The Fed, the Market and Bear Traps

Chris Edmonds chatted on AOL's MarketTalk hosted by Sage, Wednesday, April 18 at 11 a.m. EDT.

Comment: Live from Atlanta, please welcome Chris Edmonds, contributing editor, TheStreet.com. Chris can answer questions about the markets, funds, utilities and the wheelings and dealings of Warren Buffett.

CSEonTSC: Great to be here. Let's get going -- sorry to be late -- one of those tech things.

Sagecalc: What do you make of the Fed's sudden move to lower rates by 50 basis points?

CSEonTSC: Good question -- somewhat surprised given all the talk from Greenspan about wanting to wait and do things on schedule. The economic data must be pretty compelling from the Fed's view.

Sagecalc: Despite the recent rally in the market, do you believe the economy is still on shaky ground?

CSEonTSC: Clearly, there is evidence to suggest the economy has slowed considerably. However, it's hard to say recession until we have GDP data showing a slowdown for two consecutive quarters. That's the funny thing about recessions -- you don't know they've happened until after the fact.

CSEonTSC: Clearly, we have seen a slowing in the commercial economy. The million-dollar question going forward is will that translate into a consumer slowdown of the same magnitude? To date, the evidence is mixed.

Question: What is your take on Yahoo! naming the former co-CEO of Warner Brothers, Terry Semel, as the new CEO and chairman?

CSEonTSC: I think it's an interesting move. It says two things to me. First, Koogle knew he couldn't run the show to the next level and, second, it shows to me there will be a real move into media convergence and "programming" for Yahoo!

Look for some big changes in strategy in the next year

Question: Do you think the markets have turned around now or do you think this is a bear trap? Most appreciate your comments. Thanks.

CSEonTSC: A good question. I'm more constructive today than I have been in a while. I think the psychology is changing and the Fed move certainly helps.

CSEonTSC: Just remember the two cardinal rules I learned early on in the game: First, don't fight the tape, which is at least a short-term positive, and, second, don't fight the Fed. Both are in the bull camp at the moment.

I think going forward the real issue is whether or not there is a real second-half recovery. If that doesn't materialize, watch out!

Sagecalc: Do you think investors will flee technology once they have recovered their cost basis?

CSEonTSC: I think you have seen a lot of selling into rallies lately. And, clearly, there is a large group of individuals who are simply looking to get back to even.

That will or could put some pressure on big rallies. However, a lot of that is already done

Sagecalc: What sectors would you look to overweight in a diversified portfolio given current market conditions?

CSEonTSC: Good question. I clearly like the power sector, especially the IPPs. I also think you want to be in the financials and some of the retailers as the Fed cuts.

Look at the reactions in those sectors today. And I'm beginning to look at some tech issues now, selectively buying names that make good biz sense to me going forward.

Question: I am holding CSCO, EMC, JNJ, MRK, PFE. Any suggestions?

CSEonTSC: Nice group of names overall. Cisco has issues, clearly. Do like the idea of nibbling on storage?

As for the drugs, I'm long PFE and like its prospects. The rev number was OK today, but not great.

Sagecalc: What's your take on the earnings out of Intel, Pfizer and Tyco?

CSEonTSC: I mentioned PFE above. I haven't carefully looked at the Tyco numbers. Intel's number, at first blush, looked darn good. But those who are much smarter than me tell me they played some games to get where they are and if those don't work out, the next quarter could disappoint. But, hey, in this market, we take what we can get!

Sagecalc: Why did Pfizer's sales seem to be on the light side?

CSEonTSC: Good question. The big products seemed to be OK, so you have to look deeper. Check out the analysis on TSC/RealMoney.com for more soon.

Question: Would you buy EXDS now?

CSEonTSC: EXDS is a survivor, but it's a maiden I tossed into the volcano, to use a Cramerism. I never found a good way to make money on the name so, you're on your own.

Question: U.S. industrial output did pick up by an unexpected 0.4% in March. Have capital goods manufacturers perhaps seen the bottom in their cycle?

CSEonTSC: It's too early to tell -- clearly the Fed sees some continuing weakness given the cut. So I guess we all bank on this second-quarter pick-up. I like some of the bigger names in here, as they should benefit from a Fed cut. For example, I might look at a CAT in here.

Question: If this latest news on the interest rates being lowered is true, do you think the market will sustain its upward momentum?

CSEonTSC: Remember what I said earlier about not fighting the Fed? I like the move and think it helps the market trend in here. Good for now.

As for another area to watch, I might take a look at autos. GM's number looked good and Ford has a very interesting positive correlation to interest-rate cuts in the past. Haven't done a lot of work on those names, but they seem to be a good thought in here.

CSEonTSC: Yes, CAT's number was a bit light, but I think Spring and their power biz will be a big boost going forward.

Question: Your opinion on AES please.

CSEonTSC: Look for my piece on the IPPS on RealMoney later today. That said, I think AES is a great company, but it has been overshadowed of late by IPPs that focus on just domestic projects. If you look at Enron's issues in India, you see the increased risk in IPPs that deal overseas and that has had an impact on AES compared with the rest of the group.

I like the company, but I think you'll find better pure plays if you want to focus on domestic names.

Question: What are your thoughts on the recent merger announcement between First Union and Wachovia?

CSEonTSC: It bodes well for some of the competitors, especially in the Southeast. I think investors were surprised, especially given First Union's pledge not to do more mergers. I also think there are real execution risks in the deal.

I think WB did the deal because it didn't know what to do next. Like the prospects for banks like SunTrust, Synovus and BB&T as a result.

Question: Are we supposed to sell this rally?

CSEonTSC: Depends on your perspective I think you'll get a boost from the Fed cut which could carry into next week. I urge you to read the discussion on the RealMoney.com Columnist Conversation today -- great give and take between Doug Kass and Todd Harrison on that very issue. Again, at least for now, I won't fight the Fed.

Remember, short rates don't equate to longer rates, from which mortgages are pegged.

But, I do think you still have time to refinance. Reaction on the news likely won't last. I'll stick with my 6% rate

Question: You opinion on KM, CMRC AMAT?

CSEonTSC: The blue light is back. I like the progress they have made. Still a long way to go.

CMRC -- why? AMAT -- depends on the recovery in the sector, but sure looks better

Question: Chris, what do you think of Greenspan's move today?

CSEonTSC: A bit surprised given his comments about wanting to stay on schedule before Congress. I would love to see what he would say to Congress now -- LOL.

It tells me that the Fed has data that isn't suggesting a real recovery anytime soon. It'll be interesting to see what the Fed has to say when they speak!

Question: Is GX a buy?

CSEonTSC: I'm agnostic on the subject. I wouldn't go big.

Question: Would you be a buyer of Citigroup here?

CSEonTSC: I like the financials in a rate-cut environment. Nice move in the stock today. It is a core financial. Do we get a pullback after the euphoria dies down? Probably, but you want to own those names as rates come down.

Question: Is it a good time to dump AMZN?

CSEonTSC: I don't own it, I wouldn't own it, although my favorite fund manager -- Bill Miller at Legg Mason -- is still a real believer. Still some real issues going forward at Amazon.

Sagecalc: What do you make of Bill Miller's fondness for Amazon.com?

CSEonTSC: First, I like and admire Bill -- I think he's a real thinker. That said, I think Bill sees risk-adjusted opportunity in the stock. Remember, I think he owns as much of the exotic equity as he does straight stock. I think he's making a bet that they either survive or someone steps in. It has been interesting to read his missives on the subject in his annual and quarterly fund comments. I urge everyone to read what Bill has to say. In my mind, he is up there with Buffett in terms of his understanding and analysis of macro trends in markets and business. It is invaluable.

Comment: Thank you for joining us today, Chris!

CSEonTSC: Great to be with you on a very interesting day. Great questions. I hope the answers were insightful as well. And hope to see you around Real Money.com and on TheStreet.com. See you soon!

SageSaints: Thanks Chris!