Hugh Johnson from NBR Friday
<<SUSIE GHARIB: Well, no matter what the Federal reserve decides to do about interest rates on Tuesday, our market monitor guest says it makes no difference. He's still bullish on the markets. Hugh Johnson is the chief investment officer of First Albany Brokerage. He oversees $12 billion in client portfolios. And it's so nice to have you back on NIGHTLY BUSINESS REPORT.
HUGH JOHNSON, CHIEF INVESTMENT OFFICER, FIRST ALBANY: Nice to be with you, Susie.
GHARIB: So no matter what the Federal Reserve does you don't, you're not factoring that in?
JOHNSON: That's right.
GHARIB: You're bullish?
JOHNSON: Yeah, primarily because if the Fed raises interest rates it's not going to hurt liquidity conditions. Bank lending is very strong. The growth of the money supply, the stuff that really drives the economy and the markets is very, very strong. So that's good. The outlook for the economy and earnings is strong. The leading indicators are pointing up. So when you have positive money conditions and you have the leading indicators pointing up or pointing to higher or stronger economic activity you don't get bear markets out of those conditions. So you have to stay bullish under these conditions.
GHARIB: All right, so maybe not a bear market but what about just a little disruption. What about this whole Y2K worry?
JOHNSON: Y2K is obviously a concern and there are other concerns. My biggest concern beyond Y2K is obviously the valuation issue and the market price earnings ratios of stocks. They're not as low as we'd like them to be, quite frankly. That's particularly true of the Internet stocks, but also the large cap growth companies, some of those technology names make me a little nervous. And what I'd like to see is, you know, a pull back in the bond market, which I think is coming, and that will, of course, drive a pull back in the stock market to levels that make a little bit more sense. Just a minor correction in an ongoing bull market.
GHARIB: Hugh, what if inflation takes place but the economy stays strong? Would the stock market stay where it is now? And that's a question from Brooklyn, New York from one of our viewers, Joe Lentini.
JOHNSON: Susie, this has been an absolute watershed year because we've moved from a period when stock prices are rising, the economy and earnings are expanding and inflation and interest rates for the last five years have been declining. Now inflation and interest rates are rising. Really what it means is stocks can still go up, the good news of rising earnings can offset the bad news of rising inflation and interest rates so long as earnings are strong enough. It probably means one thing, though, it probably means the 20 percent plus returns that we've seen for the last four or five years are a matter of history, that we're going back to something in the ordinary 8 to 10 to 12 percent return.
GHARIB: Which is still not bad.
JOHNSON: Not bad at all. It certainly compares well with what you can get from the bond market or from short-term instruments.
GHARIB: Here's another question from our "Ask the Market Monitor." What is your outlook for business to business e-commerce stocks?
JOHNSON: A couple of things. It's extraordinary complex. You need to know that. It's also saddled with the problems that all Internet stocks are saddled with and that's the valuation issue. Price/earnings multiples are extraordinarily high. There's a lot of companies that are doing it right and I think they don't eliminate risk, but I think they tend to disperse the risk.
GHARIB: Like what?
JOHNSON: CMGI is a good example. U.S. Web is a good example. And I'd also encourage whoever asked the question to take a look at the so-called consumer and business to government, a company called NIC, National Information Consortium. That probably has more potential than even the business to business, if you can imagine it. But a good, strong area.
GHARIB: Let's talk about the stocks you have in your portfolios. I know you're really bullish on the technology stocks. Name some of the stocks that you like.
JOHNSON: Well, I'm bullish on technology because the market has been rewarding technology and I don't know where the market is going. But it's been rewarding in a meaningful way technology. Companies like Cisco Systems in the communications area, Sun Microsystems, IBM. If you look at the software area, I still own Microsoft. I really like Microsoft. Oracle, which has been performing very well. And then you move to the so-called semiconductor area, and I'll take a, we own Texas Instruments there. So those are the companies in the technology area.
GHARIB: You look at some of the technology stocks that you were talking about, some of them are pretty pricey and they keep on going up. Sun Micro hit a 52-week high today. So did Oracle. Would you be a buyer?
JOHNSON: I wouldn't be a buyer because I'm fully invested, quite frankly. So I own the stocks. You bet, I am nervous about price/earnings ratios so I'm kind of hanging on real tight watching these things go to higher levels. It's been great, but I am nervous.
GHARIB: What else do you like in 30 seconds?
JOHNSON: The consumer cyclical area is starting to perform a little better. The best part of consumer cyclical is media broadcasting, publishing. There's one company there, it's McGraw Hill publishing, a wonderful company. And some investors are starting to get nervous and buying consumer staple stocks, things like drugs and household products companies. Procter & Gamble a great name, and Bristol-Myers (BMY) is the best drug stock.
GHARIB: OK. You've given us a lot of names to look into. Thank you so much, Hugh. A pleasure having you, as always. >>
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