One on One James Paulson, Chief Investment Strategist at Wells Capital Management
Thursday, October 16, 2008
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SUSIE GHARIB: Joining us now with more analysis on the markets, James Paulsen, chief investment strategist at Wells Capital Management, a unit of Wells Fargo bank. Hi, Jim.
JAMES PAULSEN, CHIEF INVESTMENT STRATEGIST, WELLS CAPITAL MANAGEMENT: Hi, Susie.
GHARIB: Do you think that this market sell-off is an overreaction to the financial crisis and to what is going on in the economy?
PAULSEN: You know, I think so. I think, Susie, I think that where we are at -- we are down anywhere depending on what hour of the day here, 40 to 50 percent from the highs of this cycle. And that is discounting, you know, a very, very nasty and prolonged recession, even if we have that for a recession that`s deep and lasts long, let`s say for three years, that I think is pretty much already priced in. Anything short of the depression, I think is probably in here. So I think that you know, there is likelihood that we`ve kind of already are finding the bottom here. And although it is going to remain really volatile for some time to come, if we, I think there is downside risk from here is probably getting limited.
GHARIB: Speaking of volatility, you heard our report that we just had on. What are you telling your clients to do in this volatile environment?
PAULSEN: Well, I think that depends on where are you at. I think if you are not in the stock market or you are underweight in stocks, I think that you ought to, over the next several months, not on any given day but over the next several months, start putting a little bit more back to work in the stock market, particularly on days where the stock market is getting hammered. Not like today but on days like yesterday, I would start stepping up and buying into that weakness. And maybe hold your nose for the next few months but concentrate when you buy on how you are going to feel a year or two years from now because I think this is a good buying opportunity. You might just have to handle a lot of volatility in the next several months.
GHARIB: You told me that you are buying or you`re buying for your clients the stocks of retailers. That sounds like a pretty risky thing to do given that consumers aren`t doing much shopping these days.
PAULSEN: Well, it is not necessarily my favorite sector, but it`s one of mine that I do like and it has more to do not so much that I think the consumer is in great shape or that the economy is not going to go into recession. I think it is. But I think there is a lot of that already discounted in those retail stocks. I think that retail stocks are down, you know, 50, 60, 70 percent from highs in some cases. And they are more than discounting a consumer recession. If we -- if this is shorter than expected, let`s say it only lasts through next year or part of next year, then I think those stocks are going to rally and come back quite a ways and they just represent just a tremendously undervalued prices right now.
GHARIB: Now technology is another area that you are nibbling into, also seems like an iffy area to be putting new money. Tell us why you like tech.
PAULSEN: Well, you know, the strongest sector if you think about the sector itself, if is one of the few sectors that really doesn`t use much debt. It`s cash flow, sort of heavy balance sheets and income statements. And if we are in the midst of a credit or debt crisis, it is a very good instrument from that standpoint. And I think, if you think about it, no one, Susie, has really bought technology since the 1990s after dotcom meltdown. So I think there is a lot of pent-up demand. If we come out of this again, I think they are going to see some strong markets.
GHARIB: All right, Jim, thanks for come on the program, some fresh ideas that you gave us, thank you.
PAULSEN: You bet, thanks.
GHARIB: My guest tonight, James Paulson, chief investment strategist at Wells Capital Management.
