State Street Global Advisors' Riley (Transcript)
2001-08-08 10:21 (New York)
****THE FOLLOWING IS AN UNOFFICIAL TRANSCRIPT.****
BLOOMBERG L.P. DOES NOT GUARANTEE THE ACCURACY OF THIS
TRANSCRIPT.
Boston, Aug. 7 (Bloomberg) -- The following is a
transcript of a Bloomberg interview with Ned Riley, chief
investment strategist at State Street Global Advisors. The
reporter is Catherine Yang.
YANG: Worker productivity in the U.S. grew at a better-
than-expected 2.5 percent annual pace in the second quarter.
It follows a 0.1 percent increase in the first quarter.
Companies boosted efficiency by cutting back on worker
hours, faster than at any time in a decade. I spoke earlier
with Ned Riley, chief investment strategist at State Street
Global Advisors about the state of the U.S. economy and the
recent lows in the tech sector. And I started by asking him
what investors made of the productivity numbers?
RILEY: Well, the productivity numbers were quite good.
As a matter of fact, I think they surprised a lot of people
because they were so good. One of things that that
productivity number means is that most companies can now
endure some of the higher wages with the productivity
offset. So that gives us a low inflation number in the
United States. This hasn't been challenged by many people
either. I think the Federal Reserve had expected that
productivity would continue to improve and that we would
have a low inflation backdrop for further interest rate
cuts.
The real issue right now with the economy in the United
States is whether the U.S. consumer can sustain the pace of
growth that we've had in the first half of this year, while
the technology and manufacturing side of our economy
stabilize. We are optimistic that we can muddle through
this period with consumer spending remaining fairly solid as
a function of further interest rate cuts, low mortgage rates
in the United States, the tax rebate that's coming to
American consumers right at the moment, and the lower tax
brackets that take effect in midyear. So a combination of
those events, we're hopeful they're going to keep the
consumer spending by the time that technology and
manufacturing stabilize.
YANG: Now some analysts believe.
RILEY: On the other hand.
YANG: Yes, go ahead.
RILEY: On the other hand, when you start to look at
the downgrades that are still taking place on Wall Street,
I'd say it's probably too little, too late for a lot of
those Wall Street markdowns. There does seem to be a battle
right now between the bears and the bulls. However, the
bears on technology stocks far outnumber the bulls, which in
my judgment really makes for a better situation for those
technology stocks.
And the reason I'm smiling is that I was waiting for
the Wall Street crew to really capitulate on the earnings
short term and possibly the earnings long term for these
companies, and I would consider that a pretty good
opportunity to enter into those stocks. I think the stock
prices that we saw at the beginning of this year, when the
Intels got down into the low 20s and the Dell Computer got
to $16 a share and now it is 28 or 29. These prices that we
saw at the beginning of the year were discounting
everything, from virtually the end of the world to the end
of the product cycle for the company.
So I think this is a good opportunity for investments
to start to look at technology stocks, primarily because
Wall Street doesn't like them. But, more importantly, the
year 2002, I think, should witness a pretty good recovery in
technology spending, but more importantly, technology
profits.
YANG: Well, some analysts believe a recovery in the
chip sector should precede any pickup in the U.S. economy.
Now if that's the case, how long before we see chips bounce
back?
RILEY: Well, I suppose if I had the answer to the
specific time period, I probably would be classified as
someone that had a lot of inside information that nobody
else had. But the basic thrust of our economy is really two-
thirds consumer and really only about 12 percent capital
spending and technology related. The reason people say that
semiconductors must turn first is clearly because
semiconductors are at the beginning of the cycle for
hardware manufacturing and they would reflect a more
pervasive kind of technology spending in general.
I would suspect that, hopefully, we're going to get
some good news toward the end of this year about PC sales
and laptop computers and some of the other devices that
clearly use semiconductor chips. In the interim period,
however, what we are going to see is probably more of a
price war that's going on between Intel and AMD that will
probably shake out some of the weaker participants. But
that doesn't necessarily mean the stock prices have to drop
much further. As a matter of fact, I think right now Intel,
AMD and other - the major semiconductor manufacturers, are
actually discounting a turn in the cycle somewhere around
the first quarter of next year and that the U.S. economy
probably will do a little bit better, but not necessarily
dependent upon that turn in the semiconductor cycle.
YANG: That was Ned Riley, chief investment strategist
at State Street Global Advisors.
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