Dave Gaffen Chat on AOL

David Gaffen chatted on AOL's MarketTalk, hosted by Sage, on Wednesday, May 30 at 11 a.m. EDT.

Comment: Live from New York, NY, please welcome Dave Gaffen, markets reporter, TheStreet.com. Dave can answer questions about the markets and investing.

Tscnygaff: Thanks for being here. I'm happy to answer all your questions.

Question: Do you think that the consumer confidence will be enough to drive this market back upwards?

Tscnygaff: I think it's going to be a minor help, but after hitting 11,000 and a significant rally on the Nasdaq, we're at a point where the market is going to pause for a while.

Tscnygaff: It's going to take some retrenchment before another rally, and the confidence number just isn't that important in the overall scheme.

Question: Don't you expect that the unemployment figures are going to eventually be the nail in the consumer confidence coffin?

Tscnygaff: You'd expect those figures would eventually hurt confidence more, yes. And in recent months, it has - the percentage of people less confident about job prospects is growing.

Tscnygaff: I guess the consumer, like the market, is "looking across the valley," so to speak, to a time when the economy rebounds and they hope to weather these next several months.

Question: Will the summer rally start next Summer -- 2002?

Tscnygaff: Well, I suppose, but that depends on a lot of factors. If the economy is in good enough shape, then yes, sure,it could rally. But that's looking way out in advance.

Question: Naz going to retest 1635 area?

Tscnygaff: Hard to say, honestly. You'd expect that the Nasdaq would end up testing some support levels, though I don't know if it will drop to quite that level.

Question: Hi Dave, thoughts on oil and gas drilling in particular MRL?

Tscnygaff: Probably going to end up seeing stronger investment over a good number of years in these areas thanks to higher prices and demand for energy.

Tscnygaff: These stocks have come a long way, and that's something to keep in mind.But if you're locking them away for 10 years or so, then there's good potential for this sector.

Tscnygaff: Chris Edmonds, on Realmoney.com, has written more extensively about this.

Question: What day in June is the next Fed meeting? Any guess on if there will be a rate cut? Amount?

Tscnygaff: Yes, the Fed meets June 26-27, a two-day meeting. Currently, the market is looking for another 25-basis point cut, which would cut the Fed funds rate to 3.75%.

Tscnygaff: I think that's likely, although I'm not sure it's in the bag, as the market seems to assume.

Question: I don't think any long term investor should buy stocks until this retesting and 2nd Q warnings are over. Your opinion?

Tscnygaff: Well, I'm not sure I agree. If, by long-term investor, you're talking about 30 years, then there's really no reason not to get into the market at any given moment, especially now, after the Nasdaq is still more than 50% off its highs.

Tscnygaff: Stocks may not appreciate dramatically for some time, but if that's your definition, I don't believe that a period of a couple months is anything to be worried about.

Tscnygaff: If your horizon is the next year or so, well, being cautious is a different matter.

Question: Since it is expected that the technology companies that lead the last bull market will not be the next leaders, do you have any thoughts as to who will be the leaders?

Tscnygaff: Well, that's hard to say, of course. You have to think about the country's infrastructure and where the demand is going to be for products. There's a greater need for energy.

Tscnygaff: There's going to be demand for turbines, things that help compress energy and help things run more efficiently. So that's a possibility.

Tscnygaff: And there's going to be some kind of technology - whether it's a biotechnology thing, which tends to be fleeting, or greater investment in optical fiber once the benefits of that becomes more a reality, or whether it's something related to communications, I'm really not sure.

Question: Well if LT is 30 years I guess my only LT investment will be a grave stone.

Tscnygaff: I'm not saying that investing decisions need to be made on one basis only. But I simply feel that there's too much attention being paid to the short-term fluctuations in the stock market.

Tscnygaff: If your horizon is 20 to 30 years, there's little reason to worry about the next two months. If your horizon is 5 years, then one needs to be more vigilant. The shorter your horizon, the less risk one should take.

Question: What are your thoughts on the energy sectors? Is it too late to get in or should the long term investor continue to get in?

Tscnygaff: I can't make specific recommendations, but these stocks have come a mighty long way in the last few months, especially oil and gas stocks.

Tscnygaff: And lately they've come off their highs a bit, so I can understand the caution. On a more long-term basis, there are factors in place now that would seem to benefit these companies.

Tscnygaff: They include: higher prices, increased demand, an improving regulatory environment, and the need for more capacity.

Tscnygaff: In the early part of the 1990s none of these things were in place, and we also had the Gulf War to boot.

Question: If there was just one sector only that you could put "all your eggs in", what would it be?

Tscnygaff: I'm going to deflect this question without trying to lecture, but I'd never put all my eggs in one basket at any time, for fear of losing all my money, and having to wait around until the stocks recover to be "made whole."

Tscnygaff: Especially when I could buy an index fund, or even buy bonds, for Pete's sake, where at least I'm guaranteed to get my money back.

Question: If you were to break this market environment down into departments, like a business, which departments do you think are acting normal or rational and which ones do you feel are acting abnormal and insane?

Tscnygaff: That's a really interesting question. I like it. I guess I'd say there's no CEO or CFO to start with now. That is, no leadership running the show.

Tscnygaff: After that, I'd say the assembly line and the support staff are doing fine, while a good portion of the market is simply "doing its job," so to speak.

Tscnygaff: It's moving along, not really impressing anybody, but not languishing in the dirt either.

Tscnygaff: That's about how I'd express it.

Tscnygaff: This is in contrast to 1999, when everybody was running along fine, and in late 2000, when the market took an extended vacation, as you all well knkow.

Tscnygaff: But in a way it's hard to think of a market as a business, because the parts don't work like "components." Either way, it's tough to see where the market is going right now.

Tscnygaff: There's a general belief that the economic situation is going to be ok, but signs that companies are seeing improving earnings are limited at this point.

Tscnygaff: You'd expect that to improve somehow. After a 10-year capital spending binge, however, there's areas of the market that should end up languishing for a while.

Tscnygaff: Which is a harsh reality to cling to. Because one has to accept that years of 20%+ returns are probably over, at least for a while.

Question: Even for my thirty year time line -- I hope! Why would I want to buy just prior to a likely drop in price during the upcoming pre-announcement season?

Tscnygaff: But how do you know stocks are going to drop in price? If that's what you believe, then act that way. But over a 30-year period, what is going to be at best, barring a catastrophe, a decline of 5%, won't mean Tinkertoys if your horizon is 30 years.

Tscnygaff: There are quite a few people who were buying Nasdaq at 5000, convinced it was going to go up forever. They very quickly had to change their tune.

Tscnygaff: Leave the rampant speculation and the obsessive buying and selling for others.

Tscnygaff: That doesn't mean you ignore your holdings -- assuming, of course, you own individual stocks. So if there's something about this period that makes you wary, sure, by all means, wait it out and see where you are in two months.

Tscnygaff: If the market is higher, you've lost nothing. If it's lower, you've saved a little capital.

Tscnygaff: But don't worry about the market dropping if you're not getting your money until the year 2025.

Question: Something I don't understand about diversification. Most really big time rich people made fortunes by concentrating on a few investments like Warren Buffet. Even Henry Ford, Thomas Edison and Nelson Rockeller concentrated whole future on one company stock their own.

Tscnygaff: And in the same period of time, 95% of the people out there did not make as much money as the average investor.

Tscnygaff: Yes, Ford made millions. But also because his product became a widely accepted one that Americans continue to buy.

Tscnygaff: But that ignores the existence of Preston Tucker, of course.

Tscnygaff: Warren Buffett is a notable exception, but his holdings are diversified, even though his company concentrates in a couple different areas.

Tscnygaff: Sure, if you own a business, you're looking to get rich and change the world.

Tscnygaff: And that's entirely possible. But nobody ever did that with their mutual fund holdings.

Question: What is your view at this time about a recovery? Do you think that this year and next year may be a rather sideways movement across alot of the sectors?

Tscnygaff: Yes, I think it's entirely possible that a good lot of the market, or the major averages, for that matter, continue to move sideways for some time after going as strongly as they did for so long.

Tscnygaff: We've never had a period of 20%+ returns that lasted as long as this 1995-1999 time period. And history should not be ignored here.

Tscnygaff: The stock market, in the United States, tends to be the best long-term investment, but by long-term, that means "20 years" or perhaps even more. The market had a very rough period between 1969 and 1982, and it also had a really horrible time, of course, from 1929 to 1942.

Tscnygaff: There is probably some merit to the idea that value stocks and small-caps may be in good shape for a while. The move in the market in the last gasp of that mega-bull market was mostly a narrow one, and it's interesting to see that there's been a bit of broadening, even if the gains are not as strong.

Comment: Thank you for joining us today Dave! We have been speaking with Dave Gaffen, markets reporter, TheStreet.com.