One on One with Jeff Saut, Chief Investment Strategist at Raymond James
Monday, June 08, 2009
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SUSIE GHARIB: Our guest tonight is bullish on the markets and has been busy buying stocks since March. Joining us now Jeff Saut, chief investment strategist at Raymond James. Good to see you, Jeff.
JEFFREY SAUT, CHIEF INVESTMENT STRATEGIST, RAYMOND JAMES: Good evening.
GHARIB: So you're pretty bullish but is this a bear market rally or really the beginning of a new bull market?
SAUT: Too soon to tell Susie. (INAUDIBLE) Dow theory make that call for, Dow theory to call it a new bull. You're going to have to close both the Dow and the transports above their January 6, 2009 closing highs and that would be 9015 on the Dow and 3717 on the transports.
GHARIB: Can you give us any kind of gauge of where you think the Dow and the S&P 500 could be by -- where those averages will stand by the end of this year?
SAUT: I think they'll be higher because I think the stimulus money that is going to hit, a lot of it's going to hit between this month and September, is going to make the economic numbers look better than most people think. That's going to cause some businesses to restock inventories especially those that are looking at the beginning back-to-school and then followed by Thanksgiving and the Christmas. That should get some capital ex spending going and we might even see people hired. So I think the economy is going to look better. The risk there is that you're borrowing sales perhaps from 2010 with the stimulus money. So a lot is going to depend on 2010. But between now and the end of the year, I'm pretty bullish.
GHARIB: What other issues might derail this rally?
SAUT: Well if the interest rate complex backs up a lot more than it should -- and I don't think the Federal Reserve is going to let that happen. I think they are still scared. The markets and the economy could back into a deflationary spiral. So I think they're going to do everything in their power to bring interest rates back down until they're sure we're by that. I don't think they're going to be sure of that until we get into 2010.
GHARIB: A lot of people are already talking and speculating, I'm sure you've heard this, that the Federal Reserve might have to raise interest rates to fight inflation. Is that one of the things that you're referring to? You're saying the Fed will do whatever is necessary to keep those rates down?
SAUT: I think they're more worried about the economy slipping back than they are about inflation. In fact, there's so much excess capacity in the system right now and with unemployment continuing to rise and probably will continue to rise, you don't see the wage pressures right there. So while I think the seeds for inflation have been planted, I think it's a back half of 2010 of it and that's something they'll worry about in the near term.
GHARIB: Well certainly there are a lot of issues, a lot of investors have doubts about is this a real rally or are we still in a bear market? And so they're sitting on the sidelines waiting until it looks like it's safe to invest. What are your thoughts on that? What do you tell your clients who are kind of doubtful?
SAUT: Every new bull market has started out as a short covering bear market rally. Dick Nixon resigned in the summer or actually August of '74 and the market went down 27 percent into October, had a sharp rally into November and then came back down and broke the October low. That was it. The (INAUDIBLE) sold stocks. The market turned up, rallied into January and February of '75. When the Justice Department dropped the IBM monopoly suit, markets never looked back. I'm not promising that's the way it is going to happen this time, but I think it's a mistake to be too bearish right here.
GHARIB: All right, so if someone buys into your argument here, what would you say are some good stocks to invest in and just hold on to them for a while.
SAUT: I really like the income theme, the dividend theme. You can't really get income and Treasuries anymore. So I think with the baby boomers retiring, shortage of income is going to be a big theme going forward. So situations with clean balance sheets, decent thematic investments and decent fundamentals with dividend yields I think will do pretty well going forward.
GHARIB: All right. Can you name one or two stocks real quickly? We just have a few seconds.
SAUT: I like the agricultural theme a lot as per capita incomes rise and the frontier and emerging markets. They want better food. Archer Daniels (ADM) has a convertible preferred with a 9 percent yield. I think that's a good place to park money.
GHARIB: Jeff, do you own this stock or other disclosures to make?
SAUT: You bet I do.
GHARIB: OK. Thanks for telling us that. Good of you to come on the program. Thanks so much.
SAUT: Always a pleasure.
GHARIB: Jeff Saut, chief investment strategist at Raymond James.
