What: Positioning your portfolio over a market event.
Where: CNBC
When: September, 2007
Who: CNBC's Sue Herera, Darin Richards (AKT Wealth Advisors), Kate Kelly (Wall Street Journal), Kevin Caron

Sue Herera: How do you position your portfolio ahead of what could become a market event? Joining me now, Darin Richards, Chief Investment Officer at AKT Wealth Advisors, and Kate Kelly of the Journal is going to be with me. Welcome to everybody.

Darin Richards: Hi Sue.

Sue Herera: You know Darin, Bill and I were just talking during the break. The Fed’s in an interesting position; everyone expects them to ease, but you have a plummeting dollar against almost every currency, you had a 4% move in copper, you have gold bumping up against, some say, the 750 mark near term, you know there are a lot of headwinds there. What do you expect the Fed to do and how do you position a portfolio.

Darin Richards: Your points are well taken—its not a slam dunk. I still think the Fed is going to reduce rates 25 basis points—kind of a peace offering to the market saying we understand there’s some problems out there. If they go to 50 basis points, I think the market will rally short term, but in my mind that signifies there’s probably some problems. So you know that kind of a reduction—a large reduction like that—obviously there might be some concerns that the economy may be weakening, or a recession may be in the horizon. So I’m hoping for a 25 basis point cut, I think the market expects that—its priced in. You probably won’t see a lot of volatility for the next few days after that because it is basically priced into the market.

Sue Herera: Kate.

Kate Kelly: Look I mean this is all sheer speculation right now anyway but I would say 50 basis points is starting to be factored in. I mean I think for sure 25 basis points is baked in, but people are hoping for 50 and expecting 50. I think some of the comments from the nonvoting governors a couple days ago, that they’re starting to see economic contagion, people have taken to heart, I mean some people are looking on next week as sort of the Super Bowl of market indicators between what the Fed’s going to do with the economy and some of the earnings releases. So there’s a lot of anxiety ahead of this, wondering what’s going to happen—obviously. But I think that it seems that the Fed is concerned about what’s going on, and the labor numbers from last week were kind of a downside surprise and we can longer look at this as simply a liquidity event.

Sue Herera: Alright so Darin, you’ve been pretty much spot on with your investment advice to our viewers.

Darin Richards: [laughter]

Sue Herera: Well I went back and looked at the record. You were cautious ahead of the whole credit crunch.

Darin Richards: Yeah.

Sue Herera: And we’re skewing to an international position. We’ve seen values come way down. You found anything attractive here in the U.S. enough to perhaps to change the allocation?

Darin Richards: You know we’ve actually become slightly more defensive in the last week or so. We trimmed small and mid-cap domestic stocks a little bit more and we continue to have an overweight in international and emerging markets. So we like that space, we like large-cap space. I think we’ve been selective where we overweight. And obviously international has been an area that’s done very well for us for a very long time, but it still looks compelling versus domestic. So small to mid I think would be the area that if we had some financial problems, the U.S. would be hit the hardest. Plus valuations there still look a little high to me. So we’re a little bit defensive still Sue.

Sue Herera: Okay Kevin Caron joins us. We were having some technical problems. Kevin, I’m glad we were able to resolve those. Tell us how you’re positioning yourself ahead of the Fed’s move next week, if indeed they do move.

Kevin Caron: Yeah we haven’t made any changes ahead of this move. We’ve thought that the Fed was going to have to cut rates this year in response to a significant fall off in credit demand and some tightening of credit in the economy. So we’ve had a defensive outlook with larger cap stocks—I agree with your other guest, small caps look overpriced to us—and we’ve tilted the portfolio more towards the growth side of the economy in terms of looking at things like healthcare, media, and technology and away from energy and financials.

Sue Herera: Are you doing the multinationals that are based here in the United State sin order to get that overseas exposure at all Kevin or not?

Kevin Caron: We like to own ETFs in foreign countries. We think that the dollar could head lower from here so we would benefit both from the local economies there, the valuations in certain areas in the world, and also get a currency benefit as we’ve seen in the last couple months.

Kate Kelly: You know just to jump in here Sue, I mean I think what these guys are saying about emerging markets and international companies with that presence—either based there or multinationals here—makes a lot of sense and I’m hearing that too from the folks that I talk to on Wall Street. I think one other thing to look at—and maybe this is just kind of what I’m focused on as the investment banking reporter—the brokerage firms, many of them, appear to some people to be very good prices at the moment for companies that there’s a long term bullish belief such a Leeman Brothers, possibly a Bear Stearns. I mean these guys—Bear is certainly hovering close to price to book value mark. And if you believe in these franchises you think they are going to bounce back as soon as there is a Fed move that makes borrowing cheaper or other factors kind of fall into play.

Sue Herera: Either one of you guys buying any of the investment banks, willing to stick your toes in the water?

Kevin Caron: Well I’d be a little bit concerned about book value. We do think that there are leveraged-out investments out there that still need to be mark to market and since book value is a little bit inflated relative to where it should be from a historical point of view, we could get some significant hits to book value which would make Collins question whether those valuations are indeed as attractive as they look.

Sue Herera: Okay Darin, you get the final word. Would you go in there or not?

Darin Richards: No, I think Bob Pizanni had an interesting quote the other day from an analyst saying basically they have no idea what’s going on in these companies so why take a swing at something when you have no idea what direction its going to go.

Sue Herera: Thanks to both of you, Kate as well. We’re going to see you throughout the two hours.


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