Aaron Task Chat: Counseling a Defensive Posture

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Aaron Task chatted on AOL's MarketTalk Friday, Nov. 17 at 4 p.m. EST.

Aaron Task 1117: Welcome to everyone, let's chat.

Question: Could you give us a breakdown on the current conditions we are seeing in the markets?

Aaron Task 1117: The current condition in the market is that stocks are not faring very well, and they haven't been performing well for some time now. I think it's time when people are just starting to now realize that the market isn't going to bounce back as quickly as it has in past years when it's been down.

Question: As far as E-tailors go, who do you feel is best positioned to succeed long term?

Aaron Task 1117: I would say that I don't know if any of them are terribly well-positioned. It's an incredibly difficult market place right now. And those companies aren't going to be able to get easy access to capital.

Question: Do you think the semiconductors offer good long-term investments, if so who do you like in the space?

Aaron Task 1117: I'm not in the business of recommending individual stocks, but I do think that there are some relative bargains in the chip sector. At the same time there are also chip stocks that are very highly valued, you can't just make a blanket statement to say that chip stocks are a good investment right now.

Question: Would it be better, then, to hold off on investing for a while?

Aaron Task 1117: I think so. I think unless you're a trader by profession, there's nothing wrong with putting your money in a CD and letting it ride out the storm there, earning interest. Just because you can do something, I think online trading has made it easy for people to trade, but that doesn't mean that you should, all the time.

Question: Do you like the transportation sector here or does the high price of oil hurt their near-term prospects?

Aaron Task 1117: It's very interesting that the transportation stocks have been doing very well of late despite what's going on with the price of oil. But if you think the economy is heading for a hard landing, you have to be very wary about investing in transports.

Question: In your opinion are the high valuations on high-tech stocks really that disjointed, considering the type of business they are in?

Aaron Task 1117: Yes. I think what's transpired in the market since March has demonstrated that those valuations were either justifiable or sustainable.

Question: Given the number of chip companies out there, do you view consolidation as a likely theme in the group going forward?

Aaron Task 1117: I think in the commodity memory chip industry, you might see some players get out of the business, meaning they're just going to shut down production, which will help the players that remain in the business. But I don't know if there's necessarily going to be mergers in the space.

Question: Would you be adding to positions in the financials, seeing as it looks as if we might see an easing of interest rates early 2001?

Aaron Task 1117: If you believe the Fed is going to ease monetary policy early in 2001, then yes; but I don't know if I agree with that outlook. I think it might be later in the year before the Fed eases.

Question: Due to all the uncertainties surrounding the markets, what with the election unresolved etc., would you advise a larger cash position?

Aaron Task 1117: Yes, I would.

Question: Are we in for a prolonged bear market in your opinion?

Aaron Task 1117: I would argue that we've been in a bear market since mid-March. And that we're probably closer to the end of it than the beginning. There are several. First of all, they took on too much debt, their growth is slowing especially in the long-distance consumer business, and also they're big slow organizations that haven't been able to change quickly enough to keep pace. Apparently the State Supreme Court has issued a ruling blocking Katherine Harris from certifying the vote. News wires are reporting this right now. I can't verify this, but that's what I'm hearing.

Question: What's the outlook for the retail sector through the holiday season?

Aaron Task 1117: That is a huge question, and I think how successful or not the fourth quarter is, in terms of consumer spending, is going to be a big indication of whether or not we're heading for a harder landing in the economy than most people currently think. I would note that some of the big retailers did perform better this week despite some not great retail sales figures and earnings.

Question: What do you see as a catalyst to get the specialty chipmakers going again?

Aaron Task 1117: The specialty chipmakers had their momentum halted in a very big way this week. And other than short-term trading rallies, I don't see any catalyst near term that's going to get them back to recent highs any time soon. Are the pharmaceutical stocks in a position to fully recover? They've done extremely well recently on the expectation George Bush will eventually someday finally be named the winner of the election. They may rise a little bit more when that is ultimately official, but I wouldn't see much upside from there in the short term.

Question: Are the PC makers dead money near term?

Aaron Task 1117: I think so.

Question: Yesterday, a Merrill Lynch analyst downgraded several already hammered tech stocks, driving them down even more. At the same time he "remained confident" about their long-term future. Should long-term investors pay attention to this or is it just "noise"?

Aaron Task 1117: That's a good question. I think on one level it is noise if you're truly a long-term investor. That being said, I think the days where people buy stocks and forget about them for five years are over. You have to pay closer attention to what's happening in the stocks and the sectors that you invest in to avoid being surprised.

Question: Do you feel a "Honeymoon Rally" which will greet the new president or a year-end "SantaClaus" rally is at all conceivable?

Aaron Task 1117: I think the two might be combined, but they'll be pretty short-lived.

Sage Lion: Thank you for joining us today, Aaron! We appreciate your insights!

Aaron Task 1117: If you're not already, remain very cautious about the market and don't think that just because it's done extremely well and bounced back from declines in previous years that it's necessarily going to do so again. That's not to say I'm a bear, but I would be defensive in this market right now, which means raising cash, using stops and most of all getting off and staying off margin. If you do those things, you should be able to ride out the storm and then make it through for when the environment is better again, which it will be at some point.

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