"Market Monitor"- Robert Drach, Publisher of the "Drach Weekly Research Report"
Friday, July 07, 2006PAUL KANGAS: My guest market monitor this week is Robert Drach, publisher of the "Drach Weekly Research Report" based in Tallahassee, Florida. Bob, welcome back to NIGHTLY BUSINESS REPORT.
ROBERT DRACH, PUBLISHER, "DRACH WEEKLY RESEARCH REPORT": Hello Paul.
KANGAS: Good to see you again. The stock market of course has been a study in frustration. One day the Dow gains 70 or 80 points. The next day it gives it all back. It just seems to be running in place. How do you explain this?
DRACH: You can expect to see more of the same because it`s almost impossible for the market to get anything sustainable, especially on the upside against the Federal Reserve. So you ain`t seen nothing yet until they get done. You`re going to have the same choppy patterns.
KANGAS: When do you think they`ll pause? Is it in the near future, intermediate, or it`s going to go into the months and months and months.
DRACH: Well, they should now because it is important to keep in mind that the lag time, what you see now is when Fed funds were 4.25 percent, not 5.25 they just raised to. So this has to work its way through the pipeline. So they`re playing a very dangerous territory here because they`re already getting deceleration of the economy, housing and other areas.
KANGAS: Understood. When they do pause, do you think it will trigger a major rally in stocks?
DRACH: Yeah. Usually you`ll get a sharp rally, maybe 400 or 500 points, and then typically it will fall back down to where the Fed began because they start seeing the effects of the pipeline at the higher rates and there is still economic problems.
KANGAS: Uh-huh.
DRACH: You get a rally, get a pullback and then a more sustainable rally later.
KANGAS: So if you want to participate in the first rally, you better be nimble and get out on time before you get into the second one.
DRACH: Yeah and you want to be there in advance because it will spark pretty rapidly.
KANGAS: Understood. On your last visit with us in early January, you recommended the purchase of four stocks that you felt were unduly depressed, all top quality issues. Let`s have a look how they fared. And as far as GE is concerned, not too well.
DRACH: Well, they`re more depressed now.
KANGAS: That`s right. If you liked then, you`ve got to love it now. Same is true for Home Depot, I suppose.
DRACH: Down the list of anything that`s higher quality, I would think that in this kind of environment, it is very rough on higher quality stocks.
KANGAS: Right and the other two you recommended, Applebee`s, and MDC Holdings are own considerably but you`d stay with all four of those.
DRACH: I would stay with any quality that is depressed.
KANGAS: OK, now as the manager of NIGHTLY BUSINESS REPORT`s model portfolio, let`s see how you`ve done for this year-to-date.
DRACH: Well, we`ll be trailing S&P and the Dow and ahead of NASDAQ. But, again, that`s a function of higher quality stocks and (INAUDIBLE). I don`t see any change in that until we get some relief from the Fed.
KANGAS: OK, now let`s have a look at how the NIGHTLY BUSINESS REPORT model portfolio has done since its inception. That`s a little different picture.
DRACH: We`re about four to 5,000 points ahead of the Dow, but I don`t think we`re going to gain any advantage, again until they get past this Fed stuff. And it`s really a major obstacle to the stock market.
KANGAS: Bob, do you have any new recommendations in this market environment?
DRACH: You still have depressed high quality issues, getting more depressed with some of them, I might add.
KANGAS: OK. Who do you like?
DRACH: Dollar General will be the first one.
KANGAS: You think that is really unduly depressed.
DRACH: You can see by the charts. They`re beat up.
KANGAS: OK. Let`s move right along.
DRACH: McCormick, that won`t look as bad on your charts, but it is fundamentally depressed.
KANGAS: That is adding a little spice to the portfolio isn`t it?
DRACH: We need all the spice we can get. United Health Group, bad press, again, relatively depressed. And if you want a fourth one, I would say Wrigley.
KANGAS: That has been around a long time, that company.
DRACH: Yeah, and it is relatively depressed from its historical ranges. You can`t find anything wrong with chewing gum. You can find a lot wrong with the Federal Reserve.
KANGAS: Do you personally own any of the stocks you`ve recommended here?
DRACH: No, those are basically on the website for educational purposes. It is not an actively traded portfolio.
KANGAS: I`m afraid we`ve run out of time, Bob, but I thank you again for your insight.
DRACH: Thank you Paul, always good to be with you.
KANGAS: My guest Robert Drach of "Drach Weekly Research Report."
