Wall Street Week with Louis Rukeyser; 3014

Get serious here is America's most widely watched and trusted source of economic and financial advice Wall Street Week With Louis Rukeyser is made possible by avoiding these formated wired digitised to push 0 4 options. Does anyone know. Lasting relationships. For professional services the answer is yes. The people love to look into it. By A.G. Edwards committed professionals providing a full range of financial services and investment advice. A.G. Edwards trusted advice exceptional service by Oppenheimer Funds. Where a long term approach to investing has helped put financial security in the hands of millions of Americans. Oppenheimer Funds the right way to invest. By the Kauffman fund. A small company aggressive growth fund.

And by contributions to your PBS station from viewers like you. Thank you. Produce thrive day October 6. Our panelists are Ed Brown Michael Holland and Martin Zweig. Tonight's special guest is Edward Yardeni chief investment strategist Deutsche Bank Alex Brown. Your name and I'm with rude guys or this is Wall Street Week. Welcome back. Well this was the year when how we came a few weeks early. Things were pretty scary all around. And it was sometimes hard to tell who was wearing a mask and who really did look that awful. That was for example the ever inspiring 2000 presidential campaign in which it now seems clear they are all unelectable. George W. Bush continued his ongoing battle with the English language. The governor is now running slightly behind on points in that one. Well Al

Gore extended his fantasy life in what seems to be a parallel universe the one where he invented the internet was the role model for love story. I had an uncle gassed in the Balkans flew over the blazing Texas countryside with James Lee Witt and knew that the state of the art Sarasota schools desperately needed more federal tax money. Who needs Hollywood movies and sitcoms when we have these improbable characters on our screens. Wall Street for its part may have found Alan Greenspan even scarier. While the Federal Reserve surprise no and by leaving interest rates unchanged this week. The Fed declined even to confront the possibility that its own tightening over a kill early this year may have contributed to the rapidly slowing economy now. Maintaining instead a tilt toward concern about inflation. That concern incidentally is so rare among serious economic observers that it can't get even the bond market excited these days as traders shrugged off a

strong employment report and a stubbornly high oil price focusing instead on an abundance of evidence that as the Fed acknowledged economic growth really has moderated and wage inflation remains remarkably tame. The D.C. celebration and economic growth seem to be precisely what was worrying the stock market as a new series of warnings of disappointing corporate earnings blamed variously on the puny Yoro and anemic PC market at home and consumer worries about rising energy costs sent major market indexes into their first five week decline in three and a half years. If as the politicians keep telling us the economy is so great they obviously haven't been reading the financial pages this fall. Worst hit again this week was that new economy technology benchmark Nasdaq which you have to vote in by more than 24 percent between New Year's Eve and March 10th has

fallen so frighteningly since then that it is now down about 17 and a half percent for the year. Nearly half of that this week alone those who are convinced that enough is enough kept trying to rally the Nasdaq. But the day by day tally showed more false starts followed by abrupt tumbles than in a three legged race for second graders. History tells us that the technology stocks usually score the bulk of their gains between October 15th and March 15th. But history alas comes with no financial guarantees. Still whether it's an attachment to the real world presumably inhabited by those real people whom the vice president has famously discovered. Or whether it's simply a case of financial types catching the politician's penchant for wishful thinking in a Bloomberg News report tonight said the average forecast of 15 top Wall Street strategists

is for the market to cut the fooling around rebound from here and finish the year 12 percent higher than it is now. The tracking poll will continue we tonight will offer some possibly surprising answers to the question who does Wall Street really want to win the election and talk with a leading economist and investment adviser whose own conclusions about the implications of the election won't please either side or for that matter Ralph Nader Pat Buchanan Harry Brown or Slobodan Milosevic. We are an equal opportunity insulter around here. But first let's see how badly stocks are insulted in the week has passed. The Dow Jones Industrial Average was the least mangled of the major indexes as many investors sought refuge in its old line industrial companies in the face of concerns that the much ballyhooed new economy was beginning to show a bit of rust itself still in the heaviest New York Stock Exchange trading since March. The Dow

wound up with a loss for the week of 54 points to just below ten thousand six hundred. And the damage was greater down the line of the broader indexes. With Nasdaq now revisiting lows it hasn't seen since Memorial Day. Do the elves know something the market doesn't. They certainly think so. Overwhelmingly voting for a fourth quarter down a recovery of more than 5 percent. But with the Dow less than half a percentage point from where it was three months ago the two who voted neutral then get our halos tonight. Neutral incidentally has now been the correct vote in 24 of the past 29 weeks. The resolutely neutral Maudie's Y who has been voting that way for more than two years starting when the Dow was below 70 900 will be with us tonight to explain why both the Bulls and the bears. Have been nuts this year. But with gold down the dollar up and stocks in a funk.

The real key to the brilliance of the American electorate may have been revealed in the account of a woman who visited a California theme park with her children after seen on TV and then demanded her money back. They had expected she said to see long I've done a sword's not models and such arrant corporate treachery was surely actionable. Her views on Medicare were not immediately available. What is why guys assume you're fairly neutral on this one. As usual well neutral in the dell but if the question were to Nasdaq I'd be bullish. And I think the Nasdaq's getting very close to popping to the upside. I think what we've had years early October worries one of the big factors is mutual fund selling. It's the end of the fiscal year for most mutual funds in October. They're selling their losers is putting pressure on Nasdaq. In addition you have the preannouncements of earnings at this time. People are skittish about the election as well as a lot of stock offerings coming out. And I should point out that in 1994 95

98 in 99 the market bottom unit around this time first second week or so of October. So there really is something to this October 15th lift off that uses real economic reasons especially the mutual fund tax selling. And I think that the fear is feeding on itself the puts calls for a show which I think is an excellent indicator of sentiment has soared and it's showing extremes amounts to extreme amounts of pessimism because people are buying a lot of puts and it goes hand in glove with what I've just said. Would you then be buying the traditional technology leaders or would you be going fishing among some of the more volatile smaller issues what would you be will if you go in with the Volga was actually the ones have been hammered to better know what you're doing I think it would be sufficient to buy the big N DX type things for example I like Corning in Oracle. You could buy Cisco you know to play it safe in the big areas I think they'll bounce just as well if you're going to go into the ones that have a name but you've really got to know the stocks you're still not keen on the pure Internet stocks for example.

No but they've been hammered and many of them are down more than 90 percent. And who knows how many are going to survive it eventually they'll have at least a dead cat bounce. Money says that's X but turn they still remain hopeful on the Dow what's your feeling. You know my biggest concern right now Lou is the preannouncements Marty mentioned that a lot of the companies are falling short on earnings and their stocks are being hammered. You know Xerox Apple Computer. I would like to kind of wait until they get through this earning season to kind of see how it settles out. But having said that I still think the bull market is intact. We're well into negative territory. And if we have a negative year it will be the first one since 1990. But I'm expecting the year to end up positive. I would be kind of a bipolar I guess at this point. I would have some safe havens like a Safeway merc. I'd be getting ready kind of on the technology side. I agree with Marty but not the high fliers I would have kind of maybe something like Intel Lucent Nokia very strong solid companies.

But I don't think the carnage is over yet. Intel of course is off nearly half in a little over a month. Is it no growth at a reasonable price. It certainly is now when the turn will occur. That's the thousand dollar question. But I would start stepping in. In. My column in the bloody and out. Bloody and bowed humble is still bullish. When the world's preeminent U.S. stock market worrier says he would look at the Nasdaq is bottoming out. Listen Marty's wife for 25 years when the world's premier warrior says it's time to buy them. Certainly bullish and I think they're going to do it. If you and Marty are in agreement possibly the rest of us may have to make a market here where there is still much concern out there Lou and the reaction is you see Intel's warnings a couple years ago were very serious warning about what was going on in the business.

The most recent warnings don't in any way Warnock in the stock and have. Oracle the CFO this week and he mentioned Oracle he made it an off the cuff comment about what we're going to be really good in the fourth quarter and they killed the stock saying well the earnings are going to go in the third quarter and then they had to come out and say they're going to be very good in the third quarter. The market is so skittish right now. Marty's confidence versus the pessimism out there I'd bet with the confidence I think that we have a major opportunity by great companies at a very low price. But also I think bonds are going to do well in the same time Dell preannounce is a terrible warning that sales are going to be 3 percent slower than expected and the stock gets hammered today with mortars were right word is this market just in a freefall fright. We have had. October massacres since this bull market started and we once again have had it occur. This time though with more virulence than we've had every time it's somewhat different this time around I think that the underlying fundamentals are so strong relative to the pessimism and I think there's a need to have to make a lot of money in the U.S. market right now.

Beating around the bush as usual. All right that is our special 30th anniversary telecast from New York's Carnegie Hall on Friday November 3rd draws ever closer. We're always happy to hear from you with your comments your questions your deepest yearnings here at Wall Street Week Owings Mills Maryland 2 1 1 1 7. Now before we made tonight's special guest we thought it would be interesting to get the real story on a subject shrouded with partisanship and emotion as we ask. How has the market really been voting. The answer may surprise you in the first two years after Bill Clinton was elected with a Democrat dominated Congress. The Dow Jones Industrial Averages total gain was less than 18 percent actually below which historical norm. It was only in the next two years when the White House had to contend with an all Republican Congress that the Dow really took off rising in those two years by nearly 59 percent.

Similarly in the two years that followed the 1996 election with neither side able to have its way completely the Dow again rejoiced gaining more than 43 percent. And as the famous gridlock continued so bemoaned in Washington yet apparently so delightful for investors the Dow was kept on advancing up close to twenty two percent more since the 1998 election is the real secret that Wall Street loves it when neither side can completely run the government. For some thoughts on that and other political economic questions let's go over now and me tonight special guest Edward your identity. Welcome back. Thanks very much Lou. They have to have you with us. Thank you. As the country prepares for a new administration edu identity has just come through his own brand of sea change. He has parlayed his years as an economist with the U.S. Treasury the Federal Reserve Bank of New York

C.J. Lawrence potential securities and E.F. Hutton into the chief investment strategist job for Deutsche Bank Alex Brown. Tonight in his new incarnation he is making his seventh appearance as my guest on this program. It is all this just a coincidence or would Wall Street be upset if gridlock ended. We like gridlock a great deal of gridlock. When we were taking our civics class it was called checks and balances and the system works best when it doesn't work when we have gridlock. We should only be able to legislate when we all agree that there's something important needs to be done. And so I think the analysis is an accurate one and that is gridlock has been bullish since November of 1904. Well let's look at the other two scenarios. Suppose Gore's elected with a Democratic Congress goes George Bush is elected with the Republicans IMO it's conceivable that even if we don't have complete and total grill gridlock we will have just enough so nothing extreme could happen. I think over the past several years what happened is we

could agree on a few things we could agree and free trade the White House supported free trade. Congress supported free to trade. We could also agree on deregulation and this bull markets had a lot of components stocks going up like banks and telecom and utilities largely because of deregulation deregulation is also bullish. So. I think it's conceivable that we could have a liquid like situation but. It's not something we're rooting for. You've mentioned some things that Bill Clinton has stood for that were against the grain of traditional recent Democratic philosophy of free trade being a good example. Welfare reform possibly another. Is Al Gore on the same cut. I don't think so. I mean Bill Clinton when he ran actually told us he was a new Democrat which I think with the benefit of hindsight this was almost a Democrat who has adopted many Republican principles and there's nothing wrong with taking the best from both parties and I think Bill Clinton did that when it came to his economic policies. Al

Gore at least the caricature of Al Gore and it's hard to tell you know in a political campaign who the man really is because he's clearly taken on a populist approach that suggests that he believes that government can solve a lot of problems that perhaps the market would be better off solving. So I think in and Wall Street would rather have the markets solve our problems rather than have a lot of government meddling. Does George W. Bush scare the markets. Only to the extent that there's concerns about you know what he really stands for and what his politics are going to go. I mean it's pretty easy to say you know you're for lower taxes I mean we're all for lower taxes. But I guess what the market would like to see is what began that the Mr. Bush stand for. Not only oh we in the longest expansion. Recorded history. But if you go right back to 1982 we've only had one brief recession in all that time. Recessions as in the past.

You know every time I've thought we've had a recession somewhere I mean let's face it in 1980 there was a horrible recession in Asia. Mexico has had some crises all along the way. Over the past few years growth has been very sluggish in Europe. I wouldn't say they're completely a thing of the past but it does look to me as though thanks to global competition and global markets we are keeping inflation down so policy engineered recessions are much less likely it's very unlikely we're going to get a scenario where the Fed's going to crunch the credit system to the point of creating a recession here. And I remember when you were great and raving long term bull then you became famously bearish right because of what turned out to be over concern about the Y2K problem. What's your posture today over the long term. Well I'm back to my old self really quite optimistic about the long term. I think that we are. Just beginning the technology revolution at least in second phase the first phase was the PC era of the PC and the Internet. I think in the second stage we're going to see that the Internet really comes into its own and we're going to have

access to all sorts of information over the Internet literally at the speed of light. And the cost of telecommunications is going to continue to plunge I think that's going to be very very positive for our economy for productivity for earnings and I think that's going to be a positive for the stock market though I don't think 20 percent per year is something we'll be able to achieve I'll take 10 percent per year in an environment where inflation could be 0 to 2 percent over the next year the next 12 months stocks or bonds a better investment. Well I'm probably going to just kind of split the difference I think that the bond market is going to do quite well. No matter who wins by the way in November. They can't do very much damage in 2001 so I'll probably wind up paying off another 200 300 billion dollars of our debt. That is a positive for Bonds competition keeping inflation down that's a positive for bonds. And I think in the market you know if you're you know what you're doing or near for select the right sectors at the right time you could probably be 10 percent.

I would particularly like the if the financial sector for example because I like the bonds Well we've got a departmental panel for you tonight so that's great with money as well. The Fed has not done anything now for a few months what do you think the next move is going to be by the Fed and perhaps when. Well I think the Fed is done for now. Given what I know today looking as far as I can see I don't see them raising rates I don't see them lowering rates I mean if you twisted my arm and said You know I have to make a choice up or down. I would say that most of the risks are that the soft landing we're having now turns into a hard landing maybe oil prices go higher but we have a really bad winter and which scenario the Fed might actually be encouraged to lower interest rates a bit just to provide some liquidity take the pressure off. And can you comment on the effect of the other implications of the new competitive economy versus the old economy as it relates to interest rates productivity. I'm glad you asked that question because I've been thinking a lot about this new economy and it on the face of it new sounds better sounds very bullish. But you know competition is brutal it's very very hard to be

profitable in a competitive environment. You've got to cut costs you've got increased productivity you pass on all the goods to the consumer the consumer is the big winner. But you have to innovate and that I think is why we have this technology revolution and I think that continues as as the economy slowdown there might be actually a lot of pressure spend even more on technology. So I'm not too worried that the big picture view of technology is at risk quite the opposite I think the best is yet to come. You mentioned a few seconds ago and you've also written you expect inflation could be in the 0 2 percent area over the next several years not a new position for you. And yet the Federal Reserve Bank to Martese question has an interest rate level of six and a half percent. Louis Rukeyser early on program talked about potential overkill do you not see overkill as a potential problem. What do you know and some ways I think we could all run monetary policy from home on a laptop. Because the reality is the Fed funds rate has been tracking almost identically the growth in nominal GDP you want to take technology out because it shouldn't be included there. But yeah I think that next year the Fed may be looking at a lower inflation

rate than right now especially while prices stabilize and go down. And if things slow down the competitive pressure on prices may really bring inflation down where interest rates really look pretty high in so-called real terms. Ed let me just be devil's advocate for a moment. Oil prices up. Candidates are promising great benefits high spending big tax cuts. What's the possibility we're going to have more inflation than you think. Well it's always possible obviously I mean I've had some good calls and some bad calls and I could be possibly wrong on this one. I tell you though when I look at the situation globally the the one factor that I think people really haven't fully figured into the inflation equation is China. China now is part of the world free trade structure. And you know so many things that we make all around the world can be manufactured in China at very very low costs 40 percent of our trade deficit is with China and Japan combined. So I think that's going to that can put a competitive pressure alone is going to keep inflation. So. What do you expect to happen to bond rates over the next year. Well I'm

optimistic about the bond market I think as we continue to pay down the debt. Bonds may become collector's items I mean you never want to trust the long term forecast of economists that are now projecting four trillion dollars in surpluses over the next 10 years. Nice to see politicians believe the number but as we continue to pay off the debt I think that's going to be able to say I've got 5 percent on the 10 year bond yield early next year and four and a half percent within the next 12 to 18 months. It's election time which means it's illegal to talk economic sense aloud in America. Each side claims credit for the prosperity. How much did the politicians have to do with it. How much did the private economy on its own do. Well I think that's a very good point. You know we're all working for a living and we're all contributing our daily efforts to increasing productivity to making things better off for ourselves the people we work with. And so I think we deserve the credit I don't think the politicians deserve the credit. I think what the politicians deserve credit for is kind of sort of not meddling too much staying out of our way. And you can go back to Jimmy Carter you can go to

Ronald Reagan there's a lot of politicians that deserve some credit for our prosperity but at the end of the day we did it. So maybe the new slogan should be if elected I would do less for America. Absolutely. Thank you Ed your identity. Thank you panel. Hope you'll be back again next week when we'll take our annual in-depth look at the industry that is shaping your futures technology. We'll show some of the newest and most exciting wonders of technology and talk with three experts on how to invest in this business so that your finances as well as your life can truly be a state of the art. And while this has been Wall Street Week I'm Louis Rukeyser tonight. Well Street Week With Louis Rukeyser is produced in association with Kaiser television incorporated by Maryland Public Television made possible by the way. Who's equally at home with stealing so a car. With wheat fields and cyberspace. The professional services the answer

reviews the people. Up the road. By A.G. Edwards for providing a full range of personalized financial retirement and estate planning. A.G. Edwards trusted advice exceptional service by Oppenheimer Funds. Every year millions of Americans place their financial futures in the hands of one mutual fund company. Oppenheimer Funds the right way to invest. By the Kauffman fund. A small company aggressive growth fund. And by contributions to your PBS station from viewers like you. Thank you. For a printed transcript of this program. Send $5 to transcripts Wall Street Week With Louis Rukeyser Maryland Public Television.

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