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>>Monica Bertran: Our next guest has changed his mind since December about the risk of
recession. Here to tell us why he says the chances are greater. Here is James Shelton,
he's CIO of Kanaly Trust. He joins us from Houston. James, good morning. Was it the services
index number yesterday that convinced you?
>>James Shelton: No, actually over the last few weeks we have been going, uh concerned
about the prospects of a recession. We have seen lots of deterioration since December,
most specifically last week with some of the employment numbers that came out, jobless
claims spiked, as well as we got the data that the economy actually lost jobs last month
and if that number is not revised higher in the months ahead that will be the first month
that we actually lost jobs since August of 2003. So we do believe that we are brushing
with a recession right now.
>>Monica Bertran: You know Jim after yesterday's services number Merrill Lynch's David Rosenberg
said that the report could result in another emergency rate cut by the Fed. Is there enough
evidence do you think for that?
>>James Shelton: I think the Fed is not complete yet. An emergency rate cut I think is a bit
doubtful at this point. That was just one data point. I'm interested to see if that
data does get revised higher later on down the road. But clearly the FED probably has
another 50 to 75% bases points to go. I would prefer not to see them make an emergency rate
cut at this point because I don't necessarily think that's necessary today.
>>Monica Bertran: Jim your also keeping your eye on the dollar, you have been. You have
said before that exports where off setting the housing slump. Is that a continued theme
for you or is that theme starting to wane now given what you've seen?
>>James Shelton: Certainly exports are a big driving force for growth in this economy today.
I think it's going to continue as long as we have good global growth. So that is a source
of strength to continue to count on. I don't believe that the dollar is going to continue
to weaken significantly from these levels, particularly against European currencies.
We are seeing some slow down over there in Europe and I believe we're going to start
seeing better growth prospects here later on this year that I think will help support
the dollar.
>>Monica Bertran: Of course. Let's look at some sectors of house. As Chief Investment
Officer you are advising on some things, looking at sometimes, financials in particular are
under weight. Is the worst over in your mind?
>>James Shelton: We don't think the worst is over for financials. We don't doubt that
there is definitely some value being created in the financials but we think that there
are probably some additional shoes to drop. We would like to see some of the uncertainties
start to pass before we dip our toe into the water a little bit more with some of the financials.
>>Monica Bertran: Why Diageo? That's another stock pick of yours. I know Morgan Stanley
analysts called it a save haven recently. Is it really immune from the weaker economy?
>>James Shelton: Well with Diageo, it's the world's largest marker of alcoholic beverages.
Trades at about a market multiple. You also get a 4% dividend yield. It's got very good
defensive growth characteristics that aren't necessarily tied to the economy. So we would
agree that it is a bit of a safe haven.
>>Monica Bertran: Genentech. I wanted to touch on that because the company did boost it's
4th quarter profit outlook. Adenosine obviously a big drug for the bio tech company. Anymore
catalysts for Genentech?
>>James Shelton: Well Genentech has a fantastic cancer franchise that is driving very strong
rates of growth. Again Genentech fits our theme of favoring more defensive growth names
with good products on the market in this time of risk.
>>Monica Bertran: James we have to leave it there. I appreciate your time today. Of course
that's James Shelton he is Chief Investment Officer at Kanaly Trust.