"Market Monitor"-Jim Grinney, Senior Vice President & CIO for Northern Trust Bank of Florida
Friday, October 19, 2007
PAUL KANGAS: My guest "Market Monitor" this week is Jim Grinney, senior vice president and chief investment officer for Northern Trust Bank of Florida. Jim, welcome back to NIGHTLY BUSINESS REPORT.
JIM GRINNEY, SR. V.P. & CHIEF INVEST. OFFICER, NORTHERN TRUST BANK: Thanks for having me back.
KANGAS: Give us your thoughts on today's steep downturn on Wall Street. What's behind it all?
GRINNEY: Markets (INAUDIBLE) was moved from the international growth to the domestic weakness. Remember, we had Intel and Coke report above average earnings because of international growth. Today, Caterpillar and Honeywell and 3M threw water on their parade. Earnings were up, but at the time, they said they were pulling estimates for next year or guiding estimates down because of the domestic weakness. And when the focus turned to that, at the same time, we had oil hitting a new high of $90 a barrel. We also had S&P reducing the ratings on several of the mortgage-backed securities. This is the anniversary of Black Monday.
KANGAS: Psychological impact.
GRINNEY: Psychological impact, yes.
KANGAS: You think we're going to go through this OK and make a comeback?
GRINNEY: At some point, yes. If the other part of the question is, are we done yet, we're not. If you look at the mortgage market in the next 12 months, remember, $480 billion of mortgages are going to re-price in the next 12 months. Of that amount, about $250 billion are considered sub- prime. So we're not done with this yet. Now what's this going to do to corporate America? We're not sure. How is this going to spill off to the consumer? The consumer has been pretty resilient so far. At some point, it's got to take an effect. We're looking for GDP as a result to slow from the 3 or 4 percent level down to 1 1/2 percent, but at this point no recession.
KANGAS: Will the Fed cut rates again to get things moving?
GRINNEY: The bond market is telling you there's 100 percent probability.
KANGAS: This month.
GRINNEY: This month in October. And I personally think it's a little bit more of a 50-50, whether they do it now or later. I do think we're going to see weakness that will prompt them to lower rates and tame inflation.
KANGAS: Speaking of 50-50, will it be a 50 basis point cut or 25?
GRINNEY: No, more like a 25 basis point cut. Again, the growth is not weak enough yet for them to be motivated to do more than 25.
KANGAS: There must be a point where the very weak mortgage lending stocks should be bought. Are we there yet?
GRINNEY: I don't believe so. Given what I just told you about the amount of re-pricing yet to come, I still want to get more of that out of the way. There's too much uncertainty right now.
KANGAS: On your last visit with us in late August, you recommend two stocks to buy. Let's see how they've done since then. Look at that, Cisco (CSCO), nobody liked it, but you did and it's up almost 50 percent. Great call. Still with it?
GRINNEY: Still with it.
KANGAS: Johnson & Johnson (JNJ) can't seem it get out of its own way, but it certainly didn't lose much? Are you still liking Johnson & Johnson?
GRINNEY: Long-term prospects are good.
KANGAS: I know you aren't going to recommend any individual stocks, but which stock sectors do you like and which would you avoid now?
GRINNEY: I think the obvious ones to avoid are any of those that deal with the mortgage-backed market. Secondarily, those that deal with consumer discretionary spending. The ones to emphasize are probably those again that have good international exposure because that area will continue to be relatively strong. And specifically, some of the sectors like the industrials, like the materials, those that are benefiting from the global infrastructure growth, whether you're looking at roads in India or bridges in Minnesota.
KANGAS: So the weak dollar is helping those big international firms, obviously.
GRINNEY: It is. Exports are very strong. The port of Long Beach recently reported that the outbound shipments are up 27 percent over last year.
KANGAS: Jim, our time is up, unfortunately. But thanks for being with us once again.
GRINNEY: Thank you.
KANGAS: My guest, Jim Grinney of Northern Trust Bank of Florida.