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What: Discussion of activity in the financial markets.
Where: CNBC's Market Mavens
When: January 20, 2008
Who: CNBC's Bill Griffeth, Darin Richards (AKT Wealth Advisors), Kenny Landgraf (Kenjol Capital Management), CNBC's Herb Greenberg
Bill Griffeth: How do you get the edge in this market right now. Let�s ask our mavens, today they include Darin Richards who�s Chief Investment Officer of AKT Wealth Advisors and Kenny Landgraf who�s Chief Investment Officer at Kenjol Capital Management. Herb Greenberg�s with me as well. Darin, I know you�re still bullish in this market despite the volatility, despite the weaker economic data, all the things that contribute to this wall of worry that we have right now. What makes you still bullish?
Darin Richards: Well I�m bullish in certain areas, Bill, small cap and mid-cap domestic stocks. I still think its an area you want to go light on.
Bill Griffeth: So you�re selective.
Darin Richards: I�m selective. I like large cap. I like international. I still think there�s some good opportunity out there. And you�ve seen some of the earnings reports from some of the large cap companies and you�re hearing the same thing: slow domestic, strong global and I think that�s a play that you really got to focus on and try and take advantage of in this environment.
Bill Griffeth: Kenny I know you�re concerned, to use a term, why?
Kenny Landgraf: We�re a little bit more on the neutral side. I mean, there�s a lot of risk in the market right now, with the potential recession, and you have really another big risk is the profit outlook with the banks. We continue to get right downs again you got it today with UBS. Certainly the election. It just adds to a lot of uncertainty for investors. So we�re a little bit neutral. Longer term, you know year out, we are bullish. But in the next six months its gonna be choppy waters.
Bill Griffeth: K, Herb.
Herb Greenberg: Hey Darin, I see that you like REITs, or at least you�re thinking about REITs these days because you think everything may be stabilizing, especially in the commercial real estate sector. Don�t know if you saw my piece in the Wall Street Journal over the weekend about REITs and how you know commercial real estate still may get hammered. How would that affect your position on REITs?
Darin Richards: I didn�t see your piece, I apologize Herb.
Herb Greenberg: That�s ok. [laughter]
Darin Richards: We haven�t put our toe back in the water yet. We�re underweight in our normal weighting to REITs. But a couple of weeks when there was a lot of volatility and my screen was completely red, there were a couple of green spots and REITs was one of them and particularly the international REITs space. So the yield is starting to look a little more compelling versus the ten-year where six months ago it was flipped and you got a bit higher return in treasuries than you did in real estate. Now that�s flipped back, where its starting to look a little more compelling again so we haven�t done it yet, but I think its an area that potentially could be bottoming.
Bill Griffeth: So Kenny if you are defensive, do you go with the defensive plays in this market or are you just sort of sitting on the sidelines right here?
Kenny Landgraf: On the�for our tactical portfolios we do have higher cash allocations�I mean you�re getting paid to sit in money market and wait out a little bit this storm. For more strategic tax sensitive we�ve tried to stay in the areas that are holding up. In regards to the real estate question, previously, we�ve stuck a little bit more to the international REITs. Certainly the domestic REITs have got hit a lot, although in the last week, you know with the rate cuts there has been a bounce back in that sector and it might provide some trading opportunities but it�s a difficult market for all investors.
Bill Griffeth: Kenny what are you waiting for? What will be the signal for you to be bullish again in this market?
Kenny Landgraf: It�s going to be interesting to see if the market anticipates the profitability of the banks. I mean, right now the banks have you know really taken about 10-15% off the S&P 500. The question is are we going to get more write downs. We have an issue where the bond insurers there�s reports out now that the banks may be sitting on another $50-150 B in additional write downs that haven�t come down and its really going to be tough for the major market indexes to go forward with those pending write downs. I mean on a sector basis there�s going to be some trading opportunities and we�re going to have to look for those. But as we get into the summer months people are just going to sit back and say, �Well, we�ll wait til the fall.� And that�s our fear is you just get noncommittal from the institutions.
Bill Griffeth: Darin, what sectors are you going into? I mean we talked about the size of the companies that you�re looking at and the geographic regions that they cater to, but what about those sectors? What do you like?
Darin Richards: We�re biased towards two sectors right now: Healthcare, primarily from a defensive standpoint but also the earnings expectations look solid. And then technology which hasn�t done very well so far year-to-date but again if you look at the earnings, unless you see a major pullback, that�s certainly the sector with the strongest earnings potential right now.
Bill Griffeth: Technology�s a big umbrella, I mean is there a particular group in that sector you like?
Darin Richards: Yeah, I mean you�re really looking at business related more than anything else. So you�re looking at the storage, the servers, those kind of things.
Bill Griffeth: Alright, everybody�s gotta have that!
Darin Richards: [laughter] Big storage!
Bill Griffeth: Yeah. Thanks guys. Darin, Kenny, good to see you both. Herb be back with you in a few minutes.
Darin Richards: Thanks Bill.
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