Kangas: An Interview with Schaeffer

07/18/2003 12:00 am EST

Focus:

Paul Kangas

Co-Anchor and Financial Commentator, Nightly Business Report

Paul Kangas needs little introduction. As host of one of the longest running and most popular financial TV shows, he has been a force in the investment scene for many years. On 7/11/03, he interviewed Bernie Schaeffer about his current market outlook and some favorite stock and option plays.

PAUL KANGAS: My guest "Market Monitor" this week is Bernie Schaeffer, chairman of Schaeffer's Investment Research and publisher of the popular monthly newsletter The Option Advisor. And Bernie, welcome back to Nightly Business Report .

BERNIE SCHAEFFER, CHAIRMAN & CEO, SCHAEFFER'S INVESTMENT RESEARCH: Always a pleasure, Paul.

KANGAS: For some time now you have been predicting that the tech-laden NASDAQ market would outperform the old-line blue chip and stocks in general. And that's exactly what's been happening. Are we in for a change now?

SCHAEFFER: I don't think so. I think the elements that were in place before remain in place. We have a tech sector that just got decimated in the post-2000 bear market. Since October of last year, it's been steadily outperforming the blue chips, and that trend is continuing. And despite the outperformance, we're still seeing, from a technical standpoint, not only good relative strength but a lot of skepticism, a lot of bearish sentiment, a lot of short selling, a lot of put-buying. And we like that because that fuels further gains.

KANGAS: You said in your last visit that before this bear market is really over, the Dow has to go as low as 6000. Do you stay with that?

SCHAEFFER: Well, I described the situation with the blue chips; the Dow is where the risk is. There's a tremendous amount of uncertainty out there, is this Fed growth-at-any-price policy going to work? I think the blue chips is where the downside, if that Fed policy does not lead us to deflation or has unintended negative consequences. That's where I see the potential for a Dow 6000. Opportunity, on the other hand, is in the techs.

KANGAS: All right. Let's have a look at some recommendations, if you have some new ones, and I know you do, you always do. Let's have a look at some of those.

SCHAEFFER: Well, the first one I'm looking at is Ford (F NYSE), which is a highly-indebted company. And these highly-indebted companies have been leading the way. The Fed is just supplying tremendous liquidity. And these stocks have been performing well. Ford is a stock that also benefits from low interest rates.

KANGAS: OK. You would buy a call option?

SCHAEFFER: I would buy a six-month call option on Ford, and you'd be paying in the area of about 10% or so…

KANGAS: OK. We only have a minute left, so let's get to some others...

SCHAEFFER: OK. Ford. Second new pick would be Calpine (CPN NYSE), another company with huge debt. Just did a $3 billion refinancing, strong technicals, almost 100 million shares short, which I always like, six-month call, and about a 20% premium.

KANGAS: Anything else?

SCHAEFFER: Another new one would be General Electric (GE NYSE).

KANGAS: This is a put...

SCHAEFFER: On the put side. And what I would do on the put side is I would go 18 months out to the lease options of January 2005, because I don't know how long it's going to take for this blue-chip pullback to take place.

KANGAS: Now, you and your interests do own some of these puts and calls that you're talking about?

SCHAEFFER: Yes. And an 18-month put on GE still only costs about 12 percent. So the blue-chip options are cheap these days.

KANGAS: All right. So you see possibilities both ways?

SCHAEFFER: Yes.

KANGAS: OK.

SCHAEFFER: Keep a big cash reserve, though…

KANGAS: And use the leverage of options, you say.

SCHAEFFER: And use the leverage of options.

KANGAS: Very good. Bernie, thanks so much for being with us.

SCHAEFFER: A pleasure.

KANGAS: My guest "Market Monitor," Bernie Schaeffer, chairman of Schaeffer's Investment Research.

Related Articles on