Wall Street Week with Louis Rukeyser; 1527; The Return of Lou's Dad

Oh. And. Yeah for Wall Street Week With Louis Rukeyser brought to you by a public television stations and by Hilton Hotels America's business address and its subsidiary Conrad international hotels competition makes American business Xcel Prudential Bache securities the investment firm with rock solid resources that's leading the way to the Future for Investors. And the

Sperry Corp providing high technology computer based systems solutions to the complex problems of business government and defense. Produced Friday Jan. 3. Our panelists are Howard people whom Gail Dudack and Julius Westheimer tonight's special guest used Merrill as Rue Kaiser financial journalist. That I have and I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well this was the week when we finally found out what the nation's biggest economic problem is. It's not underconsumption it's over a prediction. Everybody and her brother. Were out there telling us exactly what to expect this year for the U.S. economy for the financial markets and for the price of potatoes in Patagonia. Never mind that for most of them any resemblance between any of their

previous predictions and what ultimately came to pass would have to travel even to qualify as coincidental. This was the week when apparently the only way to prove to the world that you actually had completed the fourth grade was to issue your very own forecasts for the US economy where the field was so extensive that even the government's own economists previously employed primarily as ship builders on the Titanic. Were allowed to take part and nobody laughed out loud. Ignoring the fact that their earlier forecasts I wound up looking more like three casts the administration's medicine man informed us that the economy would grow this year by 4 percent. Notably more modest than last year's forecast from the administration's long time chief economist Professor rosy scenario. Those somewhat better than the economy actually did. Perversely though Wall Street most of which properly regards said government economic forecasts about as seriously as it regards the Easter Bunny decided

that real growth would in fact again be slower than the bureaucrats claimed and that that was terrific since it would help bring interest rates down even further. And so the stock market began 1986 on the assumption that one good year deserves another. Shrugging off a rash of jitters on the first trading day of the new year. The market closed the week with gains that brought all the major averages within shooting distance of brand new records. The big news indeed was that the so-called broad market which takes in all those funny little stocks that your uncle Charlie talked you into buying was finally moving faster than the stodgy old blue chips that you thought were too boring to buy buy if this keeps up even Charlie selections may get back to where you bought them. Meanwhile back at the economy the genuine news as opposed to the overproduction continued to signal slow growth. The government's index of leading economic indicators helped mightily by the surge in stock prices managed to turn in its seventh straight

monthly increase which means the doomsdayers will have to put off their forecasts of imminent recession one more time and the ultra pessimists again prove as long as the governmental over optimists when factory orders new home sales and construction spending all turned up. We tonight will get a longer range look at such passing statistics in the company of a very special guest. I first had my father as my special guest on this program 18 months ago. I said that I was breaking a lifelong rule against practicing nepotism because of his name had been anything but Rue Kaiser. He'd have been entitled to an invitation in his own right. Many years earlier. Well your response was unbelievable. We literally had more rave letters from viewers about him than about any other guest in 16 years of Wall Street Week. He did so well that I told him we'd have to do it again once a decade. 18 months of course is not a decade. But tonight on the day he enters my 80th year I thought that was close enough and I hope you'll agree.

But first let's check out the kids in Wall Street the Dow Jones Industrial Average after faltering on either side of the New Year close with a surge that brought it within four points of another record up about six points for the week. Fifteen forty nine point two zero. The broader averages all participated healthily. Indeed the Nasdaq over-the-counter composite has now been up 14 weeks in a row. But on guard friends the elves who compiled our technical market index have slipped to a strongly bearish minus 4. That's their darkest reading in more than two years when the Dow was 300 points lower. But the little fellows caution that they're not advising you to sell till they get at least to minus 5. Whatever their ultimate counsel those who stuck to the Elves by an A-hole device in 1985 did fine. According to Wilshere associates the value of common stock last year rose by a record four hundred sixty two

billion dollars or more than twice as much as the federal budget deficit. I certainly hope you got your share. Because it was a time to cash in and sit out for a while. Not yet Lou. I think it's going to be very hard to have a year like 1995 where earnings were down 5 percent and all the averages hit in the 20s in terms of appreciation. The question for 1986 is when to leave the party. I think it's too soon right now I think that the downturn of a magnitude of 10 to 15 percent in the averages will come sometime in say May or June. Right now you have too much forward momentum to stop the spying and you have individual time an account buying season. I'm optimistic short term. What's your feeling about interest rates not being over the next year. I think that they will go slightly lower and that is the other key input the market I think will turn when interest rates turn upward. That's what drove the market upward in the last two years has been the decline in interest rates and I would say interest rates are the next the next move is

down. You were part of a blue ribbon group and I had all three of the panelists here tonight. I had spectacular years in stock picking the list you gave us a year ago in every case beat the market averages even though you want allowed to fiddle with them you were up by thirty five point five percent. Julius Westheimer to whom I now turn was up thirty five point four percent. And Gail Dudack was up thirty three point four percent. So you all can take a low bow. Joyce I have to commend you for something else. We also let people predict the Dow. Some of them say that's a guessing game that there's that's just luck. Clearly they don't have your technical methods because you predicted that the low for 1985 on the Dow would be 11 85. The actual low on the Dow in 1995 was eleven eighty four point ninety six. Now why did you missed by 400. Lou that's not luck that's skill

you know I work alone like computers which I don't know how to use but I'm glad I did something other than those in the know. All through the year you were you were kind of gloomy but you would hit the low right on the nail. Well I feel now Lois that the market has virtually doubled as she said a minute ago. And I feel unlike Pete that it's time to really peel off a few stocks. I don't think the world's coming to an end. But here is what I'm worried about. I think that some unexpected event could topple the market. And we always have one sooner or later. Heaven forbid the president should wake up with a pain in his chest some night or heaven forbid a foreign power should shoot down one of our 747s either by accident or not by accident. Maybe the Federal Reserve won't lower the discount rate or heaven forbid maybe they're going to raise it. We don't know. I'm not saying these things will happen if they could. Well that sounds reasonable. You told us 700 points go to sell half our holdings. Do we not sell the other half or half of the half. No we don't. I was clearly wrong

back there. And people who followed me did leave some money on the table. But in this stratospheric point that we are now let people relax and enjoy the gains they've had in 1900. Would you sell half of what you have now. I would sell 10 or 20 percent of it yes and put it into some high yielding either tax free bonds or Ginnie Maes depending on tax brackets. You think that one of the things is OK to use your money for us to sleep at night. Yes I think it's something that's very important in our industry. You know the next. Congratulations on your. Excellent year as the only acknowledged technician here tonight we're anxious to get your view of the technical condition of the mark as it starts the new year. Well I see the market the market has been in a correction for six weeks now. One of the things that that I think is confusing is that the Dow is only 30 stocks and it has been gone been going up. But in terms of numbers of stocks we saw that trend of that upward trend peak six weeks ago. So we've been having an internal correction and I think they were probably halfway through it

before we'll have another leg upward. And I agree with what what Pete was saying about you know we're getting into IRA funding and KIO funding and I think we see some positive supply demand trends in place now that should carry the market higher and that's going to be your big question is how high. And if you don't see a big January sell off a well no I mean we're starting January in a correcting mode and you know I just have a January being a predictor of the year it's going to be interesting to see how January goes because I think the next week or so will continue to be a correcting period correcting mode is one of the new ice caves I think in any event it is time now to make sure that our viewers have a happy and prosperous 1986 Pico home while public attention is focused on that. To add a billion dollar budget deficit a number of us are concerned about something 10 times as large as that our national debt. For example John Prince of Fullerton California would like to know specifically who it was that to a trillion dollar debt and to whom Louis Mogavero of McLean Virginia wonders whether there's any serious plan to reduce not just the

yearly deficits but the total debt. Well there is absolutely a great question and probably the most significant one in the fiscal area. Thank you some of the facts are real clear some of the implications of the facts I'm going to say are very ominous with regard to who owns that that 10 percent is by foreigners and mostly foreign governments. Twenty five percent is the government itself. And the other 65 percent is domestic primarily institutions. What's very important to recognize is that our total debt was about one trillion dollars in 1980 and today is two trillion dollars that means it's twice as big as what it since our history we'd accumulated by 1980. The service on our debt. That's the interest cost is about 200 billion dollars or the the amount of our deficit. We are simply taking in $4 and spending five like a South American economy. Nothing serious is being done about this the the Gramm-Rudman bill at best says we will

not let the deficit get much bigger five years from now. I don't see us really addressing this problem the person will probably blow the whistle will be foreigners who will say I won't lend you any more. They are the ones and the outcome will be significant inflation or lower standard of living in states. We're simply living over our heads. And that's the problem. Thanks for your consolation Starmer There's a story behind this next question a few weeks ago I got a question from a student in Mr. Huddleston economics investment class at the Central School indulge Bill in New York saying that the teacher would promise the class a visit to the New York Stock Exchange if I use the question. Well the question didn't make it but the class was undeterred. And I've now received one question from each member of the class and since a human being can surely have no higher ambition on this planet than to make a field trip to the New York Stock Exchange I'd like you to answer Regina Bravo who is interested in pursuing a career in the investment field and want some advice on the type of curriculum she should pursue in college.

OK good luck Regina. I think first let's talk about the obvious things she should take in college. Certainly a course in economics. Certainly one in political science. I would certainly take one in history because so much of what happens is a repetition of the past and may be statistics or accounting. But as important as any of those I would take a course in English not necessarily Shakespeare or Chaucer but how to communicate the skills she has learnt. You can know all the economics you want but if you can't communicate those to your superiors and your peers and your subordinates and to the public you might as well not know the skills so I would certainly not neglect communication skills. Already Gail Dudack Dal Brock of St. Louis wonders if there's not an investment opportunity in the national problem of overcrowded prisons. He says he's heard about private firms that are either running their own prisons or contracting with states to manage existing facilities. Is it an inside job here.

Well Lou there are there are companies like our seeing control data have minor interests in this but there aren't any yet publicly traded companies that are pure plays but the companies like correction Corp. of America behavioral system Southwest and American correction Corp. of Orlando Florida are all pure place in this area and I think all three of them have a good chance of going public in 1986. It's an interesting situation because right now there are only 15 1819 correctional facilities that are being made just way out of maybe 8000. So there's some growth here potentially away already. Now if you would like to lock up some profits in the big house on Wall Street there are no bar to start trying to turn your to the 20. Give us your convictions a sentence will do and will try to rehabilitate your finances. Send your pleas to Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland 2 1 1 1 7. Now let's go right over and meet tonight's special guest Merrill Stanley

Rukeyser. You're. Welcome I. Thought I recognized you. You know remember I met you at your mother's house. Mostly because I spent a lifetime proving that age doesn't matter. At 23 he was financial editor of The New York Tribune. Subsequently writing a nationally syndicated newspaper column for more than 30 years and pioneering in other media as well. Tonight on his eighty ninth birthday he's refuting the other end of the chronology myth with equal vigor. Well enough of this age nonsense what have you learned in 89 years that might make us a buck in 86. Not to look backwards. Is this something your motto. When I was a general reporter on the Tribune before I became a financial writer. If I could cover the fire accurately they didn't expect me to predict how many fires are going to take place the next year or two. If I know as many people think I know exactly which stocks are going to rise how much on specific

day I'd have the Morgans at my place. Well these fellows are overprotecting must be philanthropist and that's right. But seriously I'm against knee jerk reaction. Two events. I think the Government's made it unprofitable for the investor to become a trader because if you have a long term capital gain you have the open question whether to sit stand pat and let the depreciation of the capital gain or to sell. So that I think we ought to restore a little of the old fashioned notion that you use common sense in the market that you stay with companies that you think are well-run well-managed and honestly conducted and have a future. How about companies that pay dividends. Well if you if you want to be like George Baker

and plan to emulate him in one respect he said the examination was to be able to live on interest and dividends. Well nowadays they've modified that and they say you're supposed to live on interest dividends and capital gains. But sometimes you also the market fluctuates Sometimes you have capital losses. And I found that when I go to the supermarket they expect the green stuff. If I tell them I've got some unrealized capital gains they don't know what I'm talking about and they won't give me the margin but it's the big story this past year. And the economy was all the corporate mergers as we have had this before. We've had mergers before but I think. Some aspects of it that need a little straightening out. I think it's a conflict of interest when management puts itself in conflict with the stockholders and makes a leveraged buyout that they've been hired to work for the stockholders not to trade against them. How would you deal with that. We need more government regulation of these. I would hope that we'd have

a sense of ethics and business. When I was a youngster I had retired from the ruck when news of the when I was an undergraduate at the age of about 17 or 18. A few years later a fellow student at the School of Journalism inherited money and told me that he heard the paper was for sale and asked me if I had taken down the Iraq way and introduced him to the boss and the Mike McNamara and Mike had a sense of ethics. You didn't need government regulation he said to me on the side. Well I wouldn't sell it to the kiddies and dry behind the is and he said if you want to buy it I'll take notes and so forth where ethical standards higher than you think. Well I don't know where they were high but I said I can't do that. I came to represent my friend.

You talk a lot about the president should watch last time you were on. How's Reagan doing it a second time. Doing all right but I hate to quote myself it's a very bad habit because if I didn't was honest I'd have to quote the arrows as well as the hits. But I did say last time you were gracious enough to have me done here that if you take my advice he would say to the electorate in the election don't vote for me again unless you like my ideas and my plans and will support me with members of Congress who think likewise. But he was more interested in winning one of the states I think would win by the 40 of the states. And have more congenial House of Representatives. But we'll try to give you advice more respectful here and here let's turn now to our panel Tyler Pico who Meryl all parents have great expectations for their children and you have to be very proud of the accomplishments of your four boys who have risen to the top of their individual professions. What kind of advice can you give

younger parents so that their children might succeed as have as well as yours have freedom as persons and not as automatons. And talk to them as persons. When my oldest son was our only child instead of cooking googling good to him I'd talk his trade in this when my friends thought I was a bit wacky. They'd say that kid doesn't understand what you're saying but he picked up a vocabulary that way. But the only advice I could give other people certainly not the advice giving been with having made enough mistakes on my own. My advice is always encouraging people never discourage them. If they deviate from the standard good behavior don't say you're a little bum. Say you're not living up to the standard you've set for yourself. Narrow during your lifetime you've met a number of investors and you've written about a lot of investors I used to read your column. In your opinion what is the greatest

mistake most investors make that cost them the most money. Well they think that for $35 a year or a little more or less they can buy wisdom and avoid what the sociologist Graham Wallace called a terrific panes of thinking I think a little common sense is more important for the stock holder than reading the spots on the moon or fives on the sun and the ones before there were spots of them that's the Chanticleer complex and rhinestones ply. Remember the cock would crow in the morning and then the sun would rise and the roof to fill up is growing cause the sun to rise. So I think I have a lot of respect for they. A small investor the fellow who is dealing with his own funds rather than this these collectivist organizations of clerics known as institutions where they all do the

same reaction the same time. And if they if an outstanding cooperation continues its growth grows a little slower than some ignorant analysts would grow. They all want to sell it at the same time. And I remember when Westinghouse made some very bad contracts and they were Iranian inflation made them serenely profitable. That wasn't a knee jerk reaction that everybody who was smart dumped the Westinghouse on the market for what I would bring the proper question to ask was Will this company be able to survive this mistake. A lot of forecasters stock market forecasters are making some rather scary comparisons between what they see going on the market today in the 29 or the late 20s. You were around then and we have some similarities of farm crisis and real estate prices going down but do you think we face scary consequences like that we do in that period.

We live in a risk oriented society and I never want to minimize the risks but the doomsdayers are crazy because if the world's going to come to an end three years from now I don't want to be all in T-Bills because I won't let the government find some way of not giving me all the goods that they will bring. And I thought that the time when Kennedy and Khrushchev oaths looking eye to eye that people are kind of silly shifting from seasoned stocks into short term paper cafe that if they were going to really use the hydrogen bomb to destroy us what difference does it make whether you had equities or whether you had short term paper. I don't mean to be a little adjusting your portfolio to changing conditions as you foresee them but I think these people who are selling books and so forth by scaring people to death

are crazy because if they're if they're right or not you could have a free ride by taking the opposite position with Nellie out of town time. I got asked one that last question were talking only about the budget deficit. What's the most important thing to do if you want to get them. It's been less. Would you spend less on defense for example would you spend less on Social Security those are the sacrosanct areas. I did an article and you have to have give me this in about five seconds. I would spend less on everything in your personal budget. You omit certain things that are very desirable but which you can't afford. Thanks very much for being my guest now Stanley because I hope to see you again one day. Thanks to the panel. Hope you'll be back with us again next week I guess that will be the manager of the nation's best performing mutual fund over the last 10 years. Peter Lynch of the Fidelity Magellan Fund will be asked him how he does it year after year and how we might do the same for ourselves should be mutually beneficial.

Meanwhile this has been Wall Street Week. I'm Louis Rukeyser tonight. Wall Street Week With Louis Rukeyser has been brought to you by. Public television stations and via Hilton Hotels America's business address and its subsidiary Conrad International Hotel competition makes American business Excel for eventual baked securities the investment firm with rough sort of resources that's leading the way to the Future for Investors and this very corporations providing high technology computer based systems solutions to the complex problems of business government and defense. For a printed transcript of this program. Send $3 to transcripts Wall

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