JACK: HEADLINE INFLATION IS
SHOWING SIGNS OF IMPROVING.
CORE MEASURES AND OTHER
CONSUMER DATA CLOSELY WATCHED
BY THE FED ARE SENDING MIXED
SIGNALS WHERE THE ECONOMY IS
HEADED.
CHARLES SCHWAB, CHIEF AND
SEDIMENT -- CHIEF INVESTMENT
STRATEGIST LIZ ANN SAUNDERS
JOINS US.
>> ECONOMIC DATA HAS BEEN SO
VOLATILE RECENTLY, YOU LIKE TO
LOOK AT LEADING INDICATORS TO
CUT THROUGH THE NOISE.
WHAT IS THE DATA TELLING YOU
NOW?
>> THE INDEX OF LEADING
ECONOMIC INDICATORS PUT OUT BY
THE CONFERENCE BOARD ON A
MONTHLY BASIS PEAKED 15 MONTHS
AGO.
IT HAS BEEN ALMOST STEADY MOVE
DOWN, THE 2 -- TO THE TUNE OF
8% NEGATIVE FROM THAT PERIOD
WHEN THEY PEAKED.
THAT IS DEEP IN RECESSION
TERRITORY.
PERHAPS ONE OF THE REASONS IT
HASN’T YET MANIFESTED ITSELF IN
CLEAR RECESSION IS THERE’S A
BIAS WITHIN THOSE INDICATORS
TOWARD THE GOODS/HOUSING SIDE
OF THE ECONOMY PLUS FINANCIAL
METRICS LIKE THE MARKET.
DOESN’T PICK UP AS MUCH IN
TERMS OF WHAT IS GOING ON IN
SERVICES.
THERE’S A BIT OF A CAVITY OUT
TO THE LEADING INDICATORS,
GOODS VERSUS SERVICES
COMPARISON.
JACK: CONSUMERS SEEM STRONG ON
HOTELS AND RESTAURANTS.
THAT SAID, DO YOU THINK THIS
MEANS RECESSION IS INEVITABLE?
THIS IS BARRON’S COVER STORY.
>> WE’VE BEEN CALLING THIS A
ROLLING RECESSION BECAUSE YOU
HAD SEGMENTS OF THE ECONOMY IN
RECESSION TERRITORY.
HOUSING, MANY GOODS ORIENTED
SEGMENTS OF THE ECONOMY
PARTICULARLY CONSUMER GOODS,
CERTAIN AREAS WITHIN TECH
REPRESENTING STAY-AT-HOME
BENEFICIARIES.
WE HAD THE MORE RECENT
OFFSETTING STRENGTH AND YOU
POINTED OUT CONSUMPTION BIAS
TOWARD SERVICES BUT ACROSS THE
BOARD OF CONSUMER SPENDING, THE
CONSUMPTION NUMBER LOOKED
PRETTY GOOD, THERE WAS
DECELERATION WITH JANUARY GIVEN
A LIFT BECAUSE OF MUCH WARMER
IBLYI
IWEATHER THAN USUAL AS WE LOOK
AT SIMPLE AND QUARTER DATA.
IBLY15 IF JEROME POWELL WERE TO
ASK WHAT HE SHOULD DO, WOULD
YOU SAY AFTER WEDNESDAY, STOP
AND PAUSE FOR A WHILE?
>> I’M NOT SURE THEY SHOULD
HIKE ON WEDNESDAY BUT I AM NOT
SURE.
HE’S NOT GOING TO CALL ME.
GIVEN THE TURMOIL IN THE
BANKING SYSTEM, THE
UNCERTAINTY, NOT TO MENTION
THERE IS A LAGGING INDICATOR
THAT IS INFLATION KNOWING THE
EFFECTS OF MONETARY POLICY ARE
IN THE FUTURE BUT GIVEN MARKET
EXPECTATIONS OF THE FED, BEST
GUESS THAT IS WHAT THEY ARE
GOING TO DO.
DOES HE MORE FORCEFULLY HIM
THAT WAS IT OR DOES HE STAY
THAT INDEPENDENT AND EMPHASIZE
WHAT WILL PICK UP IN THE PRESS
CONFERENCE?
JACK: WE WERE TALKING ABOUT THE
FACT THAT THE MARKET’S CLIMB IS
MOSTLY ON THE BACK OF A FEW
LARGE TECH STOCKS.
YOU’VE WRITTEN ABOUT THE
POTENTIAL DANGERS OF THE MARKET
RELYING ON A FEW GENERALS AS
YOU CALL THEM.
WILL THE SOLDIERS PICK THAT UP?
WHAT IS THE NEXT LEG OF THIS?
>> WE ARE NOT SEEING THAT BUT
IT IS NOT JUST THE BIAS TO THE
VERY LARGE
NAMES.
THEY ARE NOT ALL TECH.
THEY ARE TECHY COMMUNICATIONS
SERVICES. THE FACT THAT OUTSIDE OF THOSE
THE FACT THAT OUTSIDE OF THOSE
MEGA NAMES IS MORE BIASED IN
DEFENSIVE AREAS LIKE CONSUMER
STAPLES, IT IS A MIXED MESSAGE, GOING INTO THE SAFETY OF THOSE
GOING INTO THE SAFETY OF THOSE
BIG NAMES.
THE LEADERSHIP REFLECTS THAT
ECONOMIC UNCERTAINTY, HENCE THE
BIASED TOWARD DEFENSES.
IT IS A MIXED BAG, A TOUGH ONE
FOR INVESTORS, NO QUESTION
ABOUT IT.
JACK: WHAT IS THE BEST PLAYBOOK
FOR INVESTORS UNDER THOSE
CONDITIONS?
>> WE’VE BEEN M.DIV.
THAT -- EMPHASIZING FACT
INVESTMENTS AS OPPOSED TO THE
MODEL SECTOR TYPE CALLS AND
FACTORS, JUST ANOTHER WORD FOR
CHARACTERISTICS.
THE WRAPPER AROUND THE FACTORS
WE’VE BEEN FOCUSING ON IS
QUALITY.
WHEN YOU THINK ABOUT THE
MACROENVIRONMENT YOU WANT TO
LOOK FOR COMPANIES THAT HAVE
STRONG FREE CASH FLOW, STRONG
BALANCE SHEET MEANING HIGH
CASH, THEY DON’T COME TO THE
BANKING SYSTEM, LOWER
VOLATILITY AS OPPOSED TO HIGHER
DATA.
IT IS A MIX OF THE SOME GROWTH
FACTORS, SOME VALUE FACTORS BUT
THE APPROPRIATE MONIKER IS STAY
FOCUSED ON QUALITY, THIS IS NOT