<---OT----><---You go girl !----<---I say BULL---->
Hey Pat:
Here is your favorite girl,the 'I-talian' diva,I am sure you must have heard her last night but what the heck.<g>
Source:NBR {Aug.13,98}
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One On One With Elaine Garzarelli
SUSIE GHARIB: Well, the Dow is now down more than 9 percent from its record high in July. But our guest this evening says the correction is over and she is bullish. We're pleased to have with us Elaine Garzarelli, chairman of Garzarelli Investment Management. Great to have you here.
ELAINE GARZARELLI, CHAIRPERSON, GARZARELLI INVESTMENT MANAGEMENT: Nice to be here, Susie.
GHARIB: Well in your latest report, you're saying that the Dow is going to hit 9600 in the next six to 12 months. Would you talk us through what your thinking is here?
GARZARELLI: Right. Well, I don't see any inflation in the economy. The latest GDP deflator was .9 percent, year-to-year. In my whole career, I've never seen inflation that low. From the leading indicators from Columbia Business School, that is the best leading indicator of inflation. It looks like it's going down to zero. We have a budget surplus which should stay until about 2001. Probably longer than that. But at least till then. So long term interest rates, that's the 10-year bond, should be about a percent lower than it is right now. That is the reason I'm bullish on the stock market. Not because ...
GHARIB: You're saying a percent lower so you're talking about something like 4 1/2 percent ...
GARZARELLI: Exactly.
GHARIB: ... from where it is right now.
GARZARELLI: That's right.
GHARIB: That's very bullish. Why do you see that? Just because of the inflation picture?
GARZARELLI: I see that, because of inflation, because of the budget surplus, and with all the problems in Asia and Russia. That's keeping our inflation rate even lower. Companies aren't going to be able to raise prices like they could in an inflationary environment. So there's going to be a problem with profits. Profits are going to be flat. Maybe in 1999, we may have a couple of negative quarters. But that's what the stock market is discounting now. That's why we're going down. And that's why we had a 10 percent correction.
GHARIB: I see your point, Elaine. But let me just bring up what the bearish argument, which, I'm sure you're very familiar with, a lot of worries about the Asia situation. And now the Russian situation. Devaluation of currencies. Some of the bears are saying there's going to be a global recession. They're also concerned about flat earnings for domestic companies. When you look at all of that, what is your counter argument?
GARZARELLI: The better the crisis is, the lower the interest rates go and the better stock market we have. Look at all the crisis periods that we've had with Penn Central, the Mexico crisis. It causes the Fed to ease. And it's a great bull market that follows. So this is, we're going to go through the second stage of the Asian crisis probably in about another three to six months. The stock market is discounting it now. The Fed will probably ease. Long rates will come down on their own.
GHARIB: When?
GARZARELLI: When he starts to see the first negative quarter of earnings. Probably by the fourth quarter, first quarter of '99. But what happens is, the stock market will go up as earnings come down. A lot of people don't realize that. And that happened in 199 ...
GHARIB: You're very optimistic.
GARZARELLI: Absolutely.
GHARIB: And in the little bit of time that we have left, let's go over what your investment strategy, some of the stocks that you like. I see in your latest report here, you've got a lot of technology stocks.
GARZARELLI: Right.
GHARIB: Intel (NASDAQ:INTC), Texas Instruments (NYSE:TXN). Tell us a little bit about them.
GARZARELLI: Well, they've already had a 25 to 35 percent correction. So they're cheap and they're going to have a little bit of pop back because of better inventories and things of that sort. So they have a seasonal run at the end of the summer into probably December where you can make 20, 30, 40 percent on them. So that's why I like them, for seasonal reasons. Also, long term, I think that they'll hold up OK.
I would stay away from anything tied to inflation. Like the oil stocks, aluminum, chemicals, papers, metals. And capital spending related groups like machinery. Large machinery that we export to Asia. And anything that's used for building, like the steel industry. Because as earnings slow down, corporations are not going to be able to spend on their capital ...
GHARIB: You like the banks. Both regional ...
GARZARELLI: Financials.
GHARIB: Right.
GARZARELLI: Right. I like non-durables like drugs, tobacco and food chains. And, you know, the other area is housing. With interest rates coming down, you have to love the housing area. A stock like Centex (NYSE:CXP).
GHARIB: We have just a few seconds left. What would make you change your mind?
GARZARELLI: What would change my mind is if companies really have a problem raising prices. We go into some sort of deflationary environment. And earnings drop 15 to 30 percent. Then I think the stock market will just stay flattish.
GHARIB: OK.
GARZARELLI: But bonds will do fantastically well. So I think bonds and stocks will do about the same.
All right. Thanks a lot for giving us your thoughts on the market.
GARZARELLI: My pleasure.
The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT.
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