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CNN Moneyline Transcript


LOU DOBBS: Well joining me now, a long time bull, Joe Battipaglia and a fairly bullish fellow himself, economist Lakshman Achuthan. Gentlemen, good to have you here.

LAKSHMAN ACHUTHAN: Good to be here.

DOBBS: This market today, Christine reporting over 100 new highs, only ten new lows, is that significant?

JOSEPH BATTIPAGLIA, GRUNTAL & COMPANY: Very significant, in fact, Lou, if you look over the past year believe it or not, you've got two stocks going up for every one down in terms of cumulative performance, yet the indices have barely budged with the NASDAQ putting in a sub-par performance. So clearly, the broader stock market for the first time in a while is doing much better.

DOBBS: And Lakshman, against this backdrop that we're focusing on tonight, higher oil prices, the likely impact here?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: Well, it will crimp our style. I mean higher oil prices are not great but I don't see it having as big of an impact as it might if we were still in the throws of the recession. As the recession ended and the recovery began, the window of vulnerability closed and the impact of this oil, rise in oil prices, is not going to be as bad, and I'd also like to point out, it's not just the Middle East. It's a global industrial upturn.

DOBBS: And that's driving consumption and demand?

ACHUTHAN: Right.

DOBBS: Joe, in this backdrop, what are you recommending?

BATTIPAGLIA: Not to get caught up with big cap or small cap, but look to the sectors of the economy that respond to economic activity.

DOBBS: Thank you for that, by the way.

BATTIPAGLIA: You like that one.

DOBBS: I do like that.

BATTIPAGLIA: Because you don't really want to just say, "OK we have to own the big caps." You don't want to say, "we want to own the small caps." What you want are the companies that are positioned for the next move in the marketplace, because I do believe after this long drought in capital spending, it's going to come roaring back, and I also believe earnings for some of the growth sectors, like financial services, healthcare and consumer, have some more get up and go, and therefore you want to be positioned in those categories.

DOBBS: Did you say earnings?

BATTIPAGLIA: Oh yes, absolutely.

DOBBS: Earnings are back.

BATTIPAGLIA: Earnings are back in a big way. The street estimate right now is somewhere between $50 and $55 for the S&P 500 after a big falloff last year. That number may well be exceeded this year.

DOBBS: Well, we've just seen, Lakshman, an increase, a revision upward in the GDP for the fourth quarter, 1.7 percent. Some of the private economists, principally Merrill, rather bullish forecast for this first quarter. What's your outlook?

ACHUTHAN: I agree. I think that we're having a solid, sustainable business cycle recovery. It's global in nature on the industrial sector. I think the downside risk this double dip concern is not a major concern. Our best leading indicators of the economy are hitting multi-year highs, and I think the concern about housing perhaps, you know this is the thing that held up the economy during the recession, about that reaching the end of the road, I think is unfounded. I think housing is going to hang in there as well.

DOBBS: And the consumer is here to stay?

ACHUTHAN: Well the consumer is here to stay and it will be a self-sustaining recovery. As the production gears up, like today's numbers you see in the purchasing manager's numbers, manufacturing employment is coming back. That's a good sign.

DOBBS: Well, Joe "the bull" Battipaglia has got to love what you're saying.

BATTIPAGLIA: Yes, because the natural extension is that maybe we underestimated the earnings power of American corporations, because not only will unit demand be higher than expected, they do have a little pricing power after being long out of the picture. Inventories have to be refilled in a major way globally, and this synchronized recovery can really push earnings higher, much greater than everyone's thinking right now.

DOBBS: Some of the stocks that you're recommending here.

BATTIPAGLIA: Sure. You want to go with some of the companies that dominate their business and have used the recession as a chance to improve their competitive position. What comes to mind immediately is a company like Intel. What comes to mind is Johnson & Johnson in the healthcare sector.

Merrill Lynch has kept its balance through all this as a financial services giant, and at the same time I go with smaller companies that will benefit from recovery. LSI Logic in the chip sector, IVAX (ph) in the generic drug industry, North Fork (ph) Bank amongst financial services companies. This is a very good way to get a balanced portfolio was an ex-bull market up.

DOBBS: Do you or the company own these stocks?

BATTIPAGLIA: We do, yes.

DOBBS: OK. What do you think of those ideas, from an economic perspective?

ACHUTHAN: From an economic perspective, I think that to the extent that these companies are well positioned for a recovery, some companies may not be. But to the extent these are, they are likely to benefit from a sustained recovery. If you realize that there is going to be a recovery, then you gear up production and capacity to take advantage of that.

DOBBS: We want to wind up with a final forecast from you Lakshman. Interest rates higher or lower over the next six months?

ACHUTHAN: Basically flat.

DOBBS: GDP growth?

ACHUTHAN: Positive, sustained positive GDP.

DOBBS: Three percent, four percent for the year?

ACHUTHAN: Sure that sounds plausible and I think that an acceleration is possible towards year end.

DOBBS: Business investment?

ACHUTHAN: Coming back because as the economy comes back, profits come back and that gives you investment.

DOBBS: All right. Gentlemen, it is good to have you here, and I suspect just about everyone listening to you and watching you tonight is hoping you're both right.

BATTIPAGLIA: New highs on the Dow and the S&P to follow on that as well.

DOBBS: I like it.

BATTIPAGLIA: OK.

DOBBS: Joe Battipaglia, Lakshman Achuthan, thank you very much.

ACHUTHAN: Thank you.
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