Bloomberg News

Eastern’s Kattar Says Financial Earnings Spooked the Market
Published on the Bloomberg Terminal on February 22, 2008

By Ken Prewitt and Tania Haas
Feb. 22 (Bloomberg) — John Kattar, chief investment officer at Eastern Investment Advisors, comments on corporate
earnings and his investment strategy. He spoke in an interview from Boston.

On earnings season:
“I think the numbers were pretty poor, but it was all driven by the poor earnings on the financial side. Earnings were down about 20 percent for the fourth quarter. But if you take out the financials, they were up double-digits, which was better than expected. In general, most companies were reporting earnings that were better than expected but with cautious guidance going forward. I think the reaction to earnings was not what we would have liked to have seen. It was on the negative side.”

On earnings expectations:
“We are looking for earnings to be down about 5 percent, but I should hasten to add that we think that a lot of that bad
news is already in the market.”

On Treasury securities and Federal Reserve rate policy:
“We think that the Fed has more to go. The expectation is widespread that there is going to be another 50 basis-point ease
at the March meeting. We think that the Fed will accommodate. The market is simply too fragile for them not to do that. Beyond
that, we see an additional 50 basis points at the Fed funds level. The yield curve has been steepening, and we expect that
to continue. We are not big fans of the bond market here. We really don’t see a lot of long-term value in the bond market
with much of the curve trading below the headline inflation number.”

On where he is committing funds:
“We have taken a defensive, but not negative, position in our portfolio. So we are very close to the benchmark in terms of asset-allocation decisions and in terms of sector weights. And also in terms of stock positions, we have dialed back on the risk of the portfolio. The work that we’re doing now — in preparation for what we expect to be pretty sharp recovery in the stock market in the second half of the year — is in resource stocks and technology, and we are beginning to view financial stocks a bit more attractively.”

–With reporting by Vonnie Quinn. Editor: JoAnne Norton, Joe Sabo.