Marshall Front Tracks Economic Growth

TOM HUDSON: Today’s strong job report is further evidence the economy is building
strength and investors are starting to take notice, this according to our
Friday “Market Monitor” tonight, Marshall Front back with us, chairman of
Front Barnett Associates, a firm with $500 million under management. He’s
with us tonight from the CME Group (NASDAQ:CME) in Chicago. Marshall,
welcome back. Nice to see you again.

MARSHALL FRONT, CHMN. & CHIEF INVEST. OFFICER, FRONT BARNETT
ASSOCIATES: Thanks, Tom.

HUDSON: The question on everybody’s lips at that big January jobs
bump, is it sustainable? Is the economic strength sustainable?

FRONT: You really have to look beyond the headlines of today and
there’s been an outpouring of positive data really over the last six to
eight weeks and even beyond that. We’ve had good PMIs globally. We have
had a manufacturing renaissance beginning with the automobile industry.
Housing appears to be bottoming in this country and we’re seeing a collapse
in the debt servicing requirements as interest rates have come down. So it
probably means a less protracted period of deleveraging than some of the
experts had previously felt would be the case and globally China was in
doubt last year. We were hearing hard landing stories. They appear to have
been overblown. We’re seeing global accommodation. Central blanks
globally are either easing or will be easing and finally, the seriousness
and speed with which the Europeans have addressed their issues, both bank
liquidity and the sovereign debt crisis, is really surprising. A year ago,
people said it would take 10 years for some of these issues to be
addressed. So I think you’ve got a much improved backdrop and investors
are still in denial. We look at the flows of funds and we find very little
to lead us to conclude that the average investor has begun to move into the
equity market and institutional…

HUDSON: With that in mind here, let’s get to how you are positioning
for your clients beginning with energy. But you’re not buying necessarily
the production of energy. XES is the ticker symbol for the exchange-traded
fund following the equipment and the services company. Why play energy in
this fashion?

FRONT: Because we really don’t know with any certainty what oil
prices are going to be over the next several quarters and secondly, we
don’t know how, where refinery margins are going to be. So as a result, we
prefer to go with the companies where we have good backlogs and a likely
progression of earnings growth.

HUDSON: OK, looking for the assets there. What about emerging
markets? You mentioned the talk about a hard landing in China. You’re a fan
of emerging markets. Can you stomach the volatility however?

FRONT: The way to do it I think is to avoid trying to pick the market
that’s going to do best and invest broadly in emerging markets where we’re
likely to see GDP growth of two or three or even four times the growth that
we have in the United States and in the developed markets. So we would
recommend the emerging market index as a way to play that.

HUDSON: The EEM is the ticker symbol for that exchange-traded fund.
We last saw you in the summertime, August 19th and you had a couple ideas
back then. You were early on financials but it’s rewarded you, up 21.5
percent for that proxy ETF and technology up 23 percent. We mentioned the
NASDAQ at an 11-year high. Do you still like these sectors?

FRONT: Yes, we do and in fact some of the most unique opportunities
remain in the financial sector but they are not for the feint of heart.
These stocks will be volatile. We have political and other agendas that
are going to affect the financials but valuations remain compelling, many
stocks selling at half of their tangible book.

HUDSON: Marshall, do you have positions for you and your clients in
the funds we mentioned?

FRONT: Yes we do and I have them personally.

HUDSON: Our Friday “Market Monitor” guest and optimist, it’s
Marshall Front. Thanks, Marshall.

FRONT: Thank you, Tom.


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