07/30/99: “Market Monitor”-Elaine Garzarelli of Garzarelli Capital
PAUL KANGAS: My guest market monitor this week is Elaine Garzarelli,
president of Garzarelli Capital and welcome back Elaine.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to be here,
Paul.
KANGAS: Yesterday we got the report of a slightly larger than expected 1.1
percent rise in second quarter employment costs, and bond and stock prices took
a dive and down further today. Do you believe the markets are overreacting or is
this news of higher labor costs really a credible sign that the fires of inflation are
heating up?
GARZARELLI: Well, nobody is really sure of that yet but there is one indicator
that I look at that Alan Greenspan also looks at and it's called the Columbia
leading inflation index. And that index has been up for four consecutive months at
a growth rate of 6.8 percent. This generally leads the inflation rate by three to six
months and every time that's happened before four consecutive increases, he's
tightened.
KANGAS: So you're of the opinion that Mr. Greenspan whom you've known for
years, is more inclined probably to tighten a second time?
GARZARELLI: I think so. I think that we'll get the new figure on this index next
Friday and then we'll see, and my feeling is that they'll tighten again at the next
meeting.
KANGAS: OK, our first “ask the market monitor” question tonight comes from
viewer Hank Rolling in Sierra Vista, Arizona. He watches us on KUTA in Tucson
and he asks, “what do your 14 indicators predict right now? How do they stand?”
GARZARELLI : Well, they're at 39 percent, and they range from 0-100 percent, of
course 100 percent being the most bullish.
KANGAS: Yeah, but that's pretty low for you, 39 percent, isn't it?
GARZARELLI: Yeah. It's down from 90 percent which was the reading in October
at the bottom of the correction last year.
KANGAS: Right.
GARZARELLI: But it's not at 30 percent. To get to a bearish signal, interest rates
would have to go up on the long bonds another percent.
KANGAS: But caution is the by word by now right at the moment.
GARZARELLI: Yes.
KANGAS: OK. Very good. Now the last time were you with us Elaine was
December 11 of ‘98. Dow was 8821. You were bullish. We've been to 11,200 and
some change and you gave us seven recommendations to buy. Merrill Lynch
(MER), Donaldson Lufkin (DLJ), Citigroup, Chase Manhattan (CMB), Centex (CXP)
and Brunswick (BC), every single one is higher. Congratulations. And you had
some – like especially Chase Manhattan and Citigroup have done very well. Are
you inclined to take some profits here?
GARZARELLI: Well, if they haven't already taken some profits in the financials,
they've dropped recently just in the last couple of weeks. I wouldn't sell them now.
Actually I'd be buying on weakness.
KANGAS: All right, any new ideas on the buy side at this stage in this
weakness?
GARZARELLI: Yes, I like the telephone stocks, BellSouth (BLS), AT&T. I like the
newspaper industry, “New York Times “ is extremely undervalued. And again the
financials, if we have a little bit more of a correction, I'd be buying Citibank © and
Chase Manhattan. And the drug stocks have a very low P/E, something like
Merck (MRK) would be good.
KANGAS: Merck. Everybody seems to like Merck.
GARZARELLI: Right.
KANGAS: Our second question comes from a viewer in Sacramento California,
Steve McGarris , who watches us on KVIE and he asks, “what is your opinion of
the long-term prospects of the Internet stocks? Do you like any of them?”
GARZARELLI: Well, they're going to do very well of course in the future. This is
the new industry. It's like the telephone industry and the TV industry and their
future is going to be terrific. And I guess I'd be nibbling away sometime over the
next three to four months, since they've had such a big correction.
KANGAS: Would you buy kind of an Internet fund or is there an individual stock or
two you like?
GARZARELLI: I would buy the funds.
KANGAS: OK, all right. What about bond prices here now? We've had you know,
well over 6 percent on the long bond yield. What do you think?
GARZARELLI: Well, I think the bond yields are pretty much as high as they're
going to go, maybe a little bit more. Even if the Fed tightens two more times, I
think it's in the bond market. Bond yields have gone up 130 basis points since the
low last October. And the last time the Fed tightened in March of '97, the short
rate went up 40 basis points and the long bond went down 140 basis points. I
think bonds are a real (INAUDIBLE) here.
KANGAS: So lock in some of those nice high yields.
GARZARELLI: Exactly.
KANGAS: Elaine, thanks very much for being with us again. Great to see you.
GARZARELLI: My pleasure.
KANGAS: My guest, Elaine Garzarelli, president of Garzarelli Capital. |
