Market Monitor-Jeffrey Everett, CIO Templeton Global Advisors -- NBR Interview

nbr.com ^ | 1/10/03 | Interview Transcript

[arete]

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PAUL KANGAS: My guest market monitor this week is Jeffrey Everett, Chief Investment Officer for Templeton Global Advisors. And welcome back to NIGHTLY BUSINESS REPORT, Jeff.

JEFFREY EVERETT, CHIEF INVST. OFFICER, TEMPLETON GLOBAL ADVISORS: Thank you, Paul.

KANGAS: Given the rather bleak 2003 outlooks coming from Microsoft (MSFT) and IBM and the stock market's lousy performance, I mean can we conclude that this nation is facing a double dip recession?

EVERETT: I think it's highly unlikely. I think the Bush plan helps gets us through a double dip threat. I also think investors will look beyond the current situation geopolitically.

KANGAS: But they're not now, obviously. This market acts like a real bear, doesn't it?

EVERETT: It does. And I think it's instructive if people remember 1991. the market went straight up after the Allies invaded Iraq at the time, or Kuwait, and I think that will probably happen again. Investors need to focus on the long-term, look for the values that are right now very abundant around the world.

KANGAS: All right, so what kind of investment strategy are you employing?

EVERETT: Well, we at Templeton continue to focus on stocks, look at the long-term, try and ignore the short-term noise that is so often difficult for investors to ignore. And if do you that, you're finding some good dividend yields. That's sort of the in vogue thing now after this Bush plan. You're finding good restructuring stories and clean balance sheets, improving shareholder rights. So a whole lot of positives out there to focus on.

KANGAS: When you were last with us as a market monitor on June 7 of last year, the Dow was much higher, 9,590, and you weren't too positive on the market overall, but you were looking for these values that you talk about. And you liked Bristol-Myers (BMY), Pharmacia (PHA), Ace Limited (ACE), Dow Chemical (DOW) and SK Telecom (SKM), South Korea Telecom. Pharmacia and Dow Chemical are actually higher than they were. The others are down like a $1 or $2, maybe even less per share. So not bad considering what this market has done in that six months. I congratulate you on some decent calls. But you're not making a whole lot of money, are you?

EVERETT: No, we're not. But preservation of capital right now is not a bad thing. We are looking for absolute returns, and we're finding them, as you mentioned, in a few cases. There are still some very good stories out there.

KANGAS: Let's hear a few of these stories.

EVERETT: A few of the stories, well, first of all, I would stick with everything I mentioned at the last program.

KANGAS: OK.

EVERETT: We're a very low turnover firm. So I would, we own all of them. I would continue to focus on them.

KANGAS: OK. I would add, in the pharmaceutical sector, we picked Pharmacia and Bristol-Myers last time.

KANGAS: Right.

EVERETT: I'd add Aventis. It trades as an ADR ADD...

KANGAS: You like those pharmaceuticals.

EVERETT: We do. We think investors have been overly focused on patent expirations and so forth. Aventis in particular is a great example of why Europe continues to suffer through a lot of reform difficulties. Aventis is a great example of a restructuring story that's worked. It will show improving margins. Everyone knows its Allegra product. We like that an awful lot.

KANGAS: OK. Shall we go from Europe, let's say, to Asia? Is there anything there you like?

EVERETT: Asia's a great story. And Asia, unfortunately right now, is really caught up with the focus and the distraction of Iraq, and North Korea, obviously. But investors are going to understand that the fundamentals there have improved dramatically. Profitability has improved. The balance sheets have restructured after the Asian crisis. But there still is not a lot of interest in the region. That, to us, as contrarians, is very exciting. We're increasing our waiting there. Names like Chung Kung (ph), which is a dominant land, real estate and shipping port operator around the world, very cheap right now.

KANGAS: All right. Where do we find that traded? In Hong Kong?

EVERETT: Chung Kung, unfortunately, doesn't have an ADR. It's only in Hong Kong.

KANGAS: OK.

EVERETT: But it's run by one of the great value creators of all time, which is Li Ki Shing, who I term as, is the Asian version of Warren Buffett.

KANGAS: I notice you have not mentioned a single high tech stock of any kind. Is there a reason for that?

EVERETT: Yes, there is. We are, first of all, value investors. So the high tech stocks in the U.S. primarily on the growth side of equation still, even after this fall.

KANGAS: OK.

EVERETT: Secondly, while we do have some tech exposure, it's in names overseas that a lot of people aren't as familiar with, Checkpoint Software in Israel, to name one.

KANGAS: OK. Now, do you or your firm own all of these stocks that you're talking about?

EVERETT: We own all of them, Paul.

KANGAS: OK. I guess that's a good sign.

EVERETT: It's a very good sign of confidence.

KANGAS: Wouldn't you think?

EVERETT: And I own them all through the funds.

KANGAS: I see. All right, very good. So you're more upbeat than a lot of folks we've been to talking to recently and it's nice to hear that.

EVERETT: Thank you very much.

KANGAS: Thanks very much for being with us.

EVERETT: Thank you.

KANGAS: My guest market monitor, Jeffrey Everett, Chief Investment Officer for Templeton Global Advisors.

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KANGAS: But they're not now, obviously. This market acts like a real bear, doesn't it?

EVERETT: It does. And I think it's instructive if people remember 1991. the market went straight up after the Allies invaded Iraq at the time, or Kuwait, and I think that will probably happen again. Investors need to focus on the long-term, look for the values that are right now very abundant around the world.

It disturbs me that I am hearing more and more of this "war is good" for the stock market talk from the paper asset pushers. They seem to think that anything that will keep Wall Street happy and wealthy is okay. People are going to get killed (a lot of people) so these paper pushers can earn their commissions and bonuses.

Richard W.

[arete]

FYI

Comments and opinions welcome.

Richard W.

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[Steven W.]

you aren't really reading or listening to what's being said - what's being said is that one of the major reasons for the market malaise is the incessant fear of war and people being killed and merely that such sentiment will subside once it's clear that is not as likely or great a concern or risk as thought, as was the case with the gulf war. but your typical dissent over "paper asset pushers" is ironic and laughable coming from so many goldbugs whose only feasible position is ever increasingly and near totally & substantially reliant solely upon fear & fearmongering over the war, alignment of the planets and any other potential disaster they can use to prop up the value of an otherwise significantly overpriced commodity so many are still stuck holding since the 1980's.

[meenie]

One of the reasons war doesn't pop the markets now is that so much war material and manufacturing is overseas. It used to be that war was a preferred way to come out of a recession. For this reason the Democrat party was the party of war,i.e.,WW II, Korea, and Viet Nam. Now so much of the war effort is overseas, the Republicans are in the forefront with their multinational friends boosting war preparations as the way to profits.

[arete]

but your typical dissent over "paper asset pushers" is ironic and laughable coming from so many goldbugs whose only feasible position is ever increasingly and near totally & substantially reliant solely upon fear & fearmongering over the war

I am completely against a war with Iraq and I have repeatedly stated that on a number of threads. With or without a war, gold (which I don't believe was even mentioned) will go up simply because our fiat currency is being devalued in order to support the weaking economy and extreme credit conditions. I see the dollar as doomed. The war with Iraq is a consequence the the weak economy. Political distraction for the most part but then there is all that oil sitting there also.

I still see Wall Street using war as a marketing tool as sleazy. The market is going down because earnings are bad, the economy is weak and stocks are way overvalued. Politicians need something to blame. That is way we're going to get this war like it or not.

Richard W.

[David]

Well let's take a look at a couple of those propositions. I do in fact have a couple of gold based investments but I haven't had them since the 1980's--the bulk date from the last few months (except that I bought a couple thousand shares of Newmont at around $14.83 in March-April of 2001). But look, you have the heir apparent to Greenspan as head of the Fed going around telling everyone that the Fed is going to make the dollar worth less, and I have a lot of dollars accumulated--what am I supposed to do with them to preserve their hard earned purchasing power?

The war? If anything, I think the investment market perception of the war is depressing the price of gold--by and large the people on Wall Street I talk to regularly expect that the war will be relatively bloodless (to our side); and painless; followed by our control of Iraq oil which will be positive for the dollar and thus adverse for the price of gold.

I don't really understand why we are going to war in Iraq--if I did, I might be for doing so, I might not. Like Richard, I am skeptical that the real reason is a nuclear threat from Saddam--if I believed Saddam was a real nuclear threat to the US, I would probably be for taking out his capability but I also believe if he were, the government would tell us what the facts were and when the government does not do so, it makes me very uneasy bacause I conclude the story for public consumption is a fairy tale.

A war, if and when, is not going to have the same positive impact conclusion of Desert Storm had in 1991. See we are now in a period of deflation which is likely to continue, war or no war. So once any threat to the economy from Saddam is eliminated, I still see the economy in a contraction, caused primarily by excess levels of debt which will take years to liquidate.

Might we get a rally after successful elimination of Saddam? Sure. But it won't last long.

As everyone knows, I am also a little skeptical about the value of gold and I am prepared to sell my position out to zero if I conclude that gold will go down against the dollar because of the generally deflationary condition of the economy.

Like Richard also, I guess I tend to question the moral foundation for a war on Saddam--that is in part based on my lack of understanding about why we are doing it. I am a little uncomfortable with killing a lot of people because they are not doing what we tell them to do without some clearly defined reason to believe our objectives are founded in a threat to the USA--maybe they are. But the government ought to tell us if that is that case and it hasen't.

[RightWhale]

The stock market has been holding in a range for a couple of months. Two factors. One, it's that time of year. Two, we are waiting for the war.

There could be a rally in a couple weeks based on the season. The war is a different animal altogether. If it goes quickly with little destruction of life and property, then the seasonal market will dominate. If it goes poorly, the bear could dominate for several more years.

In other words, here is no hurry to jump into the market right now.

[arete]

I guess I tend to question the moral foundation for a war on Saddam

Now you've gone and done it. You must be one of those unpatriotic hippie socialist commie peace-nik tree hugging class warfare lazy lying liberals. Just thought that I'd get that out of the way early.:-)

Richard W.

[rohry]

"I guess I tend to question the moral foundation for a war on Saddam."

As you know I disagree...

I think that there are problems in Iraq that need to be addresed...

[arete]

As you know I disagree...

Yes, and I have forgiven you.

Richard W.