence?
AWAD: I think confidence that the financial sector is not going to unwind here. That's the Achilles heel of the economy and the markets here, that financial institutions have more problems, more write downs, more balance sheet problems which will starve the economy of the fuel of money. And again it's going to take a little bit more time to develop confidence in that. If that turns out fine, then I agree with Phil that U.S. corporations are in great shape and U.S. stocks are among the cheapest in the world.
GHARIB: All right. That's a good way to end it. Jim, Phil, thank you so much for coming on the program and explaining all of this. My guests tonight, Phil Dow, director of equity strategy at RBC Dain Rauscher and Jim Awad, chairman of WP Stewart Asset Management.
