Louis Rukeyser's Money Guide

America's 15th and you look at what's ahead for you and your money. Lewis through Kaiser's 2002 money guy is brought to you by Deloitte into. Today's networked economy. You can help business respond with opportunity logs on. For business services. The answer is the people of London to buy 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. Skill. Experience Strength. The strategy Oppenheimer Funds uses to achieve long term performance. Oppenheimer Funds the right way to invest and by Occidental Petroleum from exploring for new oil and natural gas resources to striving to protect the environment. Occidental Petroleum is bringing a new energy to energy

solutions. Good evening and welcome to a date with your irreparably changed future. Otherwise known as Louis Gisors 2002 money guy. It's the 15th annual edition of the program on which we traditionally call on an unparalleled lineup of business and financial superstars to keep you ahead of the changes over the next 12 months. But tonight is indeed different from all other nights. Some of our most comfortable beliefs about our lives our safety and our world was shattered about us since September 11th and the overriding question for tonight is how many of the pieces can be restored and how should we act in our lives and in our finances to adjust to this profoundly altered planet. How short can we regain some control of a world that lately seems frighteningly to have been controlling us. You couldn't ask for a more high powered lineup of experts to guide us through this historically challenging

year and keep us ahead of at least the foreseeable curves. The CEOs of two severely impacted travel Giants American Airlines Marriott the boss of General Motors who is busily retraining that old elephant but some brand new tricks that champion Avon Lady of them all to talk about beauty in an age turned uglier. And the CEO of John Hancock Financial Services who wonders why if we're all so scared we're not buying more life insurance. Plus a line up of investment experts to tell us how not just to survive it in 2002 but hopefully to prosper. We'll hear two from the most important observers of all the American people as we report in the course of this hour on an exclusive and often surprising national poll of what they really think now about today and tomorrow. Let's begin with a few key results of that poll which was

taken late last month by Opinion Research Corporation of Princeton New Jersey and has the customary 3 percent margin of error. We asked a cross-section of just over 1000 Americans their opinions on a variety of issues. For years we've been asking our sample if they thought the previous year was a good year for both the US and for themselves. And each time they've overwhelmingly said it was this time as you might have expected the results are very different. Sixty percent of those polled said 2001 was not a good year for the U.S. But 68 percent. A slightly lower reading than that in past years said it was still a good year for them. And American optimism as now surged to record levels with fully 80 percent up from 49 percent a year ago saying the next 12 months will be better and even more. Eighty two percent saying it would be a better year for them personally. Similarly fully three quarters

said things are now moving in the right direction for the U.S. up from 56 percent a year ago. And 84 percent said they are optimistic about America's future with about the same percentage saying they are optimistic about their own futures. In November the National Bureau of Economic Research declared that the nation's first recession in a decade began last March. But a majority of those polled seem unconvinced. With 39 percent believing the economy is growing and in equal numbers saying it's standing still. Fewer than one in five thinks it's getting worse. One of the industries that's been hit hard since the September 11th attacks has been the airlines more than 80 percent of those asked say they haven't flown since the attacks but nearly three quarters of those polled said they weren't more frightened of flying than in the past.

What's ahead for the airlines and those who fly on them. Don Carty succeeded the legendary Bob Crandall as CEO of American Airlines in 1998 and he's presided over a company that lost planes in both the September 11th attacks and in November crash in New York. He joins us from Fort Worth done complaints about failed security. Continue to make the news regularly with one of the latest involving a would be shoe bomber on one of your flights. How safe are your planes these days. Well Lou I think they really are enormously safe. The fact that these things get discovered and get handled is I think a commentary on the fact that there really is excellent security in place there was an example for example an incident in Chicago where we did not we but United Airlines discovered a passenger at boarding. And there was some criticism that they should Akademik at the checkpoint. But the great news was because of the redundancy built into the system we did catch. Now in the case of of the flight that you referred to that individual is actually

identified by our airline people as someone that the security people in Paris ought to take a look at. And they did. And in fact that individual was vetted by French government security. Obviously we're very disappointed in the result. But what we're really excited about was how well how professional and how efficiently our crew handled particularly our flight attendants were spectacular. The controversy over a Secret Service man who was taken off one of your planes has highlighted the whole question of so-called ethnic profiling. Does it occur and if it doesn't how do you prevent it from happening while still maintaining security. No I don't think it really does. We are enormously proud of America and our reputation for diversity of our employee groups our customers our shareholders. So we don't think that's an issue. This is a time of increased tension however and I think the tension that obviously this particular secret service agent felt about getting to his job I caused him to react in a way which made all of our flight crews and

all our airport agents extremely nervous and led to this development. It's highly unfortunate we obviously would prefer it not to happen. But inevitably in this kind of environment you're going to have incidents of this type in a broader sense it seems that every day there's some kind of security delay at a major airport. Clearly this is not good for long term business. Can anything be done about that. Well I think there can be a inevitable way when a concern arises an airport. It is going to cause a little bit of a disturbance on the other hand. We as airlines owe it to our customer to get a lot better at processing and getting people through those security checkpoints. And obviously now with the government involved in partnering with the government we're just going to get a lot better at it and I think in fact in the last few weeks and months we have gotten better at it. It's something that we need to do for our customers and it's something we need to do if we're going to run a reliable airline has overall customer service deteriorated because of

the security concerns. Now in fact I think it's very interesting Lou I think what I sense at least among our employees is a new commitment to getting things done. Maybe maybe it's a microcosm of what's happening in our entire society. I think individuals both customers and employees pet peeves have become a lot less important in the reality of what we face since September 11 than I know that our employees who you know and I have a terrific number of employees if anything are more dedicated to doing the job for their customer and I'm getting more complimentary notes from customers than I ever have before. An awful lot of people are still scared of flying. What do you say to them. Well I think that there are people inevitably who are I think that is very much on the decline. Our market research say it's on the decline. I think that the new security processes that we put in place the Government's put in place are going to give back that reassurance that customers need and and

time will get people more and more comfortable with flying. We're already seeing it. Many of those customers are back. Indeed we think that the number of customers avoiding the airlines out of fear is trickled off to a very small number now. Even before September 11th the industry in general and American specifically had problems you admitted this. You said that the September 11th incident had exacerbated them. What is the strength of your company. Well we've got an enormous number of strengths. It is true though that as the economy weakened the airline industry has already always been a fairly cyclical business. And we are buffeted by a weak economy. The good news is that American is is we've been in this business a long time and we've been in it successfully a long time and we have planned and structured our company to be able to withstand the kind of economic downturn that we saw before September 11th and even the more severe downturn that we've experienced since we've planned a balance sheet that is

strong and we've got a strong balance sheet. We've obviously got an enormously strong brand with the acquisition of TWL which we accomplished this last difficult year. We have the best airline network in the world we can deliver customers to more places more often than any other airline in the world. We've got a great product we introduced it again in a very timely fashion something we call more room in coach which get it gives all our passengers more space and in an economy where every airline is fighting for every passenger that product advantage is serving us enormously well and we had as I alluded to a moment ago we have an enormously experienced talented customer service oriented employee base and they really are committed to making sure American is not only a survivor but that American prospers in the long term. You spoke of Buffett in which he reminds me that Warren Buffett says that one of the dumbest investment moves he ever made was investing in airlines. What would you say to others who are thinking of investing in airline stocks.

Well my own view is that airlines are a cyclical stock and that if you buy at the high end of a cycle and so at the low end you're not going to be terribly happy with your investment. On the other hand I think now is probably a good time to be buying airline stocks. They have certainly been pummeled pummeled not only by the events of September 11 but now by a weak economy. And history says that if you buy airline stocks at the bottom of the cycle and you sell them at the right time or hold them for the long term you can you can have a very adequate return looking to the future of American Airlines. Do you think you'll ever get approval of your merger with British Airways. You're close to association with them. Well I think we really will a number of things have happened in the last four or five years since we've we originally proposed it which I think suggests that the environment is right to get it approved. A number of other partnerships on the transatlantic have been brought to fruition. Most of the other U.S. carriers have entered into these kind of relationships and I think American and British Airways Well two very important very

successful and certainly industry leading airlines raises concerns among some. I think the opportunity is now to get this deal done and create more competition between alliances on the North Atlantic rather than worrying simply about individual airlines to worry more about competition on alliances. And I'm very optimistic that we'll see that come to fruition in the next few months. Thank you Don Carty. Another industry that has been hard hit by the aftermath of September 11th. This hotel is travel in general is down and 18 percent of those polled said they had changed their plans in light of the attacks. Though 41 percent said they would actually be traveling more this year. J.W. Marriott Jr. is very name immediately makes most people think of hotels. His father founded the company which now operates hotels in 54 countries. Bill has been the CEO since 1972. He joins us now from Warehouse a Marriott hotel in Fort Lauderdale. Bill how

badly has Marriott been hurt by the slowdown in travel since September 11th. Well our occupancies and room rates have been down considerably. September of course was very bad. October was not as bad November was better and December was better than we forecast that we would be data and rev par revenue per available room somewhere between 25 and 35 percent for the fourth quarter of this year. And we are down in that range someplace we haven't got the final year end numbers yet. Do you see any signs that things will improve in 2002. I think so a lot of it is tracking the economy of course if the economy begins to get better in the second half of 2002. We expect the hotel business to pick up considerably right after the Gulf War. We were our stock was $10 a share and three years later it was $40 a share and it was all due to the fact that there is no new supply coming into the industry in 91 to 94 and the same thing is going to happen in 2002 and three. So

relatively little supply coming in I think demand is going to catch up and I think 2003 is going to be a real good year for the industry in addition to the Marriott Hotels you operate a number of other properties including the upscale which. Where has business held up best buy sell that that's in the lower priced hotels courtyard residence in Fairfield in Springhill suites the moderately priced hotels have taken quite a bit of business away from the upscale hotels. Of course the group business was hurt considerably. Following 9/11 many groups canceled and most of the rebooked for 2002 so business travel has been hurt worse than private travel personal travel. I think it's about the same. We've noticed a big decline in personal travel to the big tourist destinations Orlando Las Vegas Hawaii and at the same time Washington D.C. which is a big tourist city and of course New York has been hurt. Boston is primarily a business and tourist city and it's been hurt quite badly. But some of

the cities in the Midwest have held up surprisingly well. Do you find that many people are staying closer to home than they used to and wouldn't that help some of your hotels. A lot of the drive market is staying close to home. People are driving to the local resorts to hotels that they can drive to or take a train to and that's having an impact. You've asked for some help from the government. What kind of help you want and why should the taxpayers give it to you. Well this industry has been severely impacted by the events of 9/11 and the hotel business and the tourism business employs 18 million people and it's a real depressing to the overall economy if the travel and tourism business is in severe decline which it is the airline business as you know is down about 20 percent. Hotel business down about the same. And this is very serious for the industry and this industry affects a lot of people not only cab drivers and restaurants and people like that but even Eastman Kodak for instance who is selling less film because when people don't go on vacation they don't buy as much

film. So we're looking for a we'd like to see a tax credit for travel that $500 per trip if you stay in a hotel or take an airplane trip one time credit would probably last for 90 days this bill and it's in the stimulus package somewhere. The question of course is where is the stimulus package. That's a big question. We don't know we won't find out probably until February. Safety is of course what's on so many people's minds these days. Have you done things to improve security in the hotels. Yes we have. We've always had a good security program in hotels overseas particularly that are vulnerable. We've been very careful to make sure we have very tight security here in the U.S. our good ideas and places like that that we think are vulnerable are being very closely checked and watched. You just told us you thought 2003 would be a good year. You've also said 2004 would be a sensational year. Isn't there a danger that there's been too much building in hotels generally and it will take longer than that.

I don't know. There's a lot of pent up demand for travel. The businesses that have hurt us the most have been the telecom industry and the technology industry. And as they begin to recover they're going to start traveling again and they're the big travelers and we need them back on the road. Finally Bill what changes do you expect looking ahead over the next decade in the travel business. Well that's kind of hard to say. I think it's going to be about the same as it is now. I think people look upon travel as a cherished American right. And I think they're going to get out of their homes and our offices get on the road sell their products do the best they can to get out and do business again. Thank you very much Bill Maher. Thank you Lou. With the country in recession then still shaken by the terrorist attacks. Many thought the auto industry would be as hard hit as the airlines and Detroit might have been had not. General Motors instituted a zero percent financing program which others followed resulting in at least a temporary sales increase. One in five of those we polled said they bought a new car last year and nearly as many say they will buy a new vehicle next year in mid 2000.

General Motors named Rick Wagoner as its CEO and he has shaken up the once stay a company promising exciting new products that would again lead public taste. The 48 year old car King joins us from Detroit. Rick. To what extent have you stolen sales from 2002 by offering zero percent financing in 2001. Based on the data that we've surveyed here in the last several months it looks like there's definitely some pull forward from future sales. But our view is frankly we picked up some conquest sales and we also as an industry and GM in particular have significantly reduced our inventory. So we do expect to see some lower sales particularly in the first half of next year. But having said that we're in good shape from an inventory perspective. Got a lot of exciting products coming. So we really think as we see the economy that things ought to pick up as the year goes along. Unlike Ford and the U.S. based Chrysler Group GM is running it at a profit.

You were have a share of that 28 percent gain some share this past year. It's probably half what it was in the 50s. Are you content with the 28 percent share of U.S. car and truck sales. Now we'd like to get more. And we've been fighting a tough battle to try to pick up some share and we did I think a reasonable job last year in getting that line turned up and in the right direction. But it's a competitive market out there and our response has to be terrific products. And frankly we've got to be very aggressive on the pricing side of the business because that seems to be what the market is calling for right now. Unlike Ford and Chrysler you still make more cars than trucks. But lately people have known the more efficient trucks What are you doing to jazz up your cars. Well happens to be just as our product cycles go we've been heavy on new products coming out over the last year or so unfortunately they've been well-received whether it's our large pickup sports utilities or are mid-sized utilities. But we have a number of new car products

coming including a couple that are just hitting the market right now. One would be the Pontiac Vibe and another at the Cadillac. And that's really just the beginning of a number of new products that we hope to be bring it to market over the next year on the car side of the business so we're anxious to build on our strength and trucks but we've got a lot of new cars coming to that's going to help us. We think on that side of the business you've hired Bob Lutz the former president of Chrysler who developed its Pinti cruiser to help spiff up your models. I can remember when every U.S. car make was different every year and you could stand the street and spot what was coming down the road. Do you think they now look too alike. I think it's fair to say that over the years the proliferation of car products in a number of issues regulation has forced cars into a more similar appearance than what you know the days that you're recalling. I think we're on the car side of the business and our competitors to spreading our wings a little bit reinterpreting some of the ideas of what cars should look like. And I

suspect over the next several years you're going to see perhaps greater distinction in the appearance of cars and hopefully bring some of the excitement back to the car side of the business that we currently are experience in the truck and SUV side. How would you expect the car business to change over the next decade. I think it'll continue to be intensely competitive. I suspect we'll continue to see shorter product life cycles we'll see more derivatives of products that are what we call crossovers between cars and pickup trucks between suburban suburban type vehicles large utilities and vans and cars. More of those kind of crossover vehicles. And I think we'll see a huge advance in the use of electronics in vehicles including things like enhanced communications with vehicles such as our OnStar system and then maybe as you get out to the latter part of the decade new propulsion systems we at GM believe for example that fuel cells have great great opportunities.

You've set a goal of making half of all your products quote innovative unquote. What's your definition of innovative. Well there are things that would generally be first to market and that could either be in design in product concept or form or in offering specifically unique features like extra doors or easier access to vehicles and we've we've had pretty good progress if you look back over the last let's say four or five years we've moved from probably around 10 or 12 percent what would be innovative in the way we count to today about about about 45 percent of the vehicles that are coming out for us would be in the innovative category such as the Chevrolet avalanche would be would be a great example of a product that's recently come out in this category. Why do you think so many Americans got out of the habit of buying an American car. I think we've had very formidable competitors from some of our from some of the countries that we've imported from obviously over the years. There have been policies to develop the export industries in places such as Japan. Occasionally currency

valuation plays has played into it. We're now for example concerned about what seems to be a very weak yen. And then and then I think the fact of the matter is is customer tastes have changed over the years and we probably haven't always been out in front of that on the domestic side and that's really one of the reason we brought Bob in and we've put more emphasis ourselves on really driving the leading edge of product and product innovation because in the end customers expect that along with obviously a high quality performance. Finally Rick what can you live with the new fuel economy legislation and the other set of present government regulations. Well we're a big believer in improving fuel economy and I think if you look over the last 30 years low we probably match up with anybody in a very favorable light in improving our fuel economy. What concerns us is some of the regulation in Washington doesn't address the fact that consumers want choice. And what we need to do is improve fuel economy while we also offer consumers the product they want. So some of the

legislation that's more extreme that says for example you need to get to 40 miles per gallon for all vehicles but basically mean that we'll be telling consumers you can't buy minivans you can't buy Suburbans you can't buy SUV. And that's not in our experience the way to the way to win in the marketplace so we need to come up with solutions that achieve both objectives in support of a national energy policy but also in support of what the customer wants and that's why we're working on both incremental improvements displacement on demand engines things of that sort but also breakthroughs for the future like fuel cells which could really solve solve the issue in a way that's commercially viable and attractive to our customers. Thanks Rick Wagoner. Thank you Lou. Good to be with you. Let's talk about cocooning in our homes. Could be a two edged sword for the company that has built a 5.7 billion dollar annual business primarily by selling beauty products door to door. Avon only 13 percent of those we polled said they spent more on cosmetics last year and 83 percent said

they had never bought cosmetics from a door to door sales person. That 43 Andrew Young is the champion Avon lady of the mall. One of the few women ever to run a major American corporation. She took command of the Avon just over two years ago and has since quadrupled its sales growth rate. She joins us from New York. Andrew has your business changed significantly since September 11th. Well Lou you know I think that we feel terrific in the sense that certainly as we came into September 11th there was a recession going on around the world already. And Avon had fared very well through the nine months post-9 11. You know I'm happy to say particularly in the United States that we've had a very resilient sales force our high touch model combined with the value price point of our brand has led to a really nice continuation of strong sales in the United States market. And so as we close out the year and we look back post-9 11 I think we're one of the lucky companies who

found a unique competitive advantage in our model. Your problem broodingly seems to be more Latin America than in the U.S. you know to lay off some people because of that. How bad is the situation down there. Well it's very volatile and certainly Argentina is the core focus of all of us right now. Our business we have about 5 percent of our revenues come from Argentina at this point. But I have to say in total Latin America is a region that we've been in for 50 years that we've weathered a lot of volatile economies and you know the valuations in that market and I think we've got a management team on the ground that knows how to manage both operationally as well as the Treasury team here in New York that knows how to hedge currencies et cetera. We've actually seen a terrific year in Brazil in spite of all the pressures on the rails since about the first quarter last year. We've actually had a very strong year in local currency in that market and we look for the same coming up in 0 2. Argentina will certainly watch. But again I think we have a management team there that knows how to drive for share in every Latin market. We've been able to gain market share when the economies get tough. We

actually actively recruit more representatives and the number of active Representatives is up significantly in that region because as the economies get tougher. And whether there's unemployment on the rise or whatever the situation may be we offer earnings opportunities in those markets which is another wonderful advantage combined with our our brand here in the U.S. We heard not long ago that people weren't going to buy from door to door sales people anymore because they were scared to death about security issues. Clearly it hasn't killed your business has it affected it. I think that our business has really proven to show that what we call direct sales is not simply door to door. Lou I think it's desk to desk it happens in the office place. It's now laptop to laptop computer to computer we are Internet enabling our representatives as well. And certainly it's a high touch business still that relationships do count and we have worked very hard to modernize our strategies and our direct sales force and to make them more contemporary enabling them with better commission structures more training and

enabling them as I mentioned with the Internet and I think what we've proven now is the strongest growth and active representatives in the United States since that we've seen in a decade. It's been a real turnaround from the late 90s. So we're very very encouraged that our strategies are becoming very very hard realities in terms of the numbers. What percentage of your business is the traditional door to door Avon lady. Well our traditional direct sales business is well over 90 percent of our business still today. But again to say that there is one mode of doing business would be myopic I think it's a combination. The traditional Avon lady is very different today than she was 10 years ago even three years ago. She has incremental earnings opportunities in a program we call leadership. She can use the Internet. Now she has more training today. She's working in offices. She's recruiting out of state and she's doing businesses and a lot of fundraising as well. So there's a variety of methods that have increased her earnings opportunities significantly in this coming decade from the

last. How has the use of cosmetics changed in the past decade. I think it's changed in a lot of ways Lou. I would say one thing that has definitely changed is the advancement of technology. Color cosmetics for example used to be about great color and a terrific shade coverage it's now about technology. Lipstick has to do something it has to plump it has to reduce lines and I think that the innovation in the pipeline that's really fueled by increased investment in R&D and we at Avon have invested over 50 percent more over the last couple of years in our our innovation both in our skincare and color cosmetics categories and we'll be expanding that to haircare as well. But it's very important. So women want the products to do more. We've also expanded into health and wellness products. Beauty is being redefined by the 21st century woman we polled women all over the world and they told us that it's not just about how you look outside but health and fitness is also extremely important. So it helped us expand our product line to include products like nutritional supplements anti-stress products et cetera. But that's changing definition of

beauty for the woman today as well. But like yourself some of us are getting a little older each year. You had a big hit this past year with an anti aging skin cream is that going to be a big part of your business in the future. It is anti-aging skincare is a big part of our business. A new is our leading brand. It's over $200 million. We actually had a product last year that did about 100 million dollars in net sales called retroactive and that continues to be a very strong part of the portfolio but we're constantly filling the pipeline with new technologies. We just came out with an oxygen product in the fourth quarter that will roll out globally as we move into 2002. And our goal really is to bring more products to market quicker timeframe last year you announced plans to make inroads on the youth market. I have a granddaughter I'm sure her mother would like to know at what age you think girls should start using cosmetics. The younger the better for us in the business we are looking actively

at out launching a business. This would be a combination of a new brand geared towards younger women as well as perhaps a selling system that allows younger women to earn as well. But I think that women today younger women today are certainly looking at cosmetics and fashion and beauty products and they are doing that and spending more and more in terms of disposable income. So we look at whether it's 15 to 22 years old as a great new target market opportunity that we're currently not really servicing. Thank you and John. Thank you. When we probe further in our poll to see how much more jittery Americans admit to being since September 11th just over a quarter said they are now more fearful for their personal safety. Eight percent said they knew someone who perished in the attacks but the fear factor hasn't sent most Americans scurrying to buy more insurance. Just three percent said they had increased their life insurance since September 11th. At the age of

49 David D'Alessandro in May 2000 became the youngest CEO ever of John Hancock Financial Services. The Boston based company long known as an insurance Titan went public two years ago this month. David joins us from Orlando. David are you surprised that more Americans haven't bought life insurance since the attacks. Well I must say we were very surprised that more people have not fought life insurance. But our polling showed exactly the same Lou what we found is that people were certainly more fearful. But we think that what's happened is that to a great extent the economy has had a kind of cross-cutting problem of people deciding that they don't really want to spend money on insurance right now. We've seen sales pretty much flat this year on the individual side which we believe quite strongly has a lot to do with people's problems with disposable income.

You have said Americans are an odd group they don't like to talk about death. Who does. Well aside from aside from undertakers I don't think anybody likes to talk about it but people certainly are protected in this country. And over 40 percent of Americans today really do not have enough insurance to cover their needs in the event of a premature death. You've pointed out that the average American now dies at age 77. How much life insurance do you think is needed. Well you really have to take a look at your financial plan and make a decision that says the reason that 77 is an average is as a quarter of the people die before 77 and you have to look at it and say OK if I were to die at 55 How much does my family need. As if I were to retire at 65 and go forward. I think that's one of the big issues that's happened is the mutual fund industry has done a great job of convincing people that all they have to worry about is their retirement versus having to worry about premature death for

years indeed for decades the life insurance industry was notoriously slow in updating the products. What are you doing in that area right now. Well the products today don't resemble any of the products of even 15 years ago or 12 years ago. Many of the products today are wrapped around mutual funds for investment purposes as well as stock. We have second Ideye products. One spouse dies the other doesn't have to pay the taxes immediately. There are incredibly terrific products from both an investment and assurance standpoint today. Well John hand-cut now sells not only life insurance but mutual funds his every financial company going to be a conglomerate in the future. I don't think there's any question that we are going to end up having in the coming few years a tremendous consolidation of the banking industry and with insurance as well as the financial services companies. I think the question is who what and when but it's going to happen without any question the economies

of scale are going to drive this industry together. You've also said Americans today should be thinking about first protecting the wealth they have versus how to accumulate more. Well that sounds particularly cogent right now after a two year bear market. What does that mean that people should not be buying mutual funds they should be buying insurance instead. Well I think they should be buying insurance certainly for protection purposes but they have to be very considerate of being a lot more conservative in what they invest in. I think that after we've seen the pensions disappear at places like Enron and Polaroid as well as the stock market down 13 percent and S&P people today really are saying and all of our surveys. I no longer trust some of the investments I've had in the past. I just want to be conservative about investing or protecting the assets I have We're now just a month away from the start of the Winter Olympics you're going to be a major sponsor of those Olympics. What does that have to do with life insurance.

Well for for us the Olympic Games are a great boon for promoting our products but it's also for us a way to have our symbol John Hancock and our brand married to a great brand the Olympics it really works for us not only in Utah. But we just opened up in China for example John Hancock's brand isn't exactly well known in China but the Olympic brand is well-known. So we're really looking at it at both the domestic and international basis. You talk easily about brands you come from an advertising background yet you have criticized the life insurance industry for engaging in what you call happy talk. How else do you sell insurance. Well I think I think that insurance needs to be sold on a realistic basis. You're going to die you may die earlier than you expected. And why not protect your family versus all of this happy talk that I sometimes allude to that insurance companies advertise with and they want to advertise around positive events. Well that is not a positive event. It's a tragic event but it's an event

that inevitably happens to all of us and we should work to protect ourselves from that inevitability. David you may be the only person on our program tonight who thinks Americans should be more scared than they are. Is that your position. I think scared is not the right word. I think conservative and protect what they have is much more important than trying to accumulate wealth at a rapid pace. David does and Bill thank you very much. Thank you. The stock market has now been down for two straight years. For the first time since 1973 74 it hasn't fallen three years in succession since the Great Depression. And most Americans are betting it won't. Fifty seven percent said they expect the market to be at least a little higher a year from now up from 43 percent a year ago and only 13 percent are looking for another decline 37 percent said they'll be buying individual stocks. A slight increase from last year and 35 percent said they'll buy mutual funds which is actually off a hair from

last year with some interest rates at their lowest point in 40 years. Few expect them to down any further. Fifty five percent said rates will be higher a year from now while another 35 percent believe they'll stay about where they are just 15 percent plan to buy bonds treasury corporate or municipal in 2002. With me tonight to help you reach your own investment decisions are top flight experts on stocks bonds and mutual funds. Joe Battipaglia of Gruntal and Company is one of Wall Street's most prominent optimists. Doug Cliggott of J.P. Morgan Securities is as bearish as Joe is bullish. Alexandra Leventhal is president of the municipal bond company founded by her grandmother. And Don Phillips surveys mutual funds for Morningstar. So let me begin by asking each of you exactly where do you think the stock market is going in 2002.

I think the stock market will be going meaningfully higher. But to get there the war on terrorism has to continue to go in the way of the allies. And that is an open question for the U.S. economy after a year and a half of working downward will start to recover. Low interest rates and some movement in Congress will get this economy moving again. I think stock prices will be 25 percent higher by year end. Let me just stay with you for a minute Joe because a number of surveys this season have said that. Typical investors are expecting a lot less than that they're expecting single digit returns. You think they're going to be happily surprised. I think they will because like other recessions when we come out of them the stock market yields its best performance. So interestingly enough over the next five years a more normal performance of single digit returns is possible coming out of the recession will be the above average return. Hence the 25 percent. Doug has he convinced you. No he hasn't. We're afraid. We think the major indices are all going to finish this year lower than than they're starting. I mean our concern is there's a lot of optimism both about how

soon the recovery begins in the strength that it will have and when we're disappointed by the actual outcome. I think that's going to really put downward pressure on stock prices. One thing you and Joe actually have in common is that you're both far from the consensus which seems to believe that we'll have modest gains this year. Why do you think we're going down. Well I think your first point. Modest gains are very rare. The market usually goes up a lot or it struggles quite a bit. A single digit return isn't a common outcome. But again I guess our concern is reflected in some of your viewers believes if interest rates don't go down multiples probably won't go up. And if we don't get much in the way of earnings growth it's going to be very very difficult for the broad indices to rise. Alex what's your view. Well my view is that I'm actually going to go with the consensus and go with the 57 percent of the people who think that the markets will be a little bit higher this year. But the criminal factors in the

market and in the economy. That still post hangover from the Internet coming to an end. Terrorism and the downturn in the economy. I can't see so many factors conspiring to create for huge growth next year Don what do you think. I think the individual investors have it right. You know for years Wall Street chided the individuals for expecting double digit gains and yet it was the individuals who were right. That's what they kept getting the double digit gains. And I think now having a more modest slightly more sober expectations it makes sense. But to still be optimistic makes a lot of sense. So I'd go with the poll Joe Doug says that interest rates are not going to go down and it's going to be a disappointment. Do you disagree with those two points. Well I do. Particularly in the latter portion because we've had a 15 month momentary adjustment downward we've had earnings fall off a cliff in the year 2001. And I think the possibility for an economy that really accelerates through the year 2002 is a likelihood. And on the heels of that is earnings recovery and eventually capital spending and it's the anticipation of that that will drive the stock market higher. There's no doubt we have high

p ratios because we have the price to earnings. But with rates where they are in inflation down for the count we can tolerate a significant increase in valuation as we go into expansion. What would your recommended asset allocation be for the average investor. Seventy percent equities 30 percent in bonds. Hopefully you've had those bonds for a while because you won't earn much more than the coupon right now. And on the equity side make sure you diversified and have the leading growth sectors which include technology health care and financials. You give us one of the two those categories. Sure Intel is an easy choice in the semiconductor area for technology. Citigroup amongst the leading financial institutions. And of course we think that Johnson and Johnson and healthcare will have a consistent performance and earnings be on how the economy does that will warrant the higher valuation portfolios made a Band-Aid more or less they've been doing that for the last two years and that unfortunately. Doug where would you put your money to give you a darker outlook in areas where we can have stable earnings growth sectors of the market that aren't very dependent on a robust

recovery or in one cyclical sector that has very depressed earnings expectations and that's energy seems to me if we're going to get this economic recovery that everyone anticipates we should see some improvement in energy earnings and there's very low expectations there. What would you overallocation be 50 percent stocks 25 percent bonds and 25 percent cash if you think we're going to go down for a third straight year. Why have 50 percent in stocks. Because I don't think anyone can predict the future with a lot of certainty. I guess our mantra is really be diversified and be conservative. And since you mentioned energy what do you like there. Mid-cap stocks would be our favorite means. Philips petroleum is quite attractive. Valero a refining company. Pretty good margins. They should improve as the year progresses. Alex your firm is now branched out beyond municipal bonds so asset allocation is an appropriate question for you.

Asset allocation is actually the way that we've branched out so it is a particularly meaningful question and for us it's more than third a third a third. It's really you as an individual investor what are your goals. What do you have now and perhaps most importantly how does your stomach and your heart feel about risk and factoring all of those things will give you the correct asset allocation based again on your needs. Well I suppose your desire is to make some money well if your desire is to make some money. You also have to bear in mind that you're going to probably take some risk and that may be again a part of your proper asset allocation that's based on your personal needs. What was the range. Well a range of say if you're that person who perhaps on the younger side and looking to take some risk I'd probably be 60 percent stocks and 30 35 percent bonds and the balance in cash. As you get older would increase that bump. Of course absolutely or on more of a fixed income you have a need for greater stability and while you may not be earning more than a coupon that's actually what you depend on when you buy a bond is that coupon coming in. Your father used to tell me that he didn't try to predict interest rates. Municipal bonds were a way

to buy income. Are you bolder than he. I am builder. I learned from his mistakes and actually I would say that we're probably looking at a slight increase in rates this year. Obviously this last year rates went down so significantly but I don't expect that the Fed will take significant action again. I think it will take some time for the factors that will cause the economy to grow to get back into effect and so I think we're looking at just a slight increase. Is there any areas within this bill bones that you think people should be looking at especially. Well I think in general the credit markets people need to know more about the bonds that they're investing and whether it's on the corporate side where they need to understand the accounting and need to understand the off balance sheet risk that a company has or even in the municipal sector you do need to bear in mind what does the debt service coverage what does that issuer have if something should happen to it. But I do think of the municipal sector even with slightly lower tax rates you still are looking at taxable equivalent rates depending on where you live in the 8 to 9 percent range.

So I would continue to look at municipals done what's going on with business with mutual funds disappointing results very widespread. A slightly smaller number in our poll now say they want to buy them next year. Is the industry in some kind of crisis. I don't think so Lou. I think that the American public very much believes in mutual funds and you know when you've seen individual stocks like Enron collapse and you hear about the difficulties you can have with bond defaults it makes a very compelling case for mutual funds and the diversification that they bring. And what really impresses me is looking back at this last year is how well mutual fund investors have stayed the course. You know they haven't panicked as a lot of people on Wall Street said that they would if they've stayed the course and I think because of that they're going to benefit over the long term by being in investments for the long term and funds helped them stay in as usual food sturdier and more sensible than the big investors. That's absolutely right. It's a story we see time and time again. We're within the world of mutual funds. Think people should be looking. Well I think you want to maintain a diversified portfolio but you want to look at those areas that have been really beaten up. That's where the biggest opportunities come. And we saw that last year a small value had a great year this year

small value funds were up double digits this year. So it was a bull market for small value managers and yet that was the area that was the most beaten up back in 1999 and 1998. So now I'd be looking at a very different era I'd be looking more at the mid-cap growth area. That's an area that's been beaten up a lot. You see a lot of these funds down sharply. But I think there's a lot of upside potential there. You have a favorite or two that are like several of for more aggressive investors I like the strong growth fund for more middle of the road investors who are looking for mid-cap funds to reprice that kept growth is a very high quality diversified fund. And if you're a little more cautious something like Brandywine which is run by foster freeze which is more defensible position today but Foster has an ability to get back into the markets. I think that makes a great choice. Well speaking of a beaten up tech is conspicuously beaten up. How does how does that figure in your thinking. Well I think the way to play tech is through a diversified growth fund. I think it's awfully difficult for individual investors to pick individual tech stocks or to even pick the right time to buy a sector fund. But if you're in a diversified growth fund with a manager has the ability to go into tech but can also be in areas like health

care and other areas where you've got good growth. I think that's the best way to play that for the long run. I think it's interesting that all four of you from very different perspectives think that there is reason to buy at least some securities right now. We'll see what happens to the market as the year progresses. Meanwhile. Thanks very much to all four of you for your perspective tonight. One thing that has improved since September 11th is the country's view of its president. Our poll shows that George W. Bush's approval ratings have soared to an extraordinarily high 75 percent and perhaps less predictably the president's popularity extends to his side of the Washington economic debate. Fully two thirds of those polled said they would prefer lower taxes who expanded government aid programs but will now divided government give us tax cuts. Tom Gallagher who analyzes Washington for the ISI Group and is a regular panelist on Wall Street Week With Louis Rukeyser should know if anyone does. Tom what are the chances that Congress will listen to the poll.

I actually don't think we're going to get much at all from Congress in 2002. On the tax cut front or even on broader budget issues if they couldn't get agreement on an economic stimulus plan in late December with the aftermath of September 11th still on everybody's minds in the congressional adjournment pressuring them. I don't see how they're going to come to an agreement in early this year unless the economy takes an expected dip. So I really don't expect much in the way of macro action in Congress. I listened to the Washington rhetoric and I read what my colleagues in the media right and they tell me that nobody wants a tax cut with the rich and that we need lots more government aid programs. Are you surprised by these results. Well not really surprised by those results. In fact both parties acknowledge the need for both. Both parties had some tax cuts and some extra unemployment compensation. But the two parties did differ in their in their emphasis on it. But I think there are more people who would benefit from a tax cut that would benefit from expanded government aid. So it's not a big surprise that there were other poll results that were consistent with the one you found.

When the older George Bush was president. He squandered his popularity one more time. Many think that that the Democratic Congress as it then was by failing to cooperate with him hastened his departure. To what extent is the action in Congress Machiavellian and how much to what extent is it based on real principle. Well the next election is always on everybody's mind and in both parties and actually going back to nineteen ninety one of the things that really undermined then President Bush was his agreement with Congress to raise taxes. Is that raising taxes going into a recession. So it was probably as cooperation with Congress that hurt him as much as the failure to cooperate after that. I think when you have two parties as evenly matched in Congress as they are now the next election is always going to make agreement on tough issues like the stimulus package and tax cuts a really difficult one so the election results will have a lot to do with what happens in 2003. There you think we may have more action that could be depends on what the election outcome is going to be

and still we're still 11 months away from it. But there's not much reason to expect a change in either house right now. The Republicans probably hold on to the House Democrats probably hold on to the Senate but there's a lot of uncertainty if the economy turns out to be worse. It could be more negative for Republicans if Bush's popularity remains high. Could be more negative for Democrats so there's a lot of uncertainty. Even though the best expectation is for a status quo outcome in the November elections if that's the case is going to be hard to reach agreement on many issues after the 2002 elections. The polls indicate our poll certainly indicates that the president's popularity is extraordinarily high that his influence appears to be in domestic as well as in foreign policy. Does that extend to the world of Washington. Does he have more power than he did six months ago. I think it does. And I think you saw that in the amount of legislation that passed after September 11th. At the close of the session all the focus was on the stimulus plan and that did fail but it did pass a number of other pieces of legislation related to September 11th. And so I think it

in part is the result of his popularity. Thanks very much Tom Gallagher as always a very interesting view of a very interested Capitol. And we do have to stop with. Many thanks to my terrific guess to you for joining me in our annual look ahead. Which is never before come at such a critical turning point for America and the world. I hope we have help you make that turn. And let's hope that the next 12 months will bring you happiness and peace in your finances and in your life. I'm Louis Rukeyser. Wishing you. A much more wonderful. 2002. Louis Rukeyser 2002 Money Guide is produced in association with Kaiser television incorporated by Maryland Public Television made possible by the into. Markets may rise. Or they may fall. It helps companies prepare for the unpredictable business advisory services. The answer is people do get in to.

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