HUDSON: No doubt you`ve heard the phrase cautious optimism, probably for the
past couple years. Forget about cautious optimism. Tonight`s Friday
“Market Monitor” is a bull, plain and simple, an optimist. Elaine
Garzarelli is president of Garzarelli Capital. She joins us this Friday
from the NASDAQ. Elaine, nice to see you and happy New Year.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Same to you.
HUDSON: You use a set of indicators to discern your market outlook.
Why so optimistic?
GARZARELLI: Well, my indicators range from 0 to 100 percent. And
currently they`re at 80 percent. They include fundamental indicators such
as monetary indicators, economic cycle sentiment and valuation. And
anything below 30 percent would suggest a major bear market; below 43 would
be a 10 to 15 percent correction. So at 80 percent, that is very, very
HUDSON: You are looking at the fundamentals there. But what about
the headline risk, especially all those concerns about Europe. You heard
the reporting in the interview earlier in the program about governments
getting their credit ratings cut overseas.
GARZARELLI: I think that is discounted. We have known about that
since December. And you know, I think most of the countries should be
double D anyway. So I don`t think that`s going to have much of an impact. I
think the stock market today needed a little bit of a rest. It`s been
rallying since October.
HUDSON: I am sure the European governments are glad you are not on the
S&P credit committee. What about the sustainability of the U.S. economic
environment? Last spring we saw some green shoots but they dissipated by
the second and third quarter. Is this time lasting?
GARZARELLI: Well, we see real GDP growth this year of about 2 percent
and about 2.5 percent next year. And the strongest sectors will be
residential construction, equipment spending, technology, commuters,
software and manufacturing structures.
HUDSON: With that, we`ll look at some new exchange-traded funds
beginning with the Russell 2,000 exchange-traded fund, IWM. Why look at
small caps in this environment?
GARZARELLI: Well, they don`t have much exposure to Europe which is a
major reason. And also they were the worst performers last year, down close
to 7 percent. And the areas that the Russell 2000 make up are mostly basic
materials which I like, industrials and consumer durables.
HUDSON: You mentioned technology earlier as a place where there may
be some economic growth. XLK is the technology fund here in the mid 20s.
What do you anticipate this year in terms of a return?
GARZARELLI: Well, I think that the technology group could probably do twice as well as the S&P 500. And that XLK includes companies like Apple (NASDAQ:AAPL), IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Intel (NASDAQ:INTC) and Cisco (NASDAQ:CSCO).
HUDSON: All certainly household names. How about industrials? They
have been kind of the market leaders and the laggards as of late. We`ve
seen a nice rally off that October low.
GARZARELLI: Right. And they were a bad performer last year during the
correction phase and there the stocks would be GE, United Parcel (NYSE:UPS) , UTX, Cat,
3M (NYSE:MMM) and Deere (NYSE:DE).
HUDSON: You`re not afraid of international exposure there at all,
GARZARELLI: No, not really because I think the group has corrected so
much that it discounted a lot of that.
HUDSON: Finally here in fixed income, we talked about credit ratings
but you are not afraid of bad credit ratings, junk, JNK the ETF that
focuses on the high yield effort. Is this protected?
GARZARELLI: Yeah, high yield does well in an environment of 2 to 3
percent, real GDP growth which we foresee and I think the default rate will
be low because we don`t see a recession for the next couple of years. And
it`s yielding JNK about 7 percent now. Corrected quite a bit last year and
that`s a very good yield.
HUDSON: Three times what the government bonds are yielding. Let`s
take a look at your last picks back in April, you were last with us. You
like the materials exchange-traded fund down 10 percent, financials down 16
percent. You also at that point liked energy down 13 percent and
Advantaged fixed income closed end fund down 2 percent. Do you still like
any of these?
GARZARELLI: I love them all. We had a signal last year of a 10 to 15
percent correction so hedged in May of last year. The groups have corrected
quite a bit and they look absolutely fantastic now.
HUDSON: Elaine, do you and your investors have positions in all the
funds mentioned tonight?
GARZARELLI: I do. And the sector analysis fund we own all of the
things I mentioned.
HUDSON: She is a bull. No caution, just optimism. Our Friday “Market
Monitor” guest, great to see you. It`s Elaine Garzarelli of Garzarelli
GARZARELLI: Thank you.