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What: Discussion of poor market performance and possible solutions.
Where: CNBC's Market Mavens
When: October, 2007
Who: CNBC's Bill Griffeth, Darin Richards (AKT Wealth Advisors), David Speaka (Wentworth Holdings Group), CNBC's Allen Murray
Bill Griffeth: The question is what does the market need to hear to move higher? Joining us�couple of mavens today, in Dallas: David Speaka, Investment Strategist in Wentworth Holdings Group, and in Oregon we got Darin Richards who�s Chief Investment Officer at AKT Wealth Advisors, and Allen Murray�s joining me on this as well. David, what do you think? Are the earnings reports something to be embraced or feared for Wall Street right now?
David Speaka: Well I think the estimate for this quarter, Bill, at about 1.5% is probably too low. The fear of what was going to happen in the financial sector I think caused analysts to ratchet down estimates too far. I think you�re going to see good earnings out of energy, out of technology, out of some of the basic materials. other industries exposed to foreign growth. So I think we�ll see earnings surprise on the upside�not double-digit levels, but I think they�ll surprise on the upside and the market will be pleased.
Bill Griffeth: What do you think Darin?
Darin Richards: I think I�m a little more pessimistic. I think there are some sectors in the market that I think are going to well: technology, healthcare, telecom�looks like earnings growth is going to be on the positive side. Financials is also going to be a huge drag on the overall market and there�s also the question about energy. So overall, when you�re looking at fairly flat�basically zero�earnings growth, quarter to quarter, you�ve got some sectors that are going to provide some very positive returns. So I think you�ve got to be in the right spot at the right time this quarter.
Bill Griffeth: K, Allen.
Allen Murray: Yeah I guess what I�m trying to figure out is if expectations about earnings are this bad�I mean, we�re talking about the worst quarter for earnings in maybe 4-5 years, why the market is so euphoric right now? David, I mean can you explain--does it make sense to you for expectations to be this low and the market to be this high?
David Speaka: That�s a great question and a great point there doesn�t seem to be�things in sync right now. I think the market is telling us that things are probably better than we expect. On the other side, maybe the market got a little bit over-exuberant with the �Fed magic� to make things good. But at the same time, the market�s a pretty good indicator of future growth. And I think the market�s telling us that earnings are probably going to surprise on the upside and things aren�t nearly as bad as we might think they are.
Allen Murray: But, so Darin, so that really is the question here then: Are earnings going to come up and match the market or is the market going to come down and match the expectations of earnings?
Darin Richards: Yeah I don�t�
David Speaka: The market�s only at 15 times, so I mean to say that they�re going to come up and match the market�I don�t think the market�s looking for double-digit earnings growth. But its looking for better than 1.5%. So something in the 4-5% range, I think would be very positive for the market.
Bill Griffeth: What do you think Darin?
Darin Richards: I think the market�s had a lot of you know�to the earlier question�the market�s had a lot of positive momentum. We�ve been able to shake off the housing issues, the subprime issues, $80 oil, and I think there�s a lot of positive momentum that�s been driving the market higher. However I think for the remainder of the year I�m a little bit less optimistic, we�ve already got 15, basically 15% rate of return YTD, and I think we could easily finish up somewhere in that area. So we don�t have very high expectations for the remainder of the year.
Bill Griffeth: You know what I find interesting, and this has happened a lot lately, and I realize that this is anecdotal, but I just noticed this with our maven segment, we�ll get two people on who tend to disagree�we do that by design so we get two different sides of the story. But when it comes to picking sectors, it seems everybody loves technology. So while you disagree on certain things, everybody still loves technology. Does that worry you at all David?
David Speaka: Well I guess it does a little bit Bill. You never want to be in with consensus. But when we step back and look at the market, we want companies with good free cash flow, with low levels of debt, and with foreign exposure; technology fits all of those criteria, plus we�re seeing increased tech spending. Companies are going to have to invest in productivity-enhancing tools. Tech is a great place to be and we think it continues to look good.
Allen Murray: Darin let me ask you about the financials because the market seems to have bought into this kitchen sink story. You know, the notion that its going to be so bad in the third quarter that all of the problems will have been washed out and things can only get better from there. That�s not the way these things normally work is it?
Darin Richards: No, and I haven�t quite bought into that yet, just because you�re declaring a major loss now and you think things are going to be rosy next quarter. Usually things don�t turn on a dime like that. So we�re still bearish on the financial sector. I think it�s a good effort to maybe attract attention and say we�ve hit bottom, and that�s what you�re seeing some people say. But we�re still a little nervous about the future in that area and have not jumped back on the bandwagon for financials.
Bill Griffeth: And David, you still like energy. In order to like energy, do you think that oil has to go much higher from here?
David Speaka: No we don�t think oil has to go much higher from here. We do think though that energy companies need to continue to use free cash flow to pay dividends and invest in cap-x and that�s going to benefit the oil-filled service sector. The refining margins have slowed down from where they were earlier in the summer but at the same time we think there�s a lot of opportunity for companies exposed to cap-x that are going to be exposed to what�s going on in the oil patch.
Bill Griffeth: Very good. David, Darin, good to see you both again. Allen we�ll check back with you in just a few moments here as well.
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