From NBR last night.....reassuring words from BIG Joe
Battipaglia of Gruntal:*****note his mention of CSCO!*****
Comments/thoughts anyone?
12/14/99: The Bull & The Bear Battle Over 2000
SUSIE GHARIB: So what's next for stocks and the economy? Our guests this evening have different forecasts. Joe Battipaglia is bullish. He's the chief investment strategist at Gruntal and Company. And Richard Bernstein is bearish. He's the chief quantitative strategist at Merrill Lynch. And welcome to both of you.
JOSEPH BATTIPAGLIA, CHIEF INVESTMENT STRATEGIST, GRUNTAL & COMPANY: Thanks.
GHARIB: Rich, let me start with you. We have the Dow up for the year 21 percent, the NASDAQ up something like 68 percent. What are you saying is next for the stock market?
RICHARD BERNSTEIN, CHIEF QUANTITATIVE STRATEGIST, MERRILL LYNCH: Well, we think actually, Susie, that the market averages really don't do very much for the next 12 to 18 months and that's really because of this big dispersion in the market. You're right that these markets are up a lot but it's really been a very small number of companies and that's, that small number of companies is what we're really concerned about. For the broader market, we're actually quite bullish.
GHARIB: Are you concerned about those small number of companies, Joe?
BATTIPAGLIA: No. I think we have to take a bigger look at the market because, in fact, if you look at the NASDAQ Composite, they have just the opposite of the New York Stock Exchange and that is an exceedingly large number of new highs relative to a small number of new lows where on the New York it's the reverse. And I think it's because technology and telecom dominate the NASDAQ and that's really where the growth has been and I think that's where it continues to be next year. I do believe we have a broadening out to include some of the New York Stock Exchange issues, but the leadership going to be provided by the NASDAQ.
GHARIB: All right, so how do you respond to that? I mean we've had a fabulous couple of years here.
BERNSTEIN: Absolutely.
GHARIB: And you're talking about valuations. But what about the fundamentals out there, the economy and with these particular stock groups?
BERNSTEIN: Well, let's separate out the economics of what's going on from the stocks and valuations on the stocks. There's no doubt that the technology, that the economics behind the technology sector are fantastic. The question that we raise is do the valuations in those stocks now discount that good outlook and more and more and more and more and more? That's the key question for us.
GHARIB: And you're telling your clients not to buy Internet stocks.
BERNSTEIN: That's correct. I mean the big Internet stocks, the really nifty 50 type technology stocks we don't like. We're not anti-tech. It's very easy to take this and say you're very anti-technology. That's not true. There's lots of lower quality cyclical technology stocks that fit very well into our theme, for instance, look at the lower quality semiconductor shares. They've clearly outperform the higher quality stocks so far this year. That's exactly what we would expect.
GHARIB: What are you telling your clients, Joe?
BATTIPAGLIA: There's a big difference—
GHARIB: What do you think of what Richard's saying?
BATTIPAGLIA: Yeah, there's a big difference in this economy today. It's global. It's driven by innovation and change and this big Leviathan is growing at a faster rate than most people would have expected and the reason is because of the technological consumption. Unlike the industrial companies of the past, which would grow in units very slowly, technology grows very quickly. And you're getting Cisco, for example, growing in units 50 percent a quarter. So it's not unreasonable to expect to sell at twice the growth rates overall in terms of P/E ratios. So when I look at companies individually, I don't see them being out of whack. And the Internet space is growing so fast in real terms, units sold, revenues, we have more to go in that space and more to be heard from on the values.
GHARIB: I know you, I know in terms of asset allocations, you've been telling your clients to be 100 percent invested in equities. You haven't changed on that?
BATTIPAGLIA: That's right. Not at all.
GHARIB: You're still saying that? All right, so if they've got some money now, where should they put it?
BATTIPAGLIA: Tech and telecom is the first place you go for half of it.
GHARIB: Like what?
BATTIPAGLIA: Building block companies would include Intel (INTC), Texas Instruments (TXN). We have some agreement on Intel I think I heard, right? BERNSTEIN: Yes. Cisco Systems (CSCO), Lucent (LU), JDS Uniphase (JDSU), SDL Link, E-Tech. There's a whole host of companies that are the backbone to the future of the interest. And then, of course, there's Sun Microsystems (SUNW). So there's a long list and I want to give Richard a little time to add here.
BERNSTEIN: Well, I'm much more dirty. I mean just from the point of view, we like things like basic industrials, the metals, the coppers. We like energy. OPEC's finally playing along—
GHARIB: The not so sexy companies, huh?
BERNSTEIN: Oh, they're very un-sexy. They're horrible. You know, I mean in terms of, you know, do you have to get your hands dirty with these companies? Yes, you do. That's really the side of the economy we like. Again, it's not that we don't like technology. Certainly the economics are there. Our big fear is the valuations.
GHARIB: All right, we don't have much time left. Interest rates. What's going to happen with the Fed? What are they going to do on Tuesday and next year?
BERNSTEIN: Well, our economics group says probably nothing for the end of the year but at least one rate hike, maybe two, as we go through the beginning of next year.
GHARIB: And you were telling me a short while ago you might expect a rate cut by the end of next year.
BATTIPAGLIA: By the end of next year, that's right.
GHARIB: With this economy growing like this, a rate cut?
BATTIPAGLIA: Well, the growth we're seeing here is the year end great enthusiasm for the holidays, the Y2K prep. Once we get into a normalized year and we talk about the 11th year of expansion with an election and with these CPI/PPI numbers, the Fed will be in a position to cut rates if the economy needs it going into 01. We do have to deal with the next century, you know?
GHARIB: All right. We'll leave it there. Thank you very much, gentlemen. Appreciate it, Rich and Joe.
BERNSTEIN: Thanks to you.
GHARIB: We've been speaking with Joe Battapaglia of Gruntal and Company and Richard Bernstein of Merrill Lynch.
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