GRIMMY, ABBY SAYS HELLO!
Subject: Intel
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To: +John Fowler (45852 )
From: +Barry Grossman
Friday, Jan 16 1998 9:34PM EST
Reply # of 45881
John and Thread,
If anyone is interested:
Abby J. Cohen, co-chair of the investment policy committee at Goldman Sachs, has
been right on about the economy for the last few years. Here is what she said today in
a CNBC interview with Bill Griffeth:
CNBC:
The Asian situation - is that the straw that's stirring Wall Street's drink right now, and if
so, are we nearer the end of that crisis, in your view, and it's effect on Wall Street, or
nearer the beginning?
AJC:
It seems to me that the stock market in the United States has been focusing keen
attention on Asia since last August, and, since that period of time, we have been stuck
in a very choppy trading range. Our own sense is that the impact of Asian
developments on the United States will prove to be far more muted than the many of
the pessimists have estimated to this point and we do think that US stock prices can
move higher, once there's clarification.
CNBC:
Certainly the numbers from an Intel or Motorola this week would suggest that it wasn't
that big a factor for the 4th quarter but there are plenty of people who argue that it
wouldn't have been a factor in the 4th quarter - maybe it won't be for another quarter
or two - then we start to see to see the slowdown effects of the Asian crisis. Do you
disagree?
AJC:
Even if Asia does have a larger impact early in 1998 than it did at the end of 1997, the
fact remains that our domestic economy is doing extremely well - and the United States
is primarily a domestic economy.
CNBC:
But, you would then argue - look we're in an international economy today, Aren't we?
A global economy that benefits from the liberalized trade agreements that have been
passed in the last few years and we benefit from the upside. Don't we have to suffer
from the downside as well?
AJC:
I think there is some truth to that, but we have to keep in mind the relative proportions.
Foreign trade for the United States is equal to just about thirteen - one three - thirteen
percent of our GDP and that is a much smaller proportion than it is in many other
nations. Now US companies do do foreign direct investment in other countries but it's
not all in Asia. We do a great deal of business in North America - both Canada and
Mexico. Both of those economies are looking quite good. We also do a great deal of
business in Europe and there seems to be some improvement on the margin there as
well.
CNBC:
The last question on Asia - and then we'll get our own markets here primarily. The
news out of Asia has been hopeful this week with the signing of the more stringent
agreement with the IMF and
Indonesia. We had Roger Altman earlier today, a former deputy Treasury secretary,
who's had first hand knowledge of how these kinds of bailouts work and he says ,
"Look, things are still very fragile and any of these agreements could unravel." If that's
the case, do we see a bigger play on Wall Street then - even if it's only psychological?
AJC:
It seems to me that what matters at the end of the day for the US stock market is
what's happening in those economies and what's happening in the economies of other
trade partners. It may very well be that we'll be in a period of slower growth in the
global economy but we certainly do not see a global recession on the horizon.
CNBC:
OK. Back here now. Earnings? You expect them to meet expectations? I mean, some
expectations have been coming down here for the last few months. Do you expect that
to continue?
AJC:
We have always seen a pattern, Bill, where at the end of the year expectations do
come down, because expectations almost every year start a little bit too high. We have
not seen that 4th quarter expectations are being cut any more dramatically than in any
previous quarter. What we're watching most intently is what the companies tell us
about the first half of 1998. To this point, not enough companies have reported yet and
so the information is really fragmentary. But, what we do know is that most of those
companies what have reported have said that their results were quite good in the 4th
quarter?
CNBC:
And you would expect that to continue?
AJC:
We do think that 1998 will be a good year although profit growth on average will be
slightly slower than it was in 1997. Asia is part of that.
CNBC:
And what about growth for the stock market itself? Certainly we've had two or three
stellar years - 20% gains - unprecedented for the Dow Jones Industrial average. What
do you expect for 1998?
AJC:
I think 1998 will be yet another good year - but perhaps not quite as stellar. In 1997,
stock prices were propelled upward, especially in the first half of the year, not just by
improvements in profits but also because PE ratios went up. PE's go up when inflation
and interest rate expectations go down. We may
have a little more of that and a little more multiple expansion, but I think that we have
seen most of the increase in the PE in 1997.
CNBC:
Sectors that you feel will leave the way this year?
AJC:
I think there are three laggards thus far that will be leaders. Financial services stocks
have been very hard hit because of overreaction to the impact of Asia on them.
Second category - Technology - there are some companies that will have some
problems, but the overall sector we think will do very well. And the third area that we
have been expecting to better for a while and it has not, is small and mid-cap stocks.
They look very cheap - but they can stay cheap until investors feel confident enough to
add a little more beta, a little more pizzazz to the portfolio.
CNBC:
What is it about market psychology that's keeping the focus on the blue chips and
away from those smaller companies that you've been talking about?
AJC:
I think it's uncertainty. Asia, for many people, was a bolt out of the blue. And because
many people had not done the analysis ahead of time, they're still a little bit confused
about what the ultimate impact may be. Lets also keep in mind that it IS a moving
target. There's still many more developments up ahead and while there's uncertainty,
there's always a tendency to focus to on those securities that perhaps are the largest
cap and most liquid, that is, the most easily traded - you can buy them quickly and sell
them quickly. And they also tend to be the companies that are very well followed by
Wall Street analysts and so there's a better sense of how the earnings are going.
CNBC:
Last question - what about interest rates? Certainly we've been at historic lows for the
30 year treasury bond in terms of yield. We've had not a yield curve but a yield line.
Basically, the spread between the short end and the long end not very wide. Good or
bad for the stock market if this continues?
AJC:
It seems to us that inflation and interest rates will be comfortable for the stock market
over the next few months. It may very well be that reported inflation goes down a bit
more and it could also happen that intermediate and long bond yields go down a bit
more as well. We're not disturbed about the flatness of the yield curve. Let's keep in
mind that the previous fifteen years, we had an usually steep yield curve. This is in fact
closer to the more normal historical pattern.
CNBC:
I lied. Last question now. Upward target for the Dow this year?
AJC:
We think an easily reachable target for the Dow is 8700 and for the S&P 1175. Bill,
you know that what I like to do, is set targets that I feel comfortable that we can reach,
and then go through.
------------
This is an analyst that gets my respect. One of the very few.
Barry
>>>>>.(and I hope I will spend a
bit less time in Purgatory for my good deed)..<<<<<<<<<< You are going DOWN, just like MICRON<G>
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