"Market Monitor"-Alfred Goldman, Chief Market Strategist at Wachovia Securities
Friday, October 31, 2008PAUL KANGAS: This October will go down as one of the worst months ever on Wall Street. So for tonight's market monitor, we turn to a market veteran for some perspective. He's Alfred Goldman, chief market strategist at Wachovia Securities. When we spoke a little while ago, I began by asking him what happened and why.
ALFRED GOLDMAN, CHIEF MARKET STRATEGIST, WACHOVIA SECURITIES: It was a dramatic sell-off. The S&P was down about 24 percent. I think it was a couple of things, Paul. Number one, the economic news really reached a crescendo on the down side. Number two, people became aware of the total freeze-up in the credit market and the dramatic steps that the government took -- had to take, I think. And then of course there was some discounting about an unknown and that's the November 4 election and the market hates unknowns. So you bring all that together and confidence got to be very, very low, the greatest level of fear I've seen in my whole career. And that led us into the last three to four months of the down side.
KANGAS: What is your outlook for the rest of the year in the markets? What about interest rates and corporate earnings, things like that?
GOLDMAN: Interest rates I think are going to stay about here. Corporate earnings I think are going to be pretty dismal. The S&P 500 made about $86.20 from operations last year. This year I frankly would be happy if they're around $74, $75 a share for the S&P 500. It's going to be a nasty third and fourth quarter.
KANGAS: The presidential election, how will it impact the markets, depending on who gets in?
GOLDMAN: Well, I think the big sell-off that we've had particularly in October, the S&P down 18 percent in October alone, has created a very oversold market because of the uncertainty. So hopefully come Wednesday we know who the new president is going to be and with that uncertainty out of the way I think the market's going to rally for a couple of weeks, moderately but rally. And then when the president-elect starts saying what they're really planning on doing in 2009, rather than what we've been hearing for the last year, then the market will either like or not like what they hear.
KANGAS: Where does the stock market stand now?
GOLDMAN: I think the market stands in probably the best values I've ever seen in 48 1/2 years, even better than they were in the big sell-off in October of 1987. And not only on a price earnings multiple basis, because the E part is going to come down, but also relative to other assets. In '87 you could buy municipal bonds yielding in the area of 10 to 11 percent for example and it is very tough competition today. Muni are probably half that. So I think they're a very valuable asset here.
KANGAS: What does an investor do in this kind of an environment?
GOLDMAN: Well, I think you'll look past the end of your nose, you look at the long-term history of this country and how we've handled crises since 1776 and you do some selected partial buying, but you do keep some cash reserves, because it's going to be a bumpy road. And I'd like to have oh say, 15, 20 percent cash on the sidelines to take advantage of when we do get some big hiccups on the down side.
KANGAS: On your last visit in early May, you gave our viewers three buy recommendations. Let's see how they've done since then. Blue chip names like Deere (DE) and Illinois Tool (ITW) were just massive losses, but I guess that was just part of the beast, right?
GOLDMAN: Well, they were all good quality companies, still are good quality companies, but the market collapsed and it took no prisoners, including my three recommendations which in hindsight the timing was obviously poor.
KANGAS: Would you buy Deere here?
GOLDMAN: I would buy Deere. I would buy Illinois Tool Works and Oneok (OKE) here. I would average down if I bought it higher, I would be a buyer here because the fundamentals are still solid and fortunately all three stocks have been acting better the last couple of weeks. They act like they're working on bottoms.
KANGAS: So those are your new three recommendations, the previous three that you liked, you still like them?
GOLDMAN: Yes, I do. And this is a time to stick with quality and I think all three represent fundamental quality and good value.
KANGAS: Do you permanently own any of these stocks or have other disclosures to make, Al?
GOLDMAN: No, I do not.
KANGAS: Al, I want to thank you for being with us once again.
GOLDMAN: My pleasure, good to be with you, particularly under this type of market.
KANGAS: My guest, Al Goldman of Wachovia Securities.
