Wall Street Week with Louis Rukeyser; 0614; Economics & Elections

Oh. They're running for public road right. Now. Wall Street Week produced Friday October 1. Your host for Wall Street we got our panelists our Frank County alone Carter Randall and would you want to use

tonight's special guest is Pierre A running for a president running for re Associates Incorporated. Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well zap something funny happened to the stock market this week on its way to the all time record highs that were being freely predicted for just seven days ago and the hysterically funny thing that happened was a plummeting loss. The biggest shock the market has taken since its last great rally began last December. It was the 11th time this year that the Dow Jones Industrial Average had marched confidently over 1000 on each previous occasion the high altitude promptly gave the market a nosebleed and it retreated in confusion. This time the blow was the most severe of all. And it's not just the markets nose that appears to be bleeding. Exactly what caused the market's worst week of the year precisely one week after it had soared to new highs for the year. It's something we'll be asking

our experts who will of course know and Wall Street you see the only thing that is ever hard to explain is next week. Already though we have some clue as to what may have turned Wall Street's week into Wall Street Week. First was the announcement on Tuesday that the government's index of leading economic indicators had declined in August for the first time in 18 months. Administration economists rushed to explain that one month did NOT a recession make and that the recovery while undeniably fitful was not aborting all of which was undoubtedly true economists usually like to see at least three months figures before they will pronounce a new trend. But the news was scarcely thrilling either. For those already worried about the slow pace of the recovery or for those who believe right now that what's bad for Gerry Ford is bad for the stock market. Neither of you of course is universally accepted. Adding to the economic worries this week was concern about a rise in factory layoffs a possible new oil

embargo. A second straight decline just reported today in factory orders and internationally the apparently endless decline of the British pound the pound which before World War 2 was worth four dollars and eighty six cents. And just a decade ago it was worth two dollars and eighty cents. This week dipped to less than $1 and 64 cents before temporarily reversing its bottomless act on news that a four billion dollar standby loan was coming to provide a prop. When you throw in the political side of the picture which has been very much on the minds of some but by no means all Wall Streeters. You can see that the cloud that has been cast at least briefly over President Ford's past campaign financing did not make the market any more gleeful. It's a time in fact for steady nerves and cool analysis. So I have is my guest tonight one of the financial world steadiest and some would say nervy astute analysts. Every now and economist Pierre ran for eight. Well ask him whether it is indeed time to man the

lifeboats. But first let's women out and take a look at the high diving act that Wall Street put on in the week just passed. And as the Dow Jones Industrial Average indicates the plunge was swift and horrible to behold. Tuesday's eighteen point drop after the bad news about the leading economic indicators was the biggest since May 8 and Friday's ten point two which came despite some better news on the money supply wasn't much more comforting for the week. The Dow lost nearly 30 points the worst in 10 months to close at nine hundred seventy nine point eight nine and it was the same sad story for the broader composite indexes of the New York and American stock exchanges and the over-the-counter market. There was it's true some joy with the compilers of our technical market index have been growing more negative for three weeks and thus can claim sort of to have called the turn. A joyful Elf is a terrible thing to behold.

Conspicuously ignored by the stock market and it's Friday fall was the news of a record decline in the money supply. The sort of news which usually is taken as a signal that credit policy will now eat isn't the stock market rise. Just one week ago in fact the market had been rattled by the opposite news. So it may just be that even on Wall Street they've come to realize that one week's figures are not enough to build a crystal ball. I don't know why do you think the market stop smiling. Well Lou you've mentioned a lot of the reasons and so I have to add one more more selling than buying. But but to be a little bit more serious I think the announcement of those economic indicators being down. Made some investors very cautious about the outlook and they're taking a wait and see attitude to see if there's a trend beginning or whether that's just a blip. I may go back to what you said. You said more selling than buying people say from time to time it confuses viewers because in fact each trade has a Veyron a seller. I mean the sellers were more enthusiastic than the buyer will write more pressure

on the sell side and the buyers not reaching to buy is what I mean and that really is a factor in any product for that matter. One of the things about the economic indicators that was very very interesting was that one indicator housing permits was up rather than down as the others were. And that may be the beginning of a trend in a very weak sector of the economy which which could rally a very large part of the economy. I thought that was positive. Well glad you could find some ray of hope but weren't you a little discovered by some of the figures. Not really. Markets fluctuate Lou and I still think the basic trend is is on the upside timing. Sure it's very difficult on a short period. Bill waters Carter can be sanguine that doesn't hurt he's a buyer not a seller of docs that work for him the seller of stocks. You'd be a little worried when the market was down 30 points a week. Well there are two things Lou that could be added onto what Carter said number one volume came

down a bit on the downside. When you have heavy volume on a quick sell off you have cause for worry particularly technically because the momentum can run the run the market down I think it came down more than the the average decline was more than 7 million shares a day in the New York Stock Exchange as compared with last week or last week on when that when the market was blowing off on the upside it was very heavy volume so I think that was a good sign. The second thing is that this was the end of the third quarter. And people should take note that the institutions were window dressing their portfolios because they must report what is in their portfolios as of the end of the third quarter and I think you know what is window dressing for. Well you make it right. This is a family show. The what you do is you sell the ones that will look worst when you have to report so generally institutions will sell their losers and replace them with with better situations and this tends to put downward pressure at the end of each quarter so I think it was a fresh day of the quarter and the market fell 10 more points. I think there were factors in there again of uncertainty. A number of market analysts have gotten quite bearish after having been bullish and I think from now through the election we're going to

see a 9:30 to 10:30 trading range. I kept all these fellows are confident still. You get a little rattled some time this week when you saw the market plummeting. I really did. Honestly I'm puzzled and disappointed I really thought we were off on this move to break the old high and I'm not sure all of these explanations hold but on the other hand you know you never know what the market's going to do on a day to day or week to week basis. I think the most important thing that's going on right now and I keep on reaffirming it is long term REITs and long term rates continue to drift. I think this is the most positive thing in terms of competition between bonds and stocks and there's a certain amount of that you expect to see the decline in long term interest rates continue indefinitely long and I would say over the next 12 months I'm really sticking my neck out but I really believe this I think you're going to see something on the order maybe 75 100 basis points it could be as high as that certainly 50 percent quarters or 1 percentage point three quarters of one percent. The 75 basis points and I think you're going to see the opposite that long term rates will gradually climb as

activity begins to develop in our economy and to me it's a long term REITs that's a perception of inflation on the part of sophisticated investors. But I I really I really get puzzled when I see the market didn't think what it did this week. Disturbingly it really is OK. Now this is the point in the program when we usually answer questions my view is. But tonight just to be different We're going to turn the tables. And ask our viewers the questions. First though let me say that our panelists will be putting on their answer caps again starting next week. So if there is some question about investing that interests you just send it along to us that Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland 2 1 1 1 7. But now I want you to answer some questions for us. So get hold of a pen or pencil and a piece of paper and get ready to participate in the second annual waltz. We view or survey as the name implies we did this once before last year and the viewer response was so enthusiastic then that we thought it would be fun to try it again. The point of the survey is that we think your

views are important and the object of the exercise is to see how our viewers stack up as their own experts on the stock market. I'm going to ask you four questions and ask you to send me the answers I want to post card two weeks from tonight I'll announce the results. The first question right down to number one now is the one we're always asking our panelists and guests at the end of 1976 will the Dow Jones Industrial Average be higher or lower than it is today. Next to the number one write just one word. We don't need the question repeated. Tell us whether you think the Dow industrials on December 30 first will be higher than they are today lower or just the same now for number two. Which industry group do you think will have the biggest stock market gain for the rest of the year. Will it be widgets or a buggy whip So what do you tell us. But please name one group of stocks only now for an easy one. Have you bought or sold any stocks bonds or mutual funds in the last 12 months.

If you have bought you say bought if you've sold say sold if you've bought and sold say both. And if you stayed away entirely just write a new one. And finally Number four do you plan to buy or sell any stocks bonds or mutual funds in the next 12 months. Again one word will do make it worse or both. And if you plan to do neither or just say no. Now class A quick review. First post cards only please that's the only way we can get many thousands of replies counted quickly. Then write down on the postcard the numbers one through four and a one word answer next to each for number 1 tell us whether the Dow Jones Industrial Average at the end of the year is going to be higher or lower or the same as it is today for a number to tell us the best stock between now and the end of the year. But number three we want to know whether you bought or sold or both in the last 12 months. Ever number four whether you plan to do so in the next 12. When you've done all of that turn over the postcard and send

it to this special address viewer survey Wall Street Week Box eighty five Owings Mills Maryland. 2 1 1 1 7. That's viewer survey Wall Street Week Box eighty five Owings Mills Maryland 2 1 1 1 7. It should be fun and we may find out which side of the tube the real experts are on. Meanwhile let's go over and meet one of Wall Street's most colorful forecasters. Tonight special guest Pierre Andre. Pierre Welcome back. With a lot of you could come every day. Here Renfro is tonight making his third appearance on Wall Street Week and we have yet to spend a single dull minute with him. To run for as the president of Ren Frey Associates a New York firm that specializes in what it calls Economic and Financial Intelligence a commodity often in short supply. Before founding the firm in 1967 document for a surfer 15 years with Ronald and Company the last four as chairman

in 1972 Dr. Ron Frey appeared on this program as chief economic spokesman for President Nixon's campaign. But he had earlier been an adviser to Presidents Kennedy and Johnson. Yeah with all that good advice you were giving those fellows how come the economy wound up in such a mess. Well I think Lou there's one very simple answer I've yet to meet a politician that ever paid any attention to any economist. Economist are the lackeys of politicians and vice versa. Lest March Pierre you suggested that maybe we are paying too much attention to this election that whoever was elected we are going to be in serious trouble. And by the end of the year you said we might be back in double digit inflation. You still expect that. No I don't. I don't think we're going to have double digit inflation right now it's obvious the economy is slowing down and slowing down noticeably. But it's also obvious that the inflation problem remains with us and is not going away to say the least. The latest consumer price index was up six and a half percent annual rate in August was up 5.8 percent in

July and wholesale prices are rising at 6 percent rate. So we have certainly not beaten inflation in the country and it is continuing. I guess the Consumer Price Index is the figure that most Americans are concerned with what do you think it'll be next year. Well where we think it will average 6 percent this year and assuming wage and price controls it will average 7 percent next year. That's a pretty big assumption. Do you think we're going to get them no matter who is elected or is that contingent on the November 2nd is a no that's contingent on who gets elected prime the United States. You think that Jimmy Carter would impose wage and price control. Yes sir. I want to get back to that because that's an interesting question but I want to ask you about both candidates but first before I do tell me this to what extent is our economic future chipped in stone. You know you selected. Oh I think the whole economic future of the United States is based on who's the next president of the United States. Two very different scenarios two very different situations and the concept that it doesn't matter who gets elected the economy goes along anyway is just pure nonsense people get themselves on that. I mean the politics and economics are

not two entirely different subjects the same subject is called The French are honest about it they call it political economics. We did that in the 19th century before we got so smart we got we got sophisticated Well let's let's talk about these two candidates then who in your view are going to be decisive to our economic future and how would the election of forward change your scenario. Well. I think you've got to start off with a basic concept that what we've got. What the country has offered economically is what. What I would call the do everything's which are the Democrats and the do nothings who are the Republicans. You've got one group who have all heart and no intellect. And that's the Democrats and then you have the Republicans who are all intellect and no heart. Now if you just begin to think that way you begin to understand her economic posture. If we elect President Ford as the next person the United States I think we will see early on in his administration. Easy money policy for a while. Dr. Burns will feel confident. Chairman of the Fed will be there for much longer.

He will agree with the president that the major problem in the United States is the inflation problem. They will throw the brakes on the American economy. And I think we will have a relatively stagnant American economy for about three years with an extremely high unemployment rate and maybe at the end of three years with enough economic stagnation they'll beat inflation down of the two or three percent area in the consumer price index. I think the Republican promise is economic stagnation high unemployment in a long term effort to beat down inflation. OK you've now enraged half the audience for July 5 the other half. Yes Jimmy Jimmy Carter is Jimmy Carter is a fascinating man. He can't stand Dr Burns he wants him to resign obviously he said that in the debates and directly when he was asked would you ask Dr. Burns to resign he didn't answer but he then proceeded to say how bad Doctor Burns policy has been. I think Jimmy Carter stands for a very simple thing. He will get in. He will ease money rates extremely rapidly. Dr. Burns will resign within weeks of the presidency of Jimmy Carter.

Every president gets to appoint a majority of the Federal Reserve Board that's history and we will see great resignations in the Fed. We will see the kind of people when the easy money American economy will start to move forward very rapidly. Inflation will redevelop and then President Carter will throw on wage and price controls that will bottleneck the economy and God knows where we're going to go in 1978. I'm just baffled by one thing I thought a few years ago you were an advocate of wage and price controls. Ah years change the time change conditions change you will remember I said in 1973 when I was here that the greatest mistake that was made and I said this in the fall of 73 was that of course they went too far with it. They carried it they should've left it in a voluntary synopsis if you will. They didn't do that and they try to be cute and got us in the disaster we were in. Well if as you suggest and the choice is hard hearted high unemployment policy under Ford or a soft hearted high inflation policy

under Carter I assume that you're advocating a little heart and little brains what sort of thing you think we should be doing. Oh I think there's got to be a middle of the road but I don't think the American people are being offered the middle of the road I think we've got the ideology of the right. Which is don't do anything. Let it go in the ideology of the left which is do everything one offers us total control and regimentation the American economy and the other which is just sit there don't do one thing let it flounder now. We have no choice between them. Could you give us some specifics on the middle row in terms of the budget for our I'll give you a very simple illustration I think was Carter that mentioned housing. Housing is a desperate area in this country today. Housing is an area which desperately needs prodding and I'm not going to go in the complexities of it we've been studying houses. If you want to straighten the average American can no longer afford a house period. House cost forty six thousand dollars today the average American has to work longer and harder to buy a house than ever before. You cannot get the financing at a 9 percent mortgage. We need tax incentives for the consumer to buy a house. And yet the president will propose

it and Congress won't propose it. There is no question we are pricing the Americans out of the house. But if we give the consumer the same tax rights as we give corporations for capital spend we could stimulate housing where we've just had a new tax bill how in your view will that affect our future economically. Or why they get capital. Tax bill if the detrimental tax bill it's going to create more capital formation problems venture capital will disappear under this tax bill because you've got to be a fool now to make venture capital investments on the rate of return you get from them. And so I think we've seen ONE MORE tax bill which has the very rich What should once a strange argument soak the rich I'd like to know who all these people are don't pay taxes because. My friends that I've got that kind of income they're paying 70 percent and they're paying 80 percent. And all these loopholes that are so fantastic given it up generally in disaster areas. But yet we've got this philosophy of soak capital formation and denigrate capital formation and I repeat what I said

once before in 73. We still have the highest capital gains tax rate of any industrial society in the free world. How does how do your twin forecast neither of which is rosy. That the future of the stock market. Well my answer is that you remember when I was here in the fall of 73 we were one hundred percent of the stock market. We went back into the market late. We are now no more than 50 percent committed. In other words I've taken an absolute straddle position and the election of which candidate you think would help the stock market. Well I think Jimmy Carter gets in on the market into sophisticated they're going to see lower interest rates in the stock market a boom for a while then they're going to see inflation staring them in the eye and more government regulation and government control and then I think the scenario is obvious. Pierre you're just too much of a Pollyanna for me and at 10:00 you have an analyst out in the car and I want to get you back to housing for a minute I agree with what you said. I remember four years ago you looked to agriculture and you were really

right about that agriculture boom then expanded. Is it possible that make work programs could come through the housing area particularly if Mr. Carter is elected. Isn't that the obvious place. Well Carter the first of all I'd like to thank you for bringing up with something that he converses forecast correctly because we economists need that once in a while to keep us a lot to try to help. But I would I would say this you know I think the make work program of Jimmy Carter is going to be in two areas number one of the public employment bill the so-called full employment act in 1976 which is of course sponsored by Humphrey-Hawkins. But second of all believe it or not you ought to read what he wrote on solar energy it's the wildest thing I've ever read of any presidential candidate in history in this country. He's going to put all of the Carpenters and all of plumbers and all the people that work with metal and everything to work building solar energy in the United States and that's the most incredible thing I've ever read. So you're plumbers are going to be available in housing because they're going to be building solar energy and windmills

and I understand that Mr. Klein is going to be here one of these weeks I want to hear what he says about this great solar energy program the housing. People are talking nonsense in the house. They talk subsidizing rents. Forget it. It's been tried it doesn't work. What you need in housing is in sandals for the consumer to tax depreciation capital incentive a 10 percent write off the same rights industry is God so they can financially swing this unbelievable investment we're not getting it and everyone is looking at housing and saying it's too high priced and labor cost too much of material to do much and the land is too much and they all sit there and say Isn't that terrible. What are they going to do about it. I have yet to see a program from either the Republican Party or the Democratic probably party that says this is what we need to do in the house. You are though you know I don't think I don't think the public employments going to come from the housing sector I think I would expect it being kicked in the teeth by every negative factor in the American economy very frankly

here before we get solar energy we've got to live with oil for a long time. And. We've got problems in oil still in terms of our dependence on foreign sources there was a blanket scare again this week. There's talk of a sharp increase in oil prices in the Middle East maybe in the fall. Later in the fall. How do you factor in the oil situation the energy. Oh I've said that on two other carryons here I just consider that this country is so stupid when it comes to an energy policy that's pitiful. We've done everything we know how to destroy the discovery of oil. Everything we know how to discover incentives to expand energy production. We are absolutely knocking down hill steadily the production of coal. We have no alternatives and we are more dependent on foreign oil and foreign energy today than we've ever been in our entire history. And the government policy is dedicated to making us more dependent. The Carter nonsense on energy is a scandal a high school kid could do better. And the Ford administration is even worse because they haven't got a policy. So we've got it they're just great between the two of them. I mean they're leaving us in limbo as always it's the American

people who are getting it in the teeth were leading the politicians fool around in areas they don't understand. Well here aren't you being a little too tough on both sides for example. We've had a rising up curve on the economy that has to be due to some of Ford's scale in terms of his administration. If it isn't maybe the economy is you know completely self-fulfilling. And he don't you think that Ford deserves some Oh I think Mr. Ford deserves great Kudo's we just went through the worst recession in the history of the United States right now. That wasn't his fault that wasn't his fault no how could it be his fault he was there in 1974 and 1975 but the recession was in place really in 73 then OK you forgot he started with let's beat inflation after the recession that started using economic knowledge was so unbelievable it was extraordinary. I remember an assemblage of the economists Martin assemblage of a book of economists at that point you clued me out. Clued me out you know what. Yeah we only have about a minute left.

I want to say that we are going to have later this month as you suggested to us who are more enthusiastic about each of the candidates than you are but I want to ask you a more lasting question in the next month. Last time you were on this program you told us that you told your children to seek their fortunes elsewhere that America was no longer going to be the land of opportunity. Is that still your view. I think America is in a very long range trouble. No different than the trouble the rest of the world. And I said I specifically told my kids to travel. And they're still struggling to keep a foot in both continents. Yes or how do you how do the rest of us who may not be as gifted linguistically as you and your children go to school and learn how to speak French. And I mean is there any is there any hedge in gold or some of these other metals that people talk about. I think there are there. I don't think gold the only hedge but are there other hedges of course there are which we have about 10 seconds you can name a couple art. And takes silver. You think that people should buy hard goods rather than stocks securities.

No I think the heart of those hard goods should be a part of personal portfolios. TMF I thank you very much I said when you arrived and I thought you never had and never had a dull minute with you the record is intact and I want all you infuriated people out there to know that we are nonpartisan and will be presented other views of the months progress. If you have complaints please direct me to Mr. Wrenn. I hope you will be back with us next week when. Because by now just about everybody has learned as mistranslated suggested that New York is not the sole repository of financial wisdom but you may not know that one of America's leading brokers according to a recent poll works in Peoria. He's my next guest Joseph Kelley. You won't want to miss it. Find out what's playing profitably in Peoria. Meanwhile I'm Louis Rukeyser this has been Wall Street Week. Good night. If you would like to obtain a written transcript of tonight's program. Send $1

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