Dave Gaffen Chats on AOL

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

Comment: Live from New York, N.Y., please welcome Dave Gaffen, senior markets reporter, TheStreet.com.

Tscnygaff: Hi there, all. I'm happy to take your questions. Thanks for joining us today.

Question: Your opinion on HON or GE, would they be a buy here?

Tscnygaff: First, I need to say that I can't recommend purchase or sale of stocks either way.

Tscnygaff: Now then, after the disintegration of the merger, the thinking is probably that HON would be snapped up somehow.

Tscnygaff: GE's performance has been mixed lately, and so it's hard to get a sense of where they're headed in terms of the direction of the stock price. If you're of course looking long-term, then I'd say there's less to worry about.

Question: Which stock is the best to own for the next year, CSCO, ORCL, GLW INTL?

Tscnygaff: I wouldn't ever limit yourself to choosing from four technology stocks, each of which have seen erosion in earnings, decline in demand, and a generally sour outlook for the next several quarters.

Tscnygaff: I'm sure in a year, one of them will have been proven to be better than the other three, but they could all do worse than a lot of other sectors, as they have been doing now for more than a year. Maybe it's time to start looking for something else.

Question: With U.S. companies defaulting on a record $53.8 billion in debt for the first six months of the year, should we expect poor performance from the corporate bond market for the remainder of the year?

Tscnygaff: Well, keep in mind that those defaulting are generally the worse credits - the junk bond market. It's rare that high-quality bonds do terribly as a result of the default of lousy credits.

Tscnygaff: So far, this year, corporate bonds have outperformed Treasuries (although not by so much), but bonds offer a protection that say, equities do not. If borrowing appetite remains strong, and spreads narrow and there's expectation of economic recovery, then bonds could continue to do well, I'd estimate.

Question: Will the current natural gas glut continue to pressure such ccompanies as exploration and production issues like Anadarko Petroleum Corporation [APC] or oil-service companies like Schlumberger Limited [SLB]?

Tscnygaff: The natural gas glut is a surprising one, but the extra supply has definitely hurt these companies and could continue to do so. Why? Because supply has risen, but demand has topped out for now, at least.

Tscnygaff: And that's important. Ultimately, these energy companies may have seen their peak; they could continue to perform well, but lack of economic strength won't help them.

Question: If they're selling puts does that mean the market going down?

Tscnygaff: "Puts" are an option instrument that one uses when you're betting that a stock or an index will fall. When you're buying puts, you're making a bet that the stock will fall. So when you're SELLING puts, that's actually a bet that the particular index, or whatever, will rise. So you've got it reversed.

Tscnygaff: There are "put" and "call" options. Calls are the long options -- if you're selling calls, you're bearish.

Question: Is ATT/COMCAST bad for AOL?

Question: Is this the reason AOL is down sharply?

Tscnygaff: Possible, but seems unlikely that it's the reason for AOL today.

Tscnygaff: The ramifications of that transaction still need to be worked out; AOL-Time Warner still has a lot of share in cable as well as the rest of the media.

Question: Your view on buying solid tech now for a five-10 year hold?

Tscnygaff: It depends on what you define as "solid" tech. The thing to remember, as always, is never be afraid to modify your investment strategy when it's not working for you.

Tscnygaff: If, say, you bought ORCL and in 10 years, it was nowhere, you get no points for "holding" your investment. Just as many people thought when buying JDSU in early 2000 (or late 2000, for that matter.)

Tscnygaff: But I digress: the point being, technology is going to continue to remain important in our lives, and a portfolio of stocks would naturally include some of it. That's not a bad decision, but it needs to be handled with an eye towards diversifying your assets.

Question: Do you think the market is telling us that recovery won't take place till q1 or q2 of next year?

Tscnygaff: That's certainly possible, isn't it? What I think has been happening for the last several months has been numerous attempts by the market to gauge the impending recovery.

Tscnygaff: The market, of course, is discounting future earnings, and having experienced 10 years of incredible gains in the market, you'd expect that psychologically there'd be a tendency to bid up stocks at the first sign of decent-sounding news.

Tscnygaff: However, that's not necessarily going to be the case -- the recovery may take much longer, and profits are unlikely to resemble 1999-era gains. That will have to be adjusted for by the market. It's going to take a lot of time.

Question: Few would expect the Naz darlings to reach their highs anytime soon, but we seem to be in a trading range on the Naz. Don't you think these past darlings may be played for short-term tradeable gains within the Naz range?

Tscnygaff: I'm sure if you look back at the charts, sure, there's a bunch of ways to play that. I'm not qualified in any way to gauge possible trades; I'd probably lose all my money, so I'm going to avoid doing that.

Question: We keep hearing that we are in a bear market that will not be affected by the significant Fed action on lowering rates anytime soon.

Question: Do you agree or do you think the markets are discounting the Fed's action too much as they did when the Fed raised rates?

Tscnygaff: I think what has to be examined is the structural background in which the market is currently operating. So we have to throw away the mantra about the market "always going up" after three, four, five, six rate cuts, and think about the dearth of capital spending, high debt levels and squeezed profits, and understand that the Fed cannot rectify those issues.

Tscnygaff: After 10 years, companies became quite leveraged, and that doesn't go away with Fed rate cuts.

Tscnygaff: I'm not sure what you're asking about "discounting" the Fed's actions -- are you saying they're building in too much of a recovery already? Maybe they are, but that would assume the market rallied significantly from its lows. Right now, it's not.

Question: Since corporations seem to have turned off their IT spending like turning off a light switch, won't there be increasing pent-up demand for some tech products as we go foward that may cause certain techs to move significantly higher in a short period?

Tscnygaff: The short period, I'm not sure I agree. The short period is mostly dependent on expectations for earnings and the economy, and any demand explosion would probably only be witnessed once it's already happened.

Question: Well I'm sure everything looked like it was going to hell in past periods when the markets DID react positively to Fed cuts. Since we do have documented market reaction to such cuts over and over again, are you saying "its different this time?"

Tscnygaff: I'm saying it's different every time. Every single time is different, not the same. There are lessons to be learned from previous experience, but the danger is when you substitute dogma for experience.

Tscnygaff: And yes, in other times, we were in recessions, and Fed cuts ultimately helped the situation. And it probably will help in this instance as well. But that doesn't mean you can repeat your earlier investment strategy to a T.

Tscnygaff: Because that's just not thinking properly. I'm saying there are a lot of companies with a lot of leverage, and profits aren't going to be strong this year, or largely next year either.

Tscnygaff: And that's to be considered. Will stocks ultimately do well? Yes. Will you get a 10% gain next year? Good chance of that. Are you going to get back 1995-99? Forget it. Stop thinking it'll happen. It won't.

Question: Are you thinking that longer-term holding is still going to be a successful strategy or would you try short term trading as well?

Tscnygaff: I'm wary of short-term trading, but having never done it, I'm not an expert at all.

Tscnygaff: The best way is to preserve and augment your capital, and remember what you're comfortable with. That's most important.

Question: They said that the markets discount future upturns in the economy well before they occur, before profits turn up and demand increases for product. Why not again this time? Why won't the markets discount in advance before the economy bottoms?

Tscnygaff: I think the market has tried to do that. I think the market has done this twice since January, and there are a few reasons it hasn't worked so far.

Tscnygaff: First, the upturns eventually have to be confirmed. Earnings are not confirming it yet. Second, the economy hasn't confirmed this yet either.

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

Tscnygaff: Thanks very much. I look forward to speaking to you next time. Keep reading TheStreet.com.