Wall Street Week with Louis Rukeyser; 1938; The Gabelli Magic

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Produce Friday March 23. Our panelists are loans Howard and Martin Zweig. Tonight's special guest use Mary you'll go belly chief investment officer Goodell a group. That evening on Louis Rukeyser This is Wall Street Week. Welcome back. Well this was the week when the news was humming to the sounds of the three B's not Bach Beethoven and Brahms not even the Beatles but bangs on baseball and broccoli. The Browns I toured with LED ironically against the Tokyo Stock Exchange which many had erroneously assumed to be impervious to the traditional ups and downs of investing. The baseball bulletin was of course the news of those two we groups of wonderful fan loving fellows the millionaire players and the multi-millionaire owners would actually deign to open their season next month

after all. And the biggest news of all was that the mothers of America have something new to worry about. A president who refuses to eat his broccoli. And we as you know are fascinated by any kind of green around here. George Bush it turns out may be a popular president and an easy guy to get along with but he is clearly going to finish near the bottom in the competition for the year. A fellow whose idea of health food is putting candy bars on his cereal. A man whose diet would have to be upgraded significantly to qualify as junk food announced that he was not president of the United States guys don't it. And so he wasn't going to eat broccoli anymore. Well naughty children of all ages silently cheered him on and the health food industry choked on its cholesterol tables. The president may have unwittingly provided his political opponents with devastating new ammunition. The next time he tries to make a serious proposal they may echo the words of another famous broccoli hater.

The little boy in a New Yorker cartoon who on being served broccoli declared. I say it's minutes and I say The hell with it. Actually the other to be is in baseball suggested some common images. The Japanese stock market had after all been on a consecutive hitting streak that made Joe DiMaggio The Collector piker before proving that it too could strike out once in a while before bouncing a bit at the end of the week. Japanese stocks have declined more than 25 percent this year a worse fall than they took in 1987 and the longest predicted event in the history of investing in the cracking of the Japanese VO market seemed finally to be at hand. It proved again one of the great rules of investing where the words This time it's different. This show of mortality in Japan and have been taken with surprise and a somewhat worrying nonchalance by the American market. But this week some signs of sympathetic nervousness began to appear on this side of the

Pacific too. Investors had to contend with other uncertainties too and the specter of Mikhail Gorbachev possibly resuming the cold war via Lithuania to an economy that seemed softer than expected one day healthier the next. We tonight will try to get beyond sex dating to Dana's in the company of a truly remarkable seeker after a long term value. First let's see what the Fourth be the boys and girls of Wall Street were doing in the week has passed and as the Dow Jones Industrial Average indicates stocks staged their first retreat in a month with as little conviction on the downside as it had shown on the up the volume of trading was actually lower for the week. The blue chip index that again 177 points in three weeks gave back about 37 of them to close at 27 0 4 point to 8 and all the broader indexes recorded declines as well. Also in retreat is the index of our ten chief tells a change from positive to

negative brought about entirely by the 180 degree turn of technician Mark Leibovich whose vote on the market's next three to six months switch from bullish or bearish. Weakling of the week was back down to levels it hadn't seen for more than four months while the strongman despite a Friday slump was the dollar up against all major currencies and reaching a three year high against the newly troubled yen and as if we didn't have enough to worry about. They unveiled this week of voice typewriter that you turn on by saying Royce console wake up and turn off by saying voice console. Go to sleep. Next thing and I would be eating your broccoli for you. OK lousy when you wake up. You're one of only three bullet shells left in our index you get nervous. Not at all I think you have a healthy retreat you have a very strong market. Last Friday perhaps too strong and I think yearning still bring a chair. One of the

bases of your voice was this one. For one thing is you have an awful large abundance of cash mutual fund cash is about the same level as in the summer of 82. There now represents almost 10 days worth of buying power in the summary too that I represented for days when to buy power. Secondly I like it more and more people are concerned and negative to firms this week and suggested you move some of your assets out of stocks. These to me are positive conditions for long term brokerage firms or reduce your stock holders you buy. I want to see you then but there are just sort of the climate is we can conserve. How do you react to the comment that even when the guy was going up but not that many stocks are rising up it. If you go back and look at the end of 1906 advance decline line was going down again in 1998 the biggest plan I was going down I don't think it's a very good indicator and I assume it doesn't concern me very much. You think that's those of 20 in the

immediate future. So the media and I think that we will see new highs and I would be surprised to challenge even the lofty 3000 more before the year is over especially some of these world markets continue to be problems. You're forecasting good news with a forecast I don't I think that everyone's been pretty much more on interest rates this year and I think with markets against the interest rate bank robbers remarkable that your bodies while you are maintaining your neutral stance and that's what that law as well as you think it will. Why would you not agree with mutual funds. It's a record by one measure that's bothering me there is a lot of pessimism around among the brokerage firms in my sentiment indicators are good meaning a lot of positives and what bothers me is the economy and that's why I'm not Bush. That's why because the economy looks to me like it's in bad shape and if we have a recession I don't think the markets discount that and I think the odds are even that will have a recession. What do some of the indications you see that when I was at your talk

a program about the money supply having to come out of an extended period what think that initial unemployment claims were any way to measure employment is a problem when your performance is a problem. Industrial production durable goods are all problems right now and it was in The Wall Street Journal just yesterday to buy the room once the banks are pulling back from loaning money. It's almost the same as if this were to raise reserve requirements the banks are very conservative right now to think and so the segments of the economy. When you so the chance of researching a rise in your mind in the next quarter of your mind you may have started to write a book you know in the relatively near future and you're waiting to see what more corporate earnings reports more overall economic data before you tend to want something to convince me I think the trend has been getting worse and the economy and I want to see something that will convince me the other way and then I would give up the ghost and turn bullish. Other things equal.

Well I want to but then you would know what to do if you really go home what do you think I'm not very optimistic but not for the reasons Marty mentioned the economic ones here I really think what's happening in New York is turning off what's healthy in Tokyo as you mentioned the Tokyo stock markets down about 27 percent this year and I think that the optimism that's sort of a sun setting over there is causing a sunburn around the world including in New York. And it's not because the economies are linked but because of interest rates and their use. We know the Japanese raised interest rates their own for us to be competitive and make our fixed income instruments attractive to the Japanese to pay for our deficit we have to keep our interest rates up in fact most of the West Europeans have been raising interest rates through Europe we've been loaned. Right but I want my computer not too long and I think that the market is saying and that you know long rates started the year about 8 percent there about 8 1/2 percent. And I think the prospect of higher longer term rates United States is going to keep the equity market about where it is

as I said earlier in the year I think this year will be a down year for the stock market in general and US as opposed to the Federal Reserve joins the Treasury Department was going to buy the dollar when we drop the dollar that will be the low interest rate when it would be but I think there are going to be more concerned over keeping our interest rates competitive for worldwide investors. I do continue to think that while you must be conservative that technology stocks and emerging growth are the places to be so much that you want to be in the equity market or not. Now a special thank you to all your viewers who responded to our invitation last week to submit nominations to the Wall Street Week With Louis Rukeyser Hall of Fame. Literally hundreds of nominations have been coming in on mail every day with no end in sight. The initial response has been so intense for four men in particular that we decided it was only fair to induct all four of those tonight as the crowd seems to worship and to return to regular viewer questions next week.

As I said last week this will be the first of what we plan to make annual inductions of your favorite guests over the years event on public television for 20 years now. We've had nine hundred twenty two programs and six hundred fifty three different guests ranging from our own two eyes wide including five Smiths five members for Williams's and for Campbell's not to mention a butcher a baker and at least a few money makers. They've included just about everybody of importance in the world of money so the competition for our first induction was extreme. Some of those who came close may be winners next year. The judges have looked at all your nominations and picked for clear favorites. The first four members of the Wall Street Week With Louis with Hall of Fame. Malcolm Forbes wasn't just a great publisher and a great guy he was the sheer value of capitalism a welcomed bar of liquor. Once I asked him about the difference between his attitude and that of his father who founded Forbes magazine he wouldn't stand for the great respect for money and

develop a great affection for. What is your attitude toward money. It's a very nice thing. This year Malcolm Forbes left us all. Poor Peter Lynch has become the most successful mutual fund manager of our times. By a combination of hard work he personally visits more than 200 companies a year and humility is forever warning us incorrectly that he probably won't keep on doing so well. He's been the top performer of the past 15 years but characteristically he continues to warn us of the risks on the way to such impressive rewards and I think the public has to be ready. There should be safety warnings on stocks and bonds and bonds and mutual funds. You can lose money in this whole thing and be ready for when it happens. Like all great artists Peter Lance makes it look easy. By far our most popular guest over the years and the runaway leader in viewer voting so

far was Meryl Stanley replies of the day I was born after the 1987 crash a year before he passed away. My father gave us the perspective of one who would watch the world of money for seven decades. The only thing that's constant was you know the point is human nature and human psychology are we still subject to the madness of crowds. How can we become more competitive in America a return to excellence we all missing. John Templeton practically invented global investing and he has done it with unmatched skill for two generations. Several times when panic was in the streets he brought us optimistic and accurate predictions. I asked him once why person is and still seems so perennially popular.

Human nature people don't buy newspapers that announce the good news there is some catastrophe attracts the public and because communication is so much more instantaneous than ever. We were flooded with pessimistic things from nations that we never would have heard of before. It's nice to see the good guys finish first and Mr. Templeton incidentally will be my guest again next week. So here they are Malcolm Forbes Peter Lynch. Now all this Rukeyser and John Templeton and they set a standard for the future that honors and challengers as all. Now let's go over and meet a man who asked to be a strong contender for a future Hall of Fame competitions. Tonight special guest Mario Gabelli. Now we're going to see you again. Welcome. Since his first appearance with my guest eight years ago has been recognized as one of the nation's

foremost investors with an outstanding year for uncovering undervalued companies that later get noticed by other people. Indeed most of the stocks he mentioned in his first appearances on the program have since been taken over. His good bubbly group has suitably prospered and now manages more than seven billion Yes folks I said billion dollars. Mario was so much trouble in the junk bond market many people are saying the takeover is over there right. I think there's a certain amount of validity to that Lou I think the speculation that took place in the last three or four years fueled by the junk bonds is going to be chilled. There's a gap between values and stock prices and that gap will be filled by transactions. The players will be there when you look for companies in which to invest. You've often said you look for private market value would you explain what that means. That what we call the phrase we coined about 15 years ago was what would a company be worth if an industrialist somewhere in the world wanted to own it. Industrials like Tom Murphy a Cap Cities are all of genuine parts. What would they pay

to own the entire company. Are you still pond undervalued securities. Every day and we're delighted the harder we look the more we look the more we find. And everybody wants to hear some names from your book or even ask you for names and we ask you if there are any special. Well there are several that we're finding one is the one that we found 15 years ago and one that would 70 years ago and that is capture this account. We like to buy companies that are trading in the public markets by buying cash is this going to be a C for example which trades at forty six Lou as $50 plus in cash no debt and there's $25 of broadcast properties that we can buy that and values are growing just as apprentices here. Those plays hob with the so-called efficient market theory that the idea that markets are so darned efficient these days of stocks that are priced at the right value. Everyone has their own point of view on how to make money we have ours. How about all this advice that some investment bankers are giving to corporations to leverage themselves to

guard against takeovers. There's certainly a point of view I think the best way to guard against takeovers is to be the fair to your shareholders by doing the right thing with regards to not only growing private market values but actively working to narrow the spread between the public price and one of the ways to do it. For example Ralston Purina is the very very wealthy and that is the constant buy back shares of stocks Cap Cities has done it very well there's a whole slew of companies that are actively doing both and doing it well. If cash is king will be in the 90s to return to concern about balance sheets and other fundamental issues that are going by the wayside in the 80s. Well I hope so Lou I think that focusing on balance sheets is a sound way to invest both in the 80s as well as in the 90s as well as in the 50s and 60s and other things. Well I think the concept of aging of the infrastructure is an important concept in the 90s for example airplanes are getting older. Boeing is going to be a beneficiary of that and all of the vendors to like SPSS technologies which

sells fasteners which sells at $35 a share. I think the other area is the whole notion of air waste in water. The 80s companies that collected garbage and removed it made a lot of money the Browning versus in the 90s companies that come up with devices products services that help the environment whether it's companies that can find a substitute for the styrofoam cup and so forth. You have two companies. Yeah I think at $30 a share with no debt. So earning $3 plus that has a product that takes the contents out of an aerosol can without a cork for carbon that is a very attractive company. You've also said that all roads lead to Hollywood as well as your new career. I probably should but what I was finding there was the global entertainment marketplace so that if you're in Tokyo or if you're in Frankfurt you now have a VCR there's 170 million and in place in the home and 60 of those in the United States a movie company is going to earn incremental dollars from their

Product Red October. And I'm not plugging a movie as an example. We'll be able to be shown on a VCR and there will be substantial cashflow paramount at $44. Martin Davis is that an outstanding job and you're buying the movie studio for free it's worth $85. And it's a bargain. With a customer warning that even a genius like Mario Gabelli can strike out every now and again let's turn to our panelists on with everything. You've done all your work and you find a situational sense relative to you. What are the warning signals of perhaps that you didn't do enough work. Well we tend to take three to five years to find an idea. Occasionally I'll ever like in the case of MCI which I would have recommended the management voted themselves with the benefit of shareholders a blank check preferred and went out and gave away the house on buying Geffen Records. So I'm not as enthusiastic about it. I own a lot. Not withstanding that that is certainly raises an alarm clock in our head as to how management works to enhance shareholder value.

There you go I know you are one of these tractor stocks just tell me why you're with the story with them. Well you know I think if I recommended John Deere three years ago because I felt the farmer was recovering and he is but fundamentally today there's one extra kicker there. Gorbachev to stay in power has to deliver the answer to the question where's the beef. And if you think of B you have to think of corn because corn is needed for chickens. And if you think of corn you think of Iowa if you think of why we think of John Deere John Deere is a dominant global company so dear Tenneco and Verity are very attractive companies for the next several years. Mary you were perceived as a value investor and a lot of people think there are times when growth is in another time when value we're in and they kind of go back and forth a couple years ago you started a growth fund and clearly the 80s were the place for a value you look at the 90s in your mind is it growth like one of your products or is it value where you've been.

GRAHAM Well my research director runs our growth funds is that a world class job that we look to grow when we buy a telephone company one of our favorite industries of the 90s when we buy a Rochester telephone or center we're buying enormous growth one of the best businesses around the decade of the 90s and we're buying them at a substantial discount. Back with buying the telephone companies were great. So I get both in the same package pots for the 90s. As you know nobody gets a free ride around here and someone assumes you know those of you were in Lake Bluff Illinois wants me to ask you the following question. I followed Mario for years and noticed he is as human as the rest of us he can ride them up and ride them down. He owns one hundred eighty thousand shares of Harcourt Brace divan of it's an average cost of 760 a share the stock went to a high of 89 580 last year only to fall to two and three quarters currently. Could you try to obtain a comment from Mario on how this can happen to an astute money manager. Well one of the themes that we like is the aging of the infrastructure and the re-education of people hard court in our judgment has very good value in it and it basically

has a company that is selling at two and three quarters and we think it's worth 6 to 10. They'll write it up again. Well this absolutely takes us to a more important broader point. You don't have a mechanical. Stop loss if you get out when you know actually what we do philosophically is when a stock comes down in price. If all of the values are in chains we should be happier. So cent tell for example which is down three or four points in the last week and which is worth $80 That is one of the best managed companies in America we think is going to be worth $200 and five to six years. We think that the stock going down gives us less risk going to greater opportunity of buying more. So we don't have a loss we think it's not something that we like to pursue. One of the keys to your success in investing one of the important trends this year is worldwide invest in so far as I know all your holdings are still in the U.S. as we like to follow companies where we can kick the tires and go belly to belly with management.

John Deere is located in Moline. If you were located in Mannheim where the biggest factory is we wouldn't follow the company. Pepsi were in Paris instead of purchase. We wouldn't follow it. We just like to kick the tires and we like the culture we like to see the company and dominate the knowledgeable. Are you able through your own research to get a feel for where there's overall economy is going. We tend to be bottoms up talk to a lot of companies understand how their order book is And the answer to that is we feel we have a very good feel for that. How much of what you do and the average viewer out there would share with the philosophy that the average viewer watching what his wife buys what their children recommend what he watches on television what he puts in his food what he does with his newspaper when he tries to get rid of it gets very good sources of knowledge as to where the trends are and how to buy stocks and old fashioned common sense. What sort of thing if you picked up that way. Well I think getting rid of my New York Times the notion of buying the newspaper and then how did this pose of it brought me to the conclusion that companies that are recycling of newsprint are

very important. Therefore media in general even though it's not exceptionally well managed it's learning it's improving it's listening at $30 it's worth 80 to 100. The values are there they are in the newsprint recycling business. We know you're out of time to the 90s will be tough for you and that's another interesting question which we think about all the time. We think equity had the glorious period in the 80s they were up about 20 percent we think stock selection and bond selection in the 90s will produce reasonably good results but more in the 10 percent area on a secular basis. You mean 10 percent a year and half of the decade and 10 percent a year. But that's going back to historical returns was common stock for the last seven years. Thanks very much more of the bubbly always fascinating to talk with you. Thanks to the panel. Hope you'll be back again next week then my guess will be one of our all time favorites just named Hall of Fame on a re that titan of 20th century investing John Templeton. No one else can match the length and breadth of his worldwide success and we'll be asking him where in the world he's putting his

money next. This is them Wall Street Week. I'm Louis Rukeyser. Good night. Wall Street Week With Louis Rukeyser has been made possible by the financial support of viewers like you. The Travelers Insurance and related financial services working to provide financial peace of mind for over 40 million Americans secured the investment for him with a rock solid resources and market thinking in the business of making money for his program Wall Street Week With Louis Rukeyser will always move to one one Wall Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7 8 Week With Louis Rukeyser transcripts are also available to subscribers of the Dow

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