Edmonds and Task Chat: Batting Questions on Oil, the Fed and Reg FD - TheStreet

Edmonds and Task Chat: Batting Questions on Oil, the Fed and Reg FD

Other differences aside, both agree reasonable expectations and discipline make money long term.
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Chris Edmonds and Aaron Task chatted on RealMoney.com Wednesday, Dec. 6 at 2 p.m. EST.

CSEonTSC:

Good day. ... live from New York today. . .where it is cold as. . .just like the markets after a red hot day yesterday. Must be why gas prices are up big today. Ask me the tough questions. . .Aaron will take the softballs. Hey, Aaron. . .you ready. . .

aarontask:

Wait, I've got to find my batting glove....

OK, I'm ready. Seriously, am wondering if the runaway enthusiasm evident yesterday is still intact given today's action.

vasil-guest says:

Mr. Edmonds, first, what stocks are specifically leveraged to the natural gas industry? When will they be a bubble? Second, what do you think of that big Hungarian gas concern, Mol, or something like that? Mr .Task, Rambus trades at over 500x 200 earnings and 200x revenue? It's growth, however, is only over 200%. Why is it trading at this height?

CSEonTSC:

Gas is flying today. . .the bubble won't occur until we see better supplies, probably well into spring. I think you look at the E&P and service companies focused on gas over the long term and in the short term to capture the volatility you look at the smart gas trading companies. Enron (ENE:NYSE) (I am long) is clearly the leader.

Then you have Silliams (WMB), Dynegy (DYN:NYSE), Duke (DUK:NYSE), El Paso Energy (EPG:NYSE) and Southern Energy (SOE:NYSE).

Interestingly, none of them have really taken a fly today on the price news. (That's Williams!)

aarontask:

RMBS makes chips used in bandwidth technology and thus got run up in the overall enthusiasm for bandwidth. Even though it's well down from its 52-week high you can still argue its P/E is bloated. Still, 200% growth ain't too shabby especially in this environment. And if the Fed is easing, ppl will be willing to pay more for growth.

shadytoo-guest says:

Any thoughts on the Middle East situation and how it may affect 1) oil prices and 2) the Israeli based stocks (which have already taken a beating).

CSEonTSC:

The Iraq threats are just that -- threats and are likely pretty impotent. . .especially given the fact OPEC will make up lost supply. I think oil will settle in around 29-30 a barrel this winter and then creep down slowly through summer. My guess is the mid-20s.

aarontask:

Adam Lashinsky

is our resident guru on Israeli stocks. As for the political situation, it's been pushed off the front pages here b/c of the election but has worsened, unfortunately. There could be another "shock" to oil if

Barak

and

Arafat

don't find a way to cooperate.

krispycreme-guest says:

Aaron, what does Don Hays say about the market after yesterday's run?

aarontask:

"If you think Greenspan's speech of yesterday changed anything, please fax me quick so you can be the first in line to buy this nice bridge I have for sale."

That's one quote from Hays' piece this a.m. -- I'll have more from it in tonight's col.

jctorres-guest says:

Mr. Edmonds, thank you for your insightful interview with Mr. Lay. Any thoughts on ESV and COC/a? Both seem cheap. Long ENE & COC/a.

CSEonTSC:

Think the integrated oil companies are an interesting play in here. But, I think I'd rather be in stocks with bigger gas plays and less international exposure. Probably safe plays, but better rewards elsewhere in the sector.

Thanks for the kind words, by the way!

shadytoo-guest says:

Thanks for all your great work on

RealMoney.com

. Greenspan's speech obviously let out a lot of pent-up demand. Today it looks like at least some of the people have looked at the text a little more closely. How strong do you think the Greenspan sentiment is? Think it will hold up as we get more negative preannouncements?

CSEonTSC:

I think the Fed is likely to become more neutral in their stance on monetary policy, and I do think you will see an easing in the first HALF of the year.

aarontask:

I'm not sure people really looked any more closely at the text today. Alan Greenspan's speech was positive, but I also think there's way too much faith in him and the Fed in general to navigate the economy/market.

CSEonTSC:

I don't think, however, you will get all six rate hikes back before they again move from an easing bias to neutral. ... That is likely to all happen in the first three quarters of next year. That is good for the market, but not as good as some bulls might have you believe.

aarontask:

As for the negative announcements, we've got some today from AAPL and BAC, most notably, and the market is down.

shadytoo-guest says:

Reg FD seems to have forced information out of a number of companies. Do you get any reactions from the gurus/analysts you talk to about how it has affected their work?

aarontask:

There's definitely been some evidence it's made life tougher for the analysts; they're having to rely on third parties for information instead of getting it directly from the CEO/CFOs' mouths.

CSEonTSC:

From an analytical standpoint, it may mean better research. It means analysts will have to work harder, check channels, talk to customers. . .do more than simply run their reports by corporate CEOs to be edited for clarity. I think you will begin to see a more pronounced separation between analysts that do that kind of work and those that don't or can't.

jed5000-guest says:

Hi Guys, I love your columns. What is your current opinion of IBM? Will Apple's gloom affect this stock significantly?

CSEonTSC:

Very good question, don't you think Aaron. . .

aarontask:

Yes, Chris. What do YOU think? Aren't you long Big Blue?

CSEonTSC:

Seriously, I think they are two very different companies with very different customer bases. IBM won't feel the consumer impact that has an impact on AAPL.

Not long either. . .

krispycreme-guest says:

Aaron, your articles these last few months have wavered between the bull and bear camp. What's the consensus now for the next couple of weeks?

aarontask:

Funny you think they've wavered....most people think I'm some kind of perm-a-bear, which isn't true. But the consensus now is Greenspan has given the green light, rung a bell and shouted from the rooftops that you should be buying.

CSEonTSC:

Can't really imagine Greenspan on the rooftops, but nice visual.

fabiolcf-guest says:

Chris: a while ago you penned a column in which there were a few recommendations, among them MND and OKE. Do you think those are still valid?

CSEonTSC:

Think the gas story behind the names is more true now than it was then. Mitchell has had a nice run this year. Clearly, if gas stays at $8 you have a nice cash flow boost to all gas companies.

Oneok is a company that has an issue with ownership by Western Resources which has had some problems, but it remains a well run multi-dimensional gas company.

greg_hansen-guest says:

Lot of highfliers taking off again the last couple of days...even today in face of general decline. CIEN reports before opening tomorrow. How much risk do you think there is in their future guidance and how broadly do you think a negative surprise may spread?

aarontask:

Clearly the "Buzz and Batch" types

JJC

writes about are (sha na na and) feeling groovy after yesterday. But I think there's huge risk in these names. Aggressive traders can/will play but don't "marry" these stocks.

lolden-guest says:

Dudes...are you expecting the retail sector to slump when the heavy discounting takes its toll on this quarter's results? Later.

CSEonTSC:

This holiday has been interesting so far. Sales ahead of pace, but you are likely right that margins are going to be weak. I was in Macy's in NY last night and was AMAZED at the discounts being offered this early in the season. Your question was exactly my thought when I walked out into the chilly Manhattan air last night. A chilly quarter for retailers is very possible.

aarontask:

The retailers have already been pretty battered in expectation of this quarter being sluggish. If the Fed is going to ease and the economy going to expand, this might be the time to buy -- note, they started moving up in the last week in anticipation of a friendlier Fed.

vasil-guest says:

Now that bac just blew up, are the brokers such as Schwab going to take bad, bad hits?

aarontask:

Brokerage stocks are holding up pretty well today in light of this BAC news. If the market is coming back, their fortunes are greatly improved -- more trading, more underwriting biz, etc.

CSEonTSC:

Just when I thought the financials were climbing out... OUCH!! Not sure of the impact yet, but clearly the group continues to struggle. I still have to think there is some value in some of the regional banks that have solid credit portfolios and have beaten up with the downturn ... But timing probably isn't quite right yet. Let the Fed talk a bit more. . .

jvonh-guest says:

It seems that big telco's ability to raise capital is crucial. What's your take?

aarontask:

Agreed.

CSEonTSC:

I agree too. And, when Aaron and I agree, watch out!

aarontask:

But seriously, it is now and is going to be difficult for those cos. to access capital.

CSEonTSC:

Seriously, you are right, the market is tough right now and they will continue to struggle. I think you really have to watch the ATT workout (don't know what else to call it) will prove key to the cycle.

lolden-guest says:

Folks....do you think it's fairly certain that INTC will warn? How can they remain unscathed when the box companies are missing significantly? Further, shouldn't their investment portfolio (which hedged results) now be a liability to them?

aarontask:

Herb Greenberg

has been pretty adamant that INTC can't escape, and it's usually bad form to argue with Herb.

As for their investment portfolio, it may not be a liability but it certain isn't going to help the "other income" line on the balance sheet.

CSEonTSC:

Good point on the investment portfolio, and I think Aaron is right about Herb's comments.

aarontask:

To follow-up, they don't have to take gains/losses for the portfolio, but there's a mindset that this qtr is going to be a "kitchen-sink" one, where co's are going to load up with all the bad news now, to get it out of the way b/c expectations are so low.

p06470-guest says:

Gentlemen: Your comments on the stock market going out 5 to 10 years.....this question specifically relates to Harry Dent's notion that the flow of funds into the market directly correlates to demographics, and that in 2010, the flow of funds from baby-boomers will have peaked?

CSEonTSC:

The demographic argument is a good one and one that we need to pay attention to. That said, I think you will see fund flows remain strong for longer as the notion of ""retirement" changes, as our culture changes and life expectancy changes. But, a very good point and one that, as a big picture item, deserves to be watched

aarontask:

There's compelling evidence that the demographics have played a big role in the market's rally the past 5 yrs (or so). One problem with Dent's theory is it assumes all those Boomers will sell out simultaneously. Flows may slow but they shouldn't reverse.

And I hate to agree with Chris. Yech.

johnfd15-guest says:

Will there be some friction between the Fed and the new Republican Treasury Secretary, going back to what happened to George Bush Sr. in 1992?

aarontask:

You're assuming Larry Summers won't be reappointed.

But whoever is at Treasury, I think there's more potential for friction b/t the Fed and Bush, should he go fwd with his tax cut proposals. Or plans to allow people to invest their SS contributions.

CSEonTSC:

The chance for personal disagreements combined with policy disagreements could make for interesting conversation. . .

floger-guest says:

Guys, how will Calpine fair in California? They seem to be getting flack from some cities.

CSEonTSC:

They lost a round in a plant sitting battle last week. I think the talk of easier generation plant sitting by regulators is a myth. Things aren't getting any easier for Calpine or anyone else wanting to build power plants in California.

That means higher prices next summer, more griping about the impact of deregulation and also means Aaron may have to live without lights next summer.

aarontask:

We use candles, anyway.

Very

Abe Lincoln.

CSEonTSC:

Deregulation isn't the problem, it's the California model that doesn't work. And, by the way, on Calpine, see

Peter Eavis'

fine

column last week about the company.

lolden-guest says:

The $10 question: How bad are earnings warnings going to be....and can we still decline even with the Greenspan safety net? Thanks.

aarontask:

Bad and yes.

CSEonTSC:

Not as bad as people think. I think you will see some choppiness between now and the end of the year, but I think we will finish above where we are today.

aarontask:

That's a bold prediction (not).

lolden-guest says:

Isn't it great to have an uncle like Greenspan protecting us all from serious harm? Looks like 2500 is the Nasdaq floor for Greenspan. Comments?

aarontask:

That's what his speech indicated yesterday. But I (among others) think it's a problem people think Greenspan will always be there to save them. It's called "moral hazard" and it's as nasty as Edmonds' backswing.

CSEonTSC:

I think Greenspan will be much more diligent in reacting to economic issues than market issues. While the timing was good, I think his comments were driven by the economy and probably not at all by the markets.

aarontask:

Really, Chris? You think he's blind to what's going on on Wall Street?

The "problem" is Wall Street has become the economy -- at least in a much larger way than in the recent past.

CSEonTSC:

Not blind, just indifferent at these levels. As the economy impacts the markets, he'll deal with it. . .

aarontask:

Chicken and egg.

CSEonTSC:

I'm not saying there isn't a link but Greenspan doesn't have a Quotron on his desk.

shadytoo-guest says:

For several months, OPEC argued that it did not want to raise output because there were "huge amounts of oil supplies somewhere in transit" and that those supplies would ease prices. Any sign of those supplies yet?

CSEonTSC:

The tanker issue, as I have discussed many times, remains an issue. As does refining capacity. That said, OPEC really used the transit issue as an excuse to push prices higher. Now that prices are above the high-20s target, they have become more interested in new supplies. I think come spring, supply and demand will begin to stabilize and prices will settle in the mid-20s.

kevin199-guest says:

Do you guys think the wireless inventory situation is near the end? and are cell phones selling well?

CSEonTSC:

I think there are two issues here. First, Herb has been right that cell demand has slowed. However, that is first-generation wireless. I spent part of the summer in Finland and other parts of Europe and I have seen the next generation and. . . just like second-generation PCs, everyone will want it. That will drive demand. . .both for current users and new users.

I think you will see the leading cell phone companies have surprisingly good years in 2001. . .I am long Nok

aarontask:

Nok did give some positive guidance thru 2003, which is making ppl feel better, too.

Chris being a case in point.

lolden-guest says:

Guys...have you enjoyed the election? What was the best sign you saw? I saw "Give Florida back to Spain".

aarontask:

That was my favorite, too.

But "enjoy" is not a word I would use to describe the overall experience.

CSEonTSC:

Sore Loserman was pretty good and then Tim Russert's sign that morphed the two names together to create something like BORE. And, then the best was, "If they don't know how to vote, maybe they could go live with Elian" struck a nerve. . .

aarontask:

Oh Chris, you're such a right wing propagandist.

krispycreme-guest says:

Where do you see Nasdaq closing on Dec. 31?

CSEonTSC:

Wait a minute, Task, is this a bet?

aarontask:

Is what a bet?

CSEonTSC:

Whoever is closest. ... what's on the line?

aarontask:

Ahh. I'm going to give a range -- I've learned from the gurus it's best not to get too specific.

CSEonTSC:

Let's see, my guess today is 3024.54. . . not sure but I think above 3000. . .

aarontask:

And I think the Comp will be stuck in a range b/t 2600 and 3100 for the rest of the year.

Lee_at_the_street says:

Gents, Is there anyway to play the election machine fiasco?

aarontask:

Weren't you supposed to look into that, Chris?

CSEonTSC:

Great question -- I can't find a company that specializes in election machinery. . .and I don't think

David Boies

law firm is publicly traded. . .

aarontask:

Somebody is going to come up with some "solution" , probably online, after this....

CSEonTSC:

That is a good question though; Aaron and I will continue to search out the players and report back next month.

samkoolhk-guest says:

Aaron -- are you getting reamed on your rent in sf?

aarontask:

Actually, we got a pretty good deal on a nice 1 bbr in Ashbury Heights, where we've lived the past 18 months (or so). The problem is we're now looking for more space (2 bbr or more) and it's pretty outrageous.

CSEonTSC:

Anything we need to know about the extra bedroom?

aarontask:

Next question.

CSEonTSC:

Actually, just talked to a good west coast real estate source who said the property markets are becoming more difficult. More concessions by landlords across property types -- apartments, single family and commercial space. Partly a result of the tech and Internet downturn and partly a result of the slowing economy. The property markets are not nearly as robust -- especially in SF Bay and Silicon Valley as they were six months ago.

TheStreet-guest says:

Thanks for a great hour Aaron and Chris! Any final thoughts?

aarontask:

One last question: Mr. Edmonds, your work is among the most brilliant I've ever read. How are you feeling today?

(I'm passing that on from someone who got shut out of the chat.)

Chris' wife?

CSEonTSC:

After an hour with Aaron, I don't know how anyone could feel better. Seriously, as always, great questions from great readers. One word -- I think what you saw yesterday was the same type of manic overreaction we have seen on bad days. Stay focused and reasonable in your expectations, do your homework and follow your discipline. That will save you money in the short term and make you money in the long term.

aarontask:

Couldn't agree more (drat!).

(Quit while you're ahead, Chris.)

CSEonTSC:

And, while this hasn't been the best of years, it could be worse. I'd urge you to look at the Red Cross program on the TSC main page and think about helping out. It will help those less fortunate enjoy the holidays like you and I will. As always, thanks for a great hour, have a great holiday and Aaron and I will be back next year. . .