"Market Monitor"-Elaine Garzarelli, President of Garzarelli Capital
Friday, September 04, 2009PAUL KANGAS: My guest "Market Monitor" this week is Elaine Garzarelli, president of Garzarelli Capital and welcome back to NIGHTLY BUSINESS REPORT, Elaine. Great to see you.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to be here. Nice to be here, thank you.
KANGAS: What are your thoughts on the August employment report out today?
GARZARELLI: Much better than expected. Unemployment is being reduced and the service sector is doing very well. So that's very optimistic.
KANGAS: How do you gauge the stock market's reaction, Dow up nearly 100 and the others doing well?
GARZARELLI: Well, we just went through a 3 to 5 percent correction, 5 percent intraday and 3 1/2 percent on a closing basis, so the market is ready to go up and is just looking for some good news.
KANGAS: Where do your 14 indicators for the market stand right now?
GARZARELLI: They stand at 83 percent, which is bullish, anything above 65 percent. And they were bearish throughout 2008 and turned bullish March 13 of 2009.
KANGAS: That was just four days after the absolute bottom in the Dow. That was a great call then. Is this a true bull market, Elaine or just a rally in a long-term bear market?
GARZARELLI: It's a cyclical bull market. And if you look at those markets, whether you're in a bear market long term or a bull market long term, the average gain for the market is about 150 percent for the S&P. We're up 50 percent now. So it's not out of line at all with what we can do. Now, based on my valuation work, I have a very good valuation for equities.
KANGAS: OK, well, do you think we'll see Dow 14,000 challenge the record high or the S&P 500?
GARZARELLI: Yeah. So far, we have $73 in earnings as an estimate for next year with a 17 1/2 P/E multiple gives us a 1300 level on the S&P 500. Could go higher but that would be based on 2011 and 2012 earnings. At this point I'm just basing it on next year's recovery, 4 percent GDP growth.
KANGAS: What sectors do you think will post the biggest gains in this bull market?
GARZARELLI: I think it will be exports. It will be business equipment spending, consumer durables, technology.
KANGAS: OK. Now, on your last visit in February, you had four "buy" recommendations. Let's see how they've done since then. Pioneer Diversified High-Income Trust (HNW.P) up nearly 29 percent, great call. Do you still own it?
GARZARELLI: Yes.
KANGAS: And how about Blackrock Muni Asset Fund (MUA.P), up nearly 10 percent?
GARZARELLI: Yes, we own that.
KANGAS: OK and you had two others. Let's have a look at them, the Rydex Equal Weight Utility Fund (RYU) up 5.4.
GARZARELLI: I sold that, sold that.
KANGAS: Sold it and how about the ProShares (SDS). That was a negative short of the market which went against it by 45 percent. I trust during your move to -- from bearish to bullish you sold those ProShares.
GARZARELLI: Absolutely. We sold them on March 13 for a 2 percent profit and when I gave you those it was in February, so things changed. The credit markets got better.
KANGAS: And you got rid of that one, very good.
GARZARELLI: Right.
KANGAS: Do you have some new recommendations, Elaine?
GARZARELLI: Yes, I do. In the favorable sectors that I mentioned to you, they should all outperform GDP, those areas of the economy. The first one is housing. And I think one of the best ways to play that would be XHB, and that is the home building sector, Pulte Homes, Toll, DH Horton. The second one is the industrial sector of the economy and the ETF there would be XLI and this is related to the export sector as well.
KANGAS: These both have come way down in price, right.
GARZARELLI: Oh, yeah. They're both over 35 percent below their all- time highs. The same goes for XLB, which is a materials ETF and that's related to growth around the world which is absolutely booming. Thirteen countries have had positive GDP growth in the second quarter. And the last one that also is part of that theme is EEM and that would be the emerging market's ETF and that's South Africa, South Korea and 40 percent bricks.
KANGAS: OK. I know--
GARZARELLI: They all should outperform by two times.
KANGAS: I notice that you're not recommending anything of a bearish nature. You have turned into a really raging bull.
GARZARELLI: Well, yeah, we had such a big decline. We deserve to go up a little bit here.
KANGAS: Elaine--
GARZARELLI: My sector analysis fund, my sector analysis fund owns all of these that I mentioned tonight.
KANGAS: I was just about to ask you. OK, so you like them all and own them all. Elaine, I want to thank you for being with us again.
GARZARELLI: Thank you and have a good weekend.
KANGAS: You, as well. My guest Elaine Garzarelli, president of Garzarelli Capital.
