"Market Monitor" -Elaine Garzarelli, President of Garzarelli Capital
Friday, February 13, 2009PAUL KANGAS: My guest "Market Monitor" this week is Elaine Garzarelli, president of Garzarelli Capital and welcome back to NIGHTLY BUSINESS REPORT, Elaine.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to be here.
KANGAS: Because you have a Ph.D. in economics, Elaine, who could be better to ask as to whether these massive Obama rescue plans for the economy and the banks are going to work out.
GARZARELLI: Well, I think it's a little late. I think it's more of a 2010 deal than it is 2009. In both years it will be about 2 to 3 percent of GDP. But 38 percent of it is a tax cut and consumers right now, with the unemployment rate probably getting up to 10 percent, are more likely to save than to spend that money. And the other spending has to do with infrastructure projects. A lot of it goes to state and local governments and their budgets are so bad, they're likely to keep it rather than spend it.
KANGAS: But you're saying it's better than nothing, is that about it?
GARZARELLI: It's better than nothing. And we forecast that by the end of this year, we'll probably see some flattening out in GDP because of it.
KANGAS: On your last visit with us in early August, you were correctly bearish on the stock market mainly because you thought corporate earnings estimates from Wall Street analysts were far too high, about 42 percent too high. How about now?
GARZARELLI: Now they're 44 percent too high.
KANGAS: Oh, boy.
GARZARELLI: Because we had to lower our estimates again from 55 to 46 for the S&P 500 operating earnings. And that's because we see a peak to trough decline in real GDP of about 4 to 4 1/2 percent, which is the worst post-World War II recession that we have ever had.
KANGAS: Your 14 market indicators back in August were at the 50 mark. Thirty is the sell signal, 65 a buy and so they were kind of bearish. Where do they stand now?
GARZARELLI: They're at 38 percent now and they need to go to 65 percent for a new cyclical bull market to begin. So they're still on a sell signal, still in a bear market. We might be getting near the end of it. It all depends really on credit spreads and how fast the BAA bond will come down.
KANGAS: You gave our viewers back then four buy recommendations in August. Let's see how they've done since that time. We see PowerShares (UUP) up 13.6 percent. That's because you were bullish on the U.S. dollar and it worked out.
GARZARELLI: Right.
KANGAS: Bank of America (BAC) did not work out. Did you get out?
GARZARELLI: Well, the first two months after the show, it went up about 15 percent and then Lehman went bankrupt.
KANGAS: Oh, yeah.
GARZARELLI: And then we said--
KANGAS: Time to leave.
GARZARELLI: Sell everything, right.
KANGAS: Then you had two more. Let's see how they fared. Altria (MO), the big tobacco down 23.8 percent and ProShares Short (SH), the S&P worked out to a 11.6 profit from then to now.
GARZARELLI: That's a 30 percent profit on the shorts. And that's because you have to add in the dividends.
KANGAS: The dividend, you're right. Do you have some new recommendations, Elaine?
GARZARELLI: Yes, I do. I have some good ones. Now, I think we might be in a trading range from 750 to maybe 950 on the S&P 500, so in that range you want to un-hedge at the bottom of the range and then you want to hedge at the top end of the range or you could keep hedges on all the time, which is what I do.
KANGAS: OK. We have one minute left. Let's get right to them.
GARZARELLI: OK. The first one is (HNW) and that's 19 percent yield. And that is the--
KANGAS: Unbelievable.
GARZARELLI: That is the Pioneer high-yield income trust. Another one, municipal bonds I think are a great bargain right here. We're getting a 7.4 percent yield and that's MUA, Blackrock muni asset fund.
KANGAS: Very good.
GARZARELLI: And I also like the dividend fund which is (RYU), that's the Ryder, the equal weighted utilities index where most of it is in utilities and then telecom about 20 percent. And then the last one is the same thing I did before but it's a double weight and that's (SDS), which is a short, which gets you 75 percent hedged, 25 percent exposure to the market. That should give you a dividend of about 12 percent.
KANGAS: OK, do you personally own any of these securities or have other disclosures.
GARZARELLI: I own them all.
KANGAS: You own them all. You like your own cooking, don't you? OK, Elaine, thanks for being with us once again.
GARZARELLI: My pleasure, thanks, Paul.
KANGAS: My guest, Elaine Garzarelli, president of Garzarelli Capital.
