<I>TSC</I> Chat: <B>Brett Fromson</B> and <B>Dave Gaffen</B> Talk the Markets

Staffers Fromson and Gaffen gauge the Fed's action.
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Brett Fromson and Dave Gaffen chatted on TSC Dec. 19 at 4:15 p.m. EST.

RM_Brett:

Hi folks, Brett here.

TSC_DavidG:

Hey. Its Dave. Looking forward to your questions.

chat-guest152:

Hi, When the Fed finally cuts rates what are the first types of stocks to go up?

RM_Brett:

The financials should move first. That's why they rallied here before the FOMC , and then faltered after the no rate cut.

TSC_DavidG:

Sometimes what happens is, people try and front-run these things by buying ahead of anticipated cuts. They might go for capital goods stocks too.

TSC_DavidG:

In the thinking that these things might improve when borrowing costs are lower.

RM_Brett:

Key point: When the Fed starts cutting or raising rates, it does so for a while. So you have time to get in or out.

chat-guest878:

Is the market tanking on Fed news a buying opportunity?

RM_Brett:

Buying opportunity for some stocks, not for others. Look at the great rally post fed news in Philip Morris. That is the kind of steady cash earner that will do well for a while here IMHO as for tech, still I would be careful too many high valuations still that said, I know that some traders moved in late today to play a bounce.

RM_Brett:

But if you are an investor, I would not plunge in to tech at these levels.

TSC_DavidG:

Didn't get much of a bounce, though, did they?

chat-guest874:

Regardless of Fed action and/or a Bush tax cut, what is near-term prognosis?

TSC_DavidG:

First, let's just say that a Bush tax cut, even after all wrangling and such, its very back-end loaded, and wont affect the market for a long time.

TSC_DavidG:

As for the Fed, that would improve sentiment, but it won't get rid of all the questionable loans banks made.

TSC_DavidG:

The market is reacting to the same things the Fed is; these problems won't up and go away because the Fed says so.

TSC_DavidG:

That's a long way of saying I think the next few months won't be so easy.

RM_Brett:

My take near-term is to expect more of the same. old economy trumps new economy, value trumps growth, cheap trumps high-priced, cash earnings trump five year projections.

chat-guest612:

Can you guys help me square today's positive move both defensive names (ie. drugs) and tech? Which is it (a) a Fed ease or (b) a bloody recession?

RM_Brett:

A fed ease is simply rate cuts. Today the move was away from tech and toward safety -- oil and gas, drugs, foods, tobacco as for is this a recession?

RM_Brett:

I'd say, no one knows. but I wouldn¿t bet a lot of money that we wont have one.

chat-guest134:

Can the networking/optical sector be saved if the Fed starts easing, or is trouble inevitable because of the telco spending hangover?

RM_Brett:

The problem with the telco sector is not something the fed can prevent. Too much debt.

RM_Brett:

These companies like credit card borrowers who are maxed out, even if you lower the interest rate on the card, they are still maxed out.

RM_Brett:

That said, the secular growth for the survivors will be there. but right now, the stock are radioactive. Perhaps very high quality -- balance sheets -- debt or preferred.

TSC_DavidG:

All is not lost! I think we've got a cyclical slowing smacking right into a seasonal slowing; but Brett's right - the debt issue is big.

TSC_DavidG:

More corporate debt out there as a % of asset values than in a long, long time.

TSC_DavidG:

Fifty rate cuts can't make the debt go away.

RM_Brett:

That said, only the most experienced bottom fishers should troll these waters today. lots of risk. lots of return for the experienced. danger for the rest.

chat-guest362:

Any thoughts on the price of msft after today's fed announce?

RM_Brett:

It's still over priced. Before this is over the PE, whether trailing or forward , should trade a lot closer to the growth rate than it does now.

chat-guest203:

Will a fed easing save the nas, or will bearish supply/demand fundamentals prove more powerful and lead tech stocks lower in 2001?

TSC_DavidG:

We had a huge, huge bubble!

TSC_DavidG:

Sometimes people think the 5000 level on the Nazz was the right way, and everything else is wrong. But expectations were way too high.

TSC_DavidG:

There's no rule that says you have to get 20% on stocks; tech may stay down for a while, if demand isn't there.

TSC_DavidG:

I think more of this is seasonal than people expect. That said, if you look at a chart of the COMP vs. the S&P, over the last 5 years - it really, really disconnected in early 1999.

TSC_DavidG:

That's on the Fed's rate cuts. Otherwise, they track really close. So the fundamentals may rule, and the Fed may not, by easing, guarantee mega-returns.

RM_Brett:

The Fed wont bail the nas out.

RM_Brett:

Why?

RM_Brett:

Cuz it will only bail out folks in a liquidity crisis like Long Term Capital management.

RM_Brett:

As for the basic drivers of the Nas.

TSC_DavidG:

And even then, it should not have cut rates 3 times, Brett.

RM_Brett:

Fed cant stop slowing earnings soon.

TSC_DavidG:

That's where it all started.

RM_Brett:

Can't change investor sentiment overnight.

RM_Brett:

Alan is good, but not that good.

TSC_DavidG:

They didn't need to cut rates; they did, created a bubble, and ka-blammo. Now everyone thinks the Fed has to save the market.

chat-guest345:

What are your predictions Brett for 2001 anyone to pay attention to ?

RM_Brett:

Oil and gas stocks are good. Tech still weak.

RM_Brett:

It¿s continued move toward value stocks in general.

RM_Brett:

The dollar is weaker.

RM_Brett:

European stocks out-perfrom U.S. assets.

RM_Brett:

That's all for now.

TSC_DavidG:

What am I, chopped liver? If this year proves any rule, diversify. Buy a bond or two. They're one of the few things that didn't get soaked this year.

RM_Brett:

I like bonds too, especially the short end of the yield curve, guvvies.

RM_Brett:

Why?

RM_Brett:

Many more fed cuts to come

chat-guest806:

What's your prediction for indices close on December 31?

TSC_DavidG:

Wow. I'm not supposed to talk about specific stocks, but let's have a go at it. They're indices, after all.

TSC_DavidG:

Let's put the Dow at 10700, the Nazz at, oh, 2450, and the S&P at 1310.44.

TSC_DavidG:

Why?

TSC_DavidG:

Because nothing is going anywhere.

RM_Brett:

I do not play the indices game. Ask Abby Joseph Cohen.. I do like some stocks.

RM_Brett:

I have written positively about such names as Primedia, the north american gas drillers, et al. check the site.

chat-guest754:

Brett, when's at&t going to go up? that stock has been soaking for months.

RM_Brett:

Great question!

RM_Brett:

I like the stock at these levels.

RM_Brett:

The problem has been debt, lousy industry in long distance, but the cable move should pay off.

RM_Brett:

Look for some move when the debt load comes in, which I think will be soon as they sell assets.

RM_Brett:

I remain long-term positive. even thought I was liking it at higher levels -- $28. ouch!

TSC_DavidG:

Thanks very much for participating! Good luck to everyone out there.

RM_Brett:

Thanks to all for joining us. Bye for now.