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Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, June 21, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the downward spiral of the markets despite good news on many fronts, the
$100 million dollar gift by Al Lerner to the Cleveland Clinic, the news
on the breakup of TRW's business units as it continues to ward of Grumman's
takeover efforts.
David Barnett - It's been another rocky week for
the nation's businesses. The stock market fell to the lowest point since
the downturn that followed last year's terrorist attacks. And there was
more bad news in the tech sector with companies reining in their sales
and earnings forecasts. At least one company, Parker Hannifin of Cleveland,
announced job cuts. Things are dicey enough that the Conference Board
set up a commission with an unusual marching order - build public trust.
Well, we need someone we can trust to explain all this to us. And so as
he does every Friday at this time, Scott Roulston of Fairport Asset Management
joins us. Scott, good morning.
Scott Roulston - Good morning, David.
David Barnett - So how come the news was so bad
again this week?
Scott Roulston - The news wasn't all that bad,
but the perspective, I think, is certainly gloomy. The news earlier this
week: you had leading economic indicators up fairly strongly; housing
starts were at a record level; and the CPI (the rate of inflation - Consumer
Price Index) was flat. You would think those good indicators would encourage
the market, but no way. You have the Middle East overhang, continued bad
news in the tech sector and it just seems like we can't put a good spin
or a good light on any of this good news.
David Barnett - What do you think of this attempt
to build public trust? Will that help anything?
Scott Roulston - Eventually, yes. But I think we
still have a way to go in this process. I think the Boards and the whole
area of corporate governance, the SEC oversight, the accounting - all
of these pieces of the puzzle need to come together and it's going to
take some time to gel. One of our friends in the business says people
loose their sanity at the same time and regain it one at a time. I think
this kind of confidence comes back slowly.
David Barnett - The index of leading economic indicators
was up 4/10'th of a percent this week. Do you think that might give stocks
a boost?
Scott Roulston - Well, it didn't earlier this week.
I mean, we had a nice boost on Monday but we've pretty much given it back
as the week has continued along. So no, I don't think so. You know, we
either just have trouble believing this information or I would say that
the risk or the fear of losing money is really overriding any greed factor
right now.
David Barnett - At the same time, the trade deficit
hit a record high. Now how bad is that?
Scott Roulston - Well, that's distressing the market,
too. I'm glad you brought that up, David, because you see some pretty
big swings in the currency markets and in the trade deficit, which of
course are related. If you were traveling to Europe this summer and bought
your Euros earlier, you would have gained 10%. But what's going on there,
David, is that since the beginning of the quarter there has been a down
market and the currency has changed about 10%. So that means foreign investors
in the United States have lost big. And the foreign investors are the
largest buyers of our Treasury Bonds. If they slow down buying our Treasury
Bonds, the only way we can get them to just keep going at the same pace
is to raise interest rates. And that really has the markets concerned
- if interest rates have to rise in order to keep that foreign investment
in.
David Barnett - The big news yesterday was Al Lerner
giving the Cleveland Clinic $100 million. What practical impact of that
money do you see happening?
Scott Roulston - A huge one. I mean, besides just
being a wonderful, breathtaking gift and something that was very generous,
I think it really helps continue the direction we are in. It attracts
top researchers. It really elevates the level of research within the institution
because, you know, that medical school of the Cleveland Clinic is going
to be a little bit different. And it's going to be generating new ideas
for medical technology. Just in the paper this morning and on the news
on WCPN we hear there was a gift to BioEnterprise, a grant from the Cleveland
Foundation. City Council has got loans going for Midtown biotech companies.
So this can't help be anything but very, very positive.
David Barnett - Is there anything on the TRW front
worth talking about this week?
Scott Roulston - Well, earlier this week Goodrich
announced with TRW that they were acquiring the aerospace business. This
is really the first step in TRW's value creation plan. I don't think there's
anything earth shattering. I think what we know is that regardless of
what happens, whether Northrup Grumman succeeds or not, TRW as we know
it is no longer going to stay the same as a conglomerate. The defense
business and the auto business are going to be separated. We may hear
news from Northrup Grumman today because today is the expiration of their
offer for TRW shares.
David Barnett - Scott Roulston of Fairport Asset
Management joins us every Friday morning. Good to talk to you, Scott.
Scott Roulston - Likewise. Have a great weekend.
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