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Courtney Donohoe: The FEDs at a cross roads. Should the FED be more worried about slow
growth or raising inflation? I asked James Shelton, Chief Investment Officer at Kanaly
Trust.
James Shelton: No question the FED needs to be more worried about slowing growth right
now. We just saw the unemployment rates spike from 4.7% to 5%, we've seen unemployment claims
trend up on a weekly basis. We are definitely seeing a slow down in the employment situation.
The FED's just got to lay the inflation concerns aside right now, otherwise we will likely
have a recession and it will be a little bit too late for the FED to really do anything
and they will have to cut rates at that point. So we believe that the FED needs to act now
and provide a little bit of assurance to make sure that we don't have a very hard landing
for this economy.
Courtney Donohoe: SO what do you think we will see for stocks in 2008? Do you think
the situations going to improve from here or do you think it's just going to be bleak
times ahead?
James Shelton: You know Courtney, I think what we are seeing right now is just a continuation
of what we saw in the 4th quarter were we had higher volatility, the market grappling
with a riskier environment. We are going to continue to see some economic news that suggests
that we are close to a recession as well as some of the financials continuing to report
some write downs related to the mortgage crisis. So we believe that over the next 3 or 4 months
we are going to see the market struggle a bit in here and we're going to see increased
volatility. But assuming that the FED comes and cuts rates as we expect towards the end
of the month, we think that the economy will start to respond to those rate cuts. A little
bit later this year in that the markets will kinda look through that and project a much
better operating environment for profits and growth later this year and that we will see
a nice recovery rally in the markets.
Courtney Donohoe: So is the best call to stay defensive in your portfolio?
James Shelton: Today we are maintaining a bit of a defensive posture. When I say that
I mean we're focusing on very high quality companies that have the ability to kinda power
through the slow down here and continue to report pretty good profits. Also companies
that don't have to access the capital markets today. Meaning they have very strong cash
flows, very strong balance sheets and so a lot of those companies would be found in the
healthcare area, some large technology companies, also some consumer staples.
Courtney Donohoe: Shelton says the FED may cut rates as much as half a point this month.
He also believes the FED will not cut rates before that meeting.