InvestorPlace Blogs "Meet the Experts" Chat Featuring Jim Jubak of MSN Money

Jim Jubak, Senior Markets Editor for MSN Money, joined Jamie Dlugosch and members of the InvestorPlace Blogs community for an in-depth discussion of the economy, Wall Street, and some of his best investing advice in our brand new Chat Room. During the hour long chat, Jim answered questions from audience members and shared his thoughts on the best moves to make in this rocky market.

Wednesday, July 23, 2008. 2:00pm EST
Jamie: Hello everyone and welcome to our chat with Jim Jubak.

Jim Jubak: Hi, Jamie. Let's get going.

Jamie: You are the number one investing columnist on the web.  Can you give us a little background before going to questions?

Jim Jubak: Been doing the column on MSN Money and running the Jubak's Picks portfolio since May 1997.

Jamie: Many follow your Jubak Picks portfolio.  How are you doing this year?

Jim Jubak: This is my second bear market. Doing much better this time around. Up about 7% since September 2007.

Jamie: That is fantastic.  Aside from the obvious plays in oil, commodities and agriculture, what stocks have been doing well for you?

Jim Jubak: Best stocks in that period probably Deere, Finnish fertilizer company Yara. Not owning financials has certainly helped.

Jamie: What is the ticker on Yara?

Jim Jubak: YARIY

Jamie: Thanks. You may have already shared, but what is your current view on the market and the economy?

Jim Jubak: Biggest market for them is Brazil. Growing market in India. I think we're still in a bear. This is so far an absolutely classic bear market rally. I think the economy is headed into a second half that instead of getting stronger, as once predicted, looks weaker. Still a good chance that we won't hit an official recession with 2 quarters of negative growth.

Jamie: Many suggest that shorts have nothing to do with pushing the market lower.  If so, how can
they be the excuse for the move higher?

Jim Jubak: Short positions are the fuel that starts rallies. I think the record on that is pretty clear. Lots of short positions that have to be covered as stocks go up start lots of rallies especially in bear markets.

Jamie: Jim, lots of questions are coming in.  I'm going to open it up to the audience, ok?

toroandbruin: When investing in foreign stocks do you buy them on US exchanges/markets (including the pinks) or do you go to their home country exchange?  Or a combination?

Jim Jubak: Try to buy them on U.S. exchange. I know the rules better

stockguy: Jim--Clearly, there are going to be some financials that survive, although I don't believe the current rally is for real.  Any problem with picking up some blue chips like GS, WFC or BAC at these prices if my time horizon is a couple of years?

Jim Jubak: I'd look to see who is going to gain share from the train wrecks and buy them gradually. WFC fits that description. GS too. BAC leaves me cold. Don't trust management much

Jim Jubak: WFC should get mortgage biz from trouble at Wachovia and WaMu, for example

vy: Do you think the current shift from the O&G to financials is a short term deal or a beginning of a new trend?

Jim Jubak: vy, I suspect the financial rally is an oversold rally. Lots of shorts covering. Don't see the fundamentals to support anything lasting. If the economy is slowing, we should see credit problems spreading. Exactly what we are seeing with increasing levels of bad debt in credit card portfolios

Jamie: Jim, will banks not prosper with a steep yield curve?  The issues today are balance sheet issues that once resolved provide a base for long term profits - no?

Jim Jubak: Look at the AmEx results if you want to see the problems building. Write offs are overwhelming everything else at this point.

Jamie: I agree, but I tend to be overly optimistic :)

Jim Jubak: Yield curve helps but most of the train wreck companies are going to see sharply higher costs of capital.

Doug: This looks like a good time to be a buyer in the market. How do you find what to buy now? I see many companies at or below book value.

Jim Jubak: Doug, if you can trust book value. Right now I'd argue that you can't in the financial sector at all. Have to at least take out good will from all the financials. And then give the portfolio valuations a haircut too.

Jamie: Doug has a point.  Many value investors are just chomping at the bit here.  How do we know when to buy?

Jim Jubak: If you think this is a bear--and I do--you wait until nobody is asking questions like that. At the bottom of a bear everybody hates everything. We haven't seen that capitulation.

Jamie: Like me for example.  I just moved my model portfolio from 70% cash to 20% cash earlier this week. By the election I want to be long and leveraged!

Jim Jubak: Jamie, I moved in the same direction about two weeks earlier and now I'm moving back to cash by selling the financial positions that I put on.

Jamie: Yeah, I'm a bit less likely to move in and out.  Nice move though, and I worry about another pullback.

Jim Jubak: You may have a point about an election rally. No mater who wins it will be a relief to have someone in charge who is in touch with economic reality. (Although with [John McCain], have to wonder how much in touch. But it’s a low bar.)

Blankone: I don’t think it matters who wins the election, the same old players are still there in Washington.

Doug: Before in bad markets, I have always gone out and purchased Berkshire Hathaway. I am still doing this as an insurance policy against the market instead of going out and trying to find the best buys. What do you think of this philosophy?

Jim Jubak: Let Warren do it works for me. Berkshire can get deals--special preferred issues, for example--that none of us can get. He gets more downside protection that buying the common gives. So why not take advantage?

Jamie: I find Warren's views on long term returns a bit too pessimistic.  What do you think?

Jim Jubak: Got to say I don't like insurance stocks in general here. We're at that point in the cycle where companies write a lot of bad business at prices that are too low. Hard to look at the twin U.S. deficits and not be pessimistic in the long run about rising inflation, falling living standards, rising interest rates in the U.S. But you invest in the market you're given and try to find a profit even in the stinky parts of the cycle.

Jamie: I know. It really is horribly depressing when you put it that way.  How did we make such a mess of things? More importantly, can we fix it?

Jim Jubak: I do think Buffett and a lot of others are underestimating the problems in the Euro zone. The dollar is likely to get a decent boost--enough to stop its relative decline against the Euro, at least--from falling growth, rising inflation, terrible demographics there.

JK: Where do you see non-ag commodities going in the next 6 months?  Is what we're starting to see a pullback or the beginning of more of a reversal?

Jim Jubak: JK: I keep looking for the big increases of supply that end commodity cycles and I don't see it. It's just very hard right now to get a mine into production. And don't even think about hiring a deep sea rig before 2010. There aren't any available. With production costs going up 15% a year, it’s hard to see commodity prices coming down without extra supply coming on. But that's a fairly long term view. We are in a correction on energy commodities at least. Can't say how long that runs. Could see a trading range on oil, for example, through year end 2008.

Jamie: Jim - you recently wrote about GM.  If the natural state of capitalism is growth, does not the current state represent a fantastic growth opportunity for automakers?

Jim Jubak: Jamie, real problem in autos is too much global supply with more coming on every year. Just wait until production from the Chinese and Indians really kicks in.

Jamie: But, are they making the vehicles in demand?  Does not the race for alternative energy provide a long term reason for owning GM?

Jim Jubak: Internal combustion autos are a mature technology. I think they'll follow the path of steel--anybody with capital can build a steel mill. And if you've got state-subsidized capital even make a profit.

Jamie: If the market is a forward looking instrument, such is already priced into the stocks.  In other words the unexpected developments, hopefully positive, justify the risk?

Jim Jubak: GM's Volt could be a winner. But considering that battery technology is changing overnight and that a national infrastructure for recharging doesn't exist, it's hard to say if the Volt is a winner. To my mind, a buy on GM is an option on the Volt. So you've got to get it cheap to make up for the risk. The market never fully prices in the risk of even the expected. Even the expected is uncertain. That's why a stock like Pepsi that delivers absolutely predictable earnings quarter after quarter still goes up with time.

Blankone: What’s your take on the financials, as some say the bottom has been reached?  Or is there more turmoil ahead with the Alt-A and derivatives coming into play?

Jim Jubak: Blankone, I say we're getting close to an end to the mortgage problem. But as the economy slows we're seeing new problems in credit card and commercial loan portfolios. I think it's early to call a bottom

gullapalli: JJ, Which are your top 5 picks in the financial sector?

Jim Jubak: gulla, give me a time frame.

gullapalli: 3 Years

Jim Jubak: If you’re talking next 12 months I'd pick US Bancorp USB, Northern Trust, NTRS, Middleburg MBRG, Ing ING, Wilmington Trust WL and Santander. I know that's six.

Jamie: a quick comment on banks.  I find it very positive that insiders at WFC and TCB for example are buying at much higher prices than current levels. Kovacevich for example has an excellent history of buying and selling his stock

Jim Jubak: WFC and TCB are both relatively conservatively run. Most of the damage to those stocks is from other blowups in the sector.

Jamie: you mentioned WFC earlier.  They may very well be my stock of the year for 2009 at this rate.  I see them as the big winner in all of this.

Rich: Do you have an opinion on Oilsands BQI

Jim Jubak: Rich, don't know BQI in particular. Just know that I'd be wary of development stage oil sands companies right now because high cost of development has led to cancellation and delay of projects in the sands.

vy: Where do you think the markets will end the year? How about 2009?

Jim Jubak: vy, I'd say we're lucky if we end 2008 about where we are now. More likely that we'll see decline overall from here in the averages. 2009 should be weak first half and stronger second half--much like 2008 was supposed to be. IF the Fed doesn't raise interest rates to fight inflation.

Jamie: Raising the dividend was such a brilliant move and frontal attack on the shorts.  Not in my back yard, buddy!  Go WFC!

Blankone: As the economy slows and more people are laid off wont there be more defaults on mortgages than just the subprimes? Or don’t you think the unemployment figures will raise that much? And what do you see as pulling us out of this economic downturn.  We don’t manufacture anything to speak of anymore that the rest of the world wants and they are getting tired of buying our debt as in CDO's and SIVs.

Jim Jubak: Defaults would go up if the economy stays slow or gets slower. I do expect unemployment to go up in the rest of 2008. But we're still not looking at a deep recession by historical standards--pretty amazing considering all that's been thrown at the economy. Important to remember that the U.S. economy has never been much of an exporting economy. Most demand is domestic. I think the weaker dollar driving exports is a plus. Biggest export likely to be financial products.

toroandbruin: RE infrastructure for battery recharging and fuel cell refilling, do you foresee this need being filled by oil & gas companies?  Local utility companies?  U-Haul?  Wal-Mart?

Jim Jubak: I'd guess Wal-Mart, Home Depot and the other big box guys will be first. They're been way more aggressive on alternatives because of competition than the oil companies and most utilities.

Jim Jubak: Neat thing, though, about the Volt is the current idea is to have a small subsidiary gas engine that could recharge the car in about 20 minutes without the need for a plug in. (Of course technology changes.)

Doug: What do you think about buying into real estate funds?

Jim Jubak: Doug, I'd be looking at the guys who get the insider distressed deals at this point. Some of the BlackRock offerings might fit that bill.

Jim Jubak: To go back to financials for a minute, long-term I'd be looking at wealth management banks NTRS, SEIC, State Street, Middleburg, WL, etc.

Jamie: Do you have any thoughts on lightening rod, Satellite Radio?  I know many follow SIRI and have very emotional opinions therein.

Jim Jubak: To go back to energy, I'd look for smallish companies with low costs of production and big possibilities for reserve expansion. UPL, DVN, STO in spite of the current correction.

Jim Jubak: Jamie, lucky for you that I don't follow SIRI.

Jamie: LOL

gullapalli: Why Middleburg? It is a small company in the company of STT and NTRS

Jim Jubak: MBRG has sizeable market share in Loudon Co, VA. The heart of very wealthy Virginia horsecountry.

Jamie: OK - Let's wrap this up.  Thank you so much Jim for your time.  It is clear there are many cross currents for all to navigate.  Any advice is greatly appreciated.  I know our audience learned much.  Hopefully we can do this again.

Rich: Thanks Jamie

gullapalli: Thank you Jim and Jamie for sharing your expertise so generously ....

Randy: Jim, Jamie, thanks so much...

toroandbruin: Many thanks for sharing your insights, today.

Jamie: Take care Jim and thanks again for your time.

Jim Jubak: Thanks to all for coming. Thanks for moderating Jamie.

Jamie: To the Room - Thanks for coming.  Please send us a note to tell us how we did.  If you would like us to invite other guests we are open for suggestions.  I'll be hosting a Happy Hour Chat each week at a minimum.  Stay tuned as we have more guests lined up to join us.  Thanks again.

Keep your eye out for more chats with the biggest names from Wall Street and beyond right here at InvestorPlace Blogs.

by The Freshman |  07/23/08  |  Stocks: BAC, BQI, DVN, GM, GS, HD, ING, MBRG, NTRS, SIRI, STD, STO, STT, TCB, UHAL, UPL, USB, WFC, WL, WMT, YARIY,