David Gaffen chatted on AOL's MarketTalk hosted by Sage, Monday, April 30 at 10 a.m. EDT.

Comment:

Live from New York, N.Y., please welcome

Dave Gaffen

, staff reporter at

TheStreet.com

. Dave can answer questions about the markets and investing. Visit Keyword: TheStreet.

Tscnygaff:

Glad to be here. I'm happy to answer your questions.

Comment:

Can we get your impressions of current market environment, and where you see the economy trending over the duration of the year?

Tscnygaff:

I'll take the 2nd half of that first. The consumer continues to hold up pretty well; and I think that'll drive the economy forward for the duration of the year, even if business spending remains lousy.

Corporate profits are likely to be poor for a few more quarters for a good lot of the stock market.

The market right now is confused; it isn't really sorting out what is going to do well and what won't in this changed environment. We're no longer in a "Goldilocks" economy, but what will and won't do well is still up in the air.

Sagecalc:

Given the uncertainties surrounding the sector, is technology becoming a dangerous space to invest in even for the long-term investor?

Tscnygaff:

It's dangerous to think of it simply as a large monolith. Over time, there's likely to be some good stocks in there that perform well, but the days of just "buying tech" and letting it ride are over, I'd think. I'd say that's dangerous, for sure.

And it may underperform for some time -- that is, if we're just talking about "tech."

Sagecalc:

Should we expect another Fed rate cut even with the strong economic numbers that have been released of late?

Tscnygaff:

Yes, we should. It's likely they'll cut another 25 basis points, or 0.25%, in May, and possibly again in June. However, there may not be many more rate cuts to go.

If the economy is weakening, why did the GDP come out up 2%, much greater than anticipated?

There's two reasons. First, the trade gap narrowed. That is, the difference between our exports and imports shrunk. But they both fell, which isn't good at all.

Also, capital spending, that is, business investment in tech and equipment, wasn't as bad as originally thought.

Overall, it was a middling performance for the quarter, and the 2nd quarter is likely to be about the same.

Sagecalc:

Some have suggested a stagflation scenario is possible later this year, what would your comments on that be?

Tscnygaff:

Certainly it's possible. There's been rising medical costs and wage costs, and companies are being squeezed with higher energy costs.

Now, reduced demand would probably ease these pressures a bit, but with the Fed aggressively priming the pump, it is possible we could see those strains sometime later this year.

It's not out of the question. It's not likely to last long, though -- I'd see it either triggering a recession quickly, or not becoming strong enough to matter.

Sagecalc:

What impact would stagflation have on our stock market should that occur?

Tscnygaff:

You'd see a lot of companies with squeezed growth. Profits would be dim, and they'd struggle with higher costs. The overall picture wouldn't look very good.

I think stocks, for the most part, would languish.

Sagecalc:

Do you feel the chances of this type of scenario are strong?

Tscnygaff:

I don't feel they're terribly strong. I think the economy would react quickly, as would the Fed. "Stagflation" went on for years and years. This would likely be more limited.

Sagecalc:

Why has the European Central Bank (ECB) been so hesitant to lower interest rates?

Tscnygaff:

The ECB sees things in a different way, philosophically. They feel that they need to continue to target price stability -- that is, inflation -- and if they don't, they could put the economy at risk down the road.

They feel that while growth is slowing there, it's not enough to warrant massive rate cuts. And they feel the Fed is destabilizing things in the U.S. -- at least that's what one ECB official said last week.

Sagecalc:

What effect will the credit-burdened consumer have on the economy over the short and longer term?

Tscnygaff:

There sure is a lot of debt out there. As long as borrowing rates are going lower and as long as people psychologically feel that they have job security, then it may not matter.

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They'll keep borrowing money. And spending it. But that won't last.

That'll eventually come back to haunt people -- and hurt the economy. It's an ongoing, long-term kind of worry -- it may not matter now, or even in two years.

Eventually, it'll matter -- consumer debt is the highest it's been since 1986.

Question:

What do you think of the airline sector and all the merger talk, and do you think Continental and Delta would be a good merger?

Tscnygaff:

I can't really answer specifically for Continental and Delta, though those two companies seem to have very different approaches to the airline business.

Airlines are a tough business; constantly dealing with higher fuel costs, and they're the source of a good lot of angst amongst consumers, and for good reason -- the service continues to deteriorate.

So it's hard to say -- the sector has been doing pretty well recently, but declining travel in a less-robust economy can't help.

Sagecalc:

How many quarters do you feel it will take to work off the excess capacity that is devastating the telecommunications hardware sector?

Tscnygaff:

We have writers such as

Scott Moritz

and

Adam Lashinsky

writing a lot about this stuff. It's going to take a long time.

There's a lot of product people don't want; there's a lot of capacity built for demand that doesn't exist. The inventory becomes obsolete pretty quickly, of course, but the actual capacity doesn't. I'd say it's going to be a couple of years.

Sagecalc:

Does it appear we have reached close to the bottom of the semiconductor cycle?

Tscnygaff:

It's possible. But the proverbial "bottom" may last a long time. Demand for products just isn't there yet -- in the wireless sector, in the PC sector, etc.

And so it may be a few more quarters before we see a steady rise in demand -- the stocks, as you can see, are tentatively moving up, but they're still struggling.

Sagecalc:

I take it you feel investors in general should stay on the sidelines with regards to the technology sector?

Tscnygaff:

Well, I guess you're getting that impression, aren't you? I can't make specific recommendations, as part of my contract. I tend to believe in diversification, even if that's a silly cliche, and I think people should just be aware that after many years of out performance, the stock market can go into many years of underperformance, and especially those stocks that outperformed dramatically.

That's the source of the caution, esp. because the environment is no longer as positive as it was earlier.

Sagecalc:

What sectors seem to be best weathering the slowdown in the economy, and can their out-performance continue?

Tscnygaff:

Well, the stocks/sectors doing well are energy, tobacco, defense.

Tobacco will continue to do well -- people buy cigarettes. In growth periods, it just doesn't do as well as others.

Energy and utilities will be very important for the next several years. As we can see in California, people need energy. They need power to run plants, offices, etc. And so there should be investment there.

Machinery/turbines, that kind of thing, will probably do well if investment does come back.

Sagecalc:

Louis Navellier

of the Navellier funds suggested that earnings momentum style of portfolio management has ceased to do well for some time, and GARP -- Growth at a Reasonable Price -- style of portfolio management is showing the best results. Your thoughts?

Tscnygaff:

I think that's going to probably persist; they say it's a "stock-pickers" market these days, and that's basically true. Earnings momentum doesn't mean anything if it's not going to continue.

Sagecalc:

The energy sector is the only area of the market that continues to really have "positive earnings surprises." Are we seeing a peak due to higher energy prices in the short term or is this a continuing secular multiyear trend?

Tscnygaff:

I'd say it's a little of both. Just as technology benefited from a surge in demand, it benefited from a long-term secular decline in prices -- such as for PCs.

Energy is similar. Prices are rising, and so there's probably some sense that prices will peak in terms of oil and natural gas, but that won't erode the long-term demand for energy due to an increasing population, more demand among companies, under investment in the last several years, etc.

Comment:

Thank you for joining us today, Dave! We have been speaking with Dave Gaffen, staff reporter for

TheStreet.com

. Visit Keyword: TheStreet.

Tscnygaff:

Thanks for your time. See you soon, and keep reading

TheStreet.com

.