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Fed Rates Will Hit 7-7.5% by 2011: Portfolio Manager

Published: Friday, 16 Oct 2009 | 6:26 PM ET

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By: JeeYeon Park
CNBC.com Writer

Stocks continued to slide on Friday on some weak earnings reports that eclipsed strong results from big techs. John Lekas, CEO and portfolio manager of Leader Capital, and Scott Redler, chief strategic officer at T3live.com, shared their market views.

“You should take your money off the table and go into fixed income,” Lekas told CNBC, adding that earnings have mostly been “disappointing.”

“The cost of capital—meaning the interest expense to corporations—is going to weigh very heavily on them,” explained Lekas.

“It used to be that companies that had leverage can generate a lot more cash flow and earnings. That shifted—and if you’re going to be in the equity markets or fixed income, you have to be a little discerning.”

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Lekas said the reason oil prices are up is largely due to the weak dollar.

“The dollar is going to go lower and it’s going to put the Fed in a reactionary position to raise rates to support the currency, and that is going to be another problem for the market—in addition to the oil problem,” he said.

“I think the [Fed funds] rate will go to 7 to 7.5 percent by 2011.”

In the meantime, Redler said it is important to build a base in the markets to prove that stocks can hold higher, before continuing to extend to the year-end.

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“As long as you book some profits and hold some for the longer term, you can add cash flow trades to your portfolio and also stay invested,” he suggested.

Redler said that if oil continues its surge and hits $90, it will scare off consumers and sustaining higher market levels will become questionable.

“It will be like an extra tax that they have to pay instead of going to the grocery store,” he said. “[And] it means that we need time to figure out whether we can sustain these levels to move higher and you have to be very strategic in your investing because this recovery will take place and can be sustained but it’s going to take time.”

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