Dave Gaffen Chat on AOL

By David A. Gaffen ,

David Gaffen chatted on AOL's MarketTalk, hosted by Sage, Tuesday, June 26 at 10:30 a.m. EDT.

Comment:

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

Tscnygaff:

Hi there. I'm happy to answer your investing questions.

Question:

Do you think the markets going to crash?

Tscnygaff:

Crash is such a nasty, bad word, isn't it?

Tscnygaff:

More seriously, I don't think that's going to be the case. However, it's important to recognize that there are many stocks that by many measures remain overvalued, and that's a concern. A crash? It doesn't seem likely.

Tscnygaff:

Could the market continue to meander lower, or really go nowhere for a few years?

Tscnygaff:

I think that's a better possibility. If that happens it won't be pretty - and it won't have the strange cathartic satisfaction of a crash that lets people say, "Ok, now it's time to get back in."

Question:

What type of move do you expect the Federal Reserve (Fed) to make on interest rates this Wednesday?

Tscnygaff:

I expect the Federal Reserve will cut rates by a quarter-point tomorrow. Some would argue that there's no real compelling reason why the Fed should stop cutting rates by 50 basis points, but I believe the Fed is more likely to go with a quarter-point.

Tscnygaff:

Greenspan has stated in previous comments that the Fed has to recognize the stimulative power of what they've done already, and other officials have said similar things. So I think we'll see a quarter point, and a statement saying the risks are still weighed towards weakness.

Question:

Do you think the Nasdaq will rebound by the fourth quarter as predicted?

Tscnygaff:

By what do you mean, "rebound?" If that means, get above this 2300 level and stay there, that's possible, if the technology sector starts to show signs of rebirth -- that is, if there are companies out there that need more infrastructure, etc.

Tscnygaff:

But if rebound means 3000, or 3500, that's a long-shot. Those kinds of euphoric gains are probably behind the market for a while, in my estimation.

Question:

Why have existing home sales continued to remain strong while all else in the economy continues to weaken?

Tscnygaff:

New home sales are really something. We've even reached a point where economists are starting to wonder about the strength.

Tscnygaff:

I'd link it to a couple of things: interest rates are still low, and there just must be a lot of people out there that feel confident in borrowing money for their homes -- and banks seem willing to extent home equity credit in a way they weren't before. I'll admit, it is truly surprising.

Tscnygaff:

Consumer spending has held up reasonably well in all this...home sales, Id' expect, would weaken a bit soon, but interest rates are a mitigating factor.

Question:

A crash is not likely? With Europe going down, Japan being Japan, the rest of the world looking to the U.S.?

Tscnygaff:

I'm not sure what the question is, exactly. But no, I don't necessarily think the market is going to "crash." That doesn't mean I am optimistic.

Tscnygaff:

Just that it may slowly trickle lower. In addition, the global situation isn't the first barometer of what happens to our stock market.

Question:

How do you think the Dow Jones is doing?

Tscnygaff:

It doesn't seem to be doing terribly well these days. The balance of the strength is concentrated in GM and JNJ and XOM and they've been getting hurt lately.

Tscnygaff:

The Dow's reacting to lousy economic numbers; there's still a lot of hope that things are going to turn, but the evidence is thin.

Question:

Abby Joseph Cohen

says that there are still plenty of opportunities in the technology sector. What is your opinion?

Tscnygaff:

Abby's been a staunch bull for a long time now; she reduced her weighting in technology in the early part of 2000, but since then she's been sort of walking against the wind as far as that goes.

Tscnygaff:

Ultimately, investing in tech may pan out, and ultimately meaning 15 years or something. But hanging on her word isn't necessarily going to get anyone anywhere.

Tscnygaff:

Remember, also that Abby is generally serving large institutional clients, so her words should be taken with that in mind.

Question:

We have had lower rates 5 times this year already, how much longer do you anticipate that it will take for the market to reflect these changes?

Tscnygaff:

Well, the market ultimately has to see some confirmation of improvement.

Tscnygaff:

It doesn't need to see improvement to rally -- because it's a discounting mechanism and reacts to expectation of changes in the future. But the rallies won't be sustained without that confirmation.

Tscnygaff:

So the Fed is doing its job, yes, but there are other issues confronting the market right now, the lack of spending, inventories, etc.

Question:

What 2 or 3 companies could jump start tech if they increased spending?

Tscnygaff:

Well, it's not a question of two or three companies "jump-starting" tech. Those big names in tech benefited from a whole bunch of little companies - ISPs, content providers, small telecom names, etc. for a lot of the infrastructure build-out that everyone went nuts over from 1998 to early 2000.

Tscnygaff:

That's not going to come back, and the efforts by "two or three" companies won't either. MSFT is still spending money, as is INTC, despite it's rapid slowing. And that's not helping anybody. So there really isn't any few companies responsible for all this.

Question:

I have heard that we will already be on the way to recovery by the time that we realize we had hit bottom. Haven't we hit the sub-floor yet?

Tscnygaff:

Well, we can make all kinds of statements and play all kinds of games with when one "realizes" something and when it actually happens. It's very hard to tell, I agree, but the economy doesn't seem to be improving just yet.

Question:

Is window dressing still going on this week?

Tscnygaff:

Probably - or alternatively, investors are selling off losers in this week as well.

Comment:

How it is determined which percentage of a rate cut is already factored into this market? What happens if Greenspan cuts rates less than what is already factored in?

Tscnygaff:

There's a few ways to calculate this.

Tscnygaff:

First, let's take the "fed funds futures" contract, which trades on the Chicago Board of Trade. The math isn't important right now, but very basically, these contracts determine what the market is looking for based on where they trade from day to day.

Tscnygaff:

Right now, the futures contract has fully priced itself for a 25-basis point cut, but partially priced in a 50-point cut.

Tscnygaff:

By looking at the yield on this, you can determine that this is the case.

Tscnygaff:

There's a very old column on

TheStreet.com

by

James Padinha

, who is no longer writing for this, that explains the math. The best way I can tell you to find it is to go to "search" and type in the following words: "Padinha hey man nice shot."

Tscnygaff:

I only remember this because it was one of the subheads that James used for that story. The math is in THAT story.

Tscnygaff:

Now then, the stock market also calculates it, but that's more based on mood.

Tscnygaff:

If the market is going down right before the meeting, maybe it's a sign that people are starting to think the Fed will cut less than expected. It's highly speculative, though, to think of it this way.

Tscnygaff:

Roughly, one can also use the yield on two-year notes to figure out what people think the Fed will do. Right now the two-year yield is 3.98%, which indicates that the market believes the Fed should cut rates - but not much more can be determined out of that.

Tscnygaff:

That's a mouthful, but that's basically how it goes.

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

.

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