Wall Street Week with Louis Rukeyser; 1608; Hot Summer, Elf in the City

Whoa. LAURA. 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 spere Corp. for avoiding a high technology computer based systems solutions to the. Complex problems of business government and defense produced Friday August 22. Our panelists are Marty Gordon Burn a dead Murphy and Robert Stovall. Tonight's special guest is Ralph J.I. company vice president Kidder Peabody and company believe in I'm Lou if the guys are this is Wall Street Week. Welcome back. Well it was a great week for economic policy. If you happen to be a politician if you're not though and if your other habits are equally good. Perhaps you had better wait and see. But this was the week when congressional conferees

exuberantly walked through a massive change in the nation's tax laws to the unrestrained applause of just about all the establishment media. But to the owner he is of just about every serious economist in the country. At a time when the economy is almost powerful Blee fragile. The bill now walking its way to passage in Washington would eliminate many of the present laws inducements to the job creating investment so necessary to keep the recovery going. At a time when the nation's savings rate is at a historical low and the government's Social Security fund is heading for a crisis early in the next century. The new bill cuts way back on the paltry incentives to private savings that do now exist. And in the name of one of the most obvious miss in Washington financial history the fiction of revenue neutrality. This bill pretends to give people a tax cut by raising taxes on what the politicians call business.

As if businesses tax increases will not in the end all actually have to be paid for by people. But if you get roaring endorsements on the commercial network news programs and the covers of the newsmagazines why bother to worry about anything is real worry is real economics. When you can have so much more fun just playing politics. The final irony of course is that the coconspirators include one of the world's most unlikely combinations. Dan Rostenkowski the distinguished moral philosopher and graduate of the daily school of reform and Ronald Reagan the thrust of whose 1981 tax program this bill will almost entirely reverse. But in the mindless soak the successful atmosphere that prevails in Washington this election year the politics of envy looks like a much more popular play than anything so boring as the economics of actual world. I

hate to spoil a party that has George McGovern and Donna Reagan toast in each other. And if that doesn't scare you move to Chernobyl. But I hereby predict number one that this bill will have unexpected and unsettling economic effects starting in 1987. And number two that anyone who thinks it really makes the tax code simple eliminates shelters or represent so once and for all reform of the US tax system has been spending too much time and the Oregon timber. And has anyone noticed that while this vast and marvelous charade was going on month after month. Both Congress and the White House seem to have escaped virtually any pressure to do something really worthwhile like for example cutting spending. But gee those rates sound fine if you just say them fast and don't look at the fine print don't they. OK now that I have insulted just about everybody with power in this country let's turn to the financial markets for my guest tonight is a prominent

member of that strange breed who worry neither about politicians nor profits. The technically minded elves. But first let's check out the rascals in Wall Street. And as the Dow Jones Industrial Average indicates the market's rebound continued. But on thinning volume and a growing clash between the hope of further interest rate cuts and the fears that the economy may be stalling. Helped by the latest half point cut in the Federal Reserve Board closely watched discount rate. Most other indexes also gained with the notable exception of the Amex where so many energy stocks are affected by uncertainty about oil prices. As for our elves there come Atos another week of dead neutrality and their technical market index. Tonight in fact we're going to explain once again the late comers precisely who the elves are and what if anything they're up to. The week's losers included gold silver. And the U.S. dollar. The week's winners included the

Soviet Union which is asked to participate in next month's meeting of the General Agreement on Tariffs and Trade which was once supposed to be believe it or not an organization where free world nations gathered in the common interest to promote. I am not making this up. Free trade. Oh well maybe they can get together on an international tax bill. Marty Gordon is this rally getting a bit labored. Oh I think it is low I think it's been getting labored for a little while now but I think the market has had a significant change in its emotional tone strangely enough it developed out of the oil price increase which released PPI is or like some of the fears that apparently were around that the economy might tip over into recession and so the emotional tone of the market is much improved so even though the advance is Labor Day it's coming in an environment that's likely to see it try to move higher. I suppose if interest rates keep coming down that's good for the stock market has it. Well yes it would be good for the stock market but you have to start wondering why they keep coming down and I

think they keep coming down because of the struggling economy and because the economy is having difficulty and you have the strongest inflationary pressures present in the economy. I don't think that you're looking at an interest rate that is coming down that is going to stimulate the economy to hire more pronounced activity in the very near future I think the Fed is trying to do that but the EP It does far is certainly had not been too successful. You said this inflation which means a lower rate of inflation. Are you afraid of deflation where prices fall and where historically you have the fear of depression. Yes I would think the deflation is clearly a risk that's on the horizon. In fact I think what the Federal Reserve is doing at the present time is laboring mightily to prevent the economy from falling into recession which would be the result of such this inflict this deflationary pressures. I think what you're looking at is not the fact that the growth is being is it's not moving as rapidly as possible I think what you're looking at is growth being held down by the weight of those parts of the economy that are having difficulty and what the Federal Reserve is trying to do

is to bring it back up. Brenda Murphy you have the luxury as a technician of not having to worry about what the Fed's going to do technically out of this market. Well we do worry what the feds will worry anyhow as we worry anyway. Good for you and discount rates have historically always been positive for the stock market there can be lags in this particular instance and I think investors anticipated that the Fed would become more accommodative and have been buying the stock market for over three weeks now. So we're a little bit stressed at this point in time and I wouldn't be at all surprised Oh in a week or two weeks to see some profit taking set in here and we could be down 50 to 100 points very easily in the last or the next three months. September October November have a notorious record for corrections in the stock market so we could have some money even this year. Bob Stovall I was. Moderately critical of what came out of Congress this week but at least it clears up any remaining uncertainty I suppose but what's going to be in this bill and so it

should not be a positive. I think so. For example capital spending in its absence has been one of the things holding back earnings of all the heavy goods companies and it could very well be that lots of companies that were thinking about adding new capital equipment or starting new buildings will not do so even though the tax law isn't really in their favor because the so called uncertainty has now passed or will soon be passed. Burdett says few of the four of you share that concern. Well I look at history too as you know and we've we've had bad Septembers we've had October massacres. I personally think that the market is probably just going to swing in a trading range over the next two three months up at a hundred points maybe down 100 points. That's why I'm getting on the road with convertible bond sort of a hedge idea. Already this is the point in the program when we normally offer aid to the greedy in the form of answers to viewer questions. Tonight though we're going to give up those minutes so that your local public TV station will have a chance when we go off the air to suggest a very good place to invest.

Just a few of your own bull market profits. I hope you'll listen and respond generously. In return I promise to get back next week to answering viewer questions about the world of money. So keep those cards and letters coming 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 before we meet tonight's special guest let's take a look at the little fellows who provokes some of our most frequent questions and find out just who the elves are and just what it is they think they're telling us every week. Elves is the name I've given to the people who call themselves technical analysts the stock market followers who use the mysterious world of charts and graphs to forecast prices. Our own chief elf is Bob Newark a technical analyst and Wall Street analyst who puts together our technical market index and updates it weekly. The index consists of 10 indicators that are supposed to reflect changes in investor activity and psychology that will predict the market moves for the next three to six

months. And how would the elves have you interpret their signals. Well first you subtract the minus readings from the pluses the result is considered neutral. If that reading is minus 1 0 or plus 1. Plus to read it is thought of as mildly Bush plus three is supposed to be bullish and plus for strongly bullish at plus 5 or higher of the elves are yelling unhedged by now. For those who believe it works the same way and with a similar lack of guarantee is on the minus side a net reading of minus 2 is considered mildly bearish minus 3 bearish minus 4 strongly bearish and minus 5 or more sell mild according to the L's. If you'd like more detailed information about the technical market index the elves own most recent explanation will be included with this week's transcript. While the elves are no more infallible than any other poltergeists or prognosticators they've had more than their share of bull's eyes

and match the strongest buy signal of their history at plus six on August 13th 1982 right on the eve of this historic four year rally. Their most recent sell signal was on June 17th 1983. The Dow fell 87 points in the 11 months that followed that one. On May 4th 1984 the elves issued another buy command that preceded the Dow's hurdling over seventh century marks and rising as of today more than seven hundred twenty two points. Not a bad call. But now let's meet one of the leading outside elves in the business tonight special guest Ralph J Akon Porter. Ralph welcome back. Thank you. Nice to have you with us again. Well if I can pour is truly an elf selfie is one of the three founding members of the market technicians Association. In 1980 he moved his charts and cauldrons from Smith Barney where he had been telling me in the market demons for 11 years to

Kidder Peabody where he is now the head of technical research. What's more for 16 years he has taught the primary class in technical analysis at the New York Institute of finance where as an official biography put it he is the one most responsible for creating new elves and is very proud of it. Well Ralph tonight you have a chance to create new wells among 10 million viewers. Let's start by asking you whether you share our own Elvis current neutral reading of the market. Yes I do and then the reason why I do that is we've had a very exuberant rally over the last couple of weeks and I think prudence dictates that the market will probably back off a little bit. But once we think that's correction is over we think the market move higher. You got a lot of attention when you said that this market in the 80s look to you an awful lot like the market in the 20s. A lot of people immediately thought of 1929 What were you thinking of. No I wasn't thinking in 1900 I was actually thinking the early part of the 20s more like one hundred twenty six to one hundred twenty eight. And so far it's been a mirror image Lou and it's very very exciting and it looks like this year should

be higher with new highs in the Dow. If we were where are we in the 20s in the 20s if you would have followed that analogy you'd be in the mid-1980s. And what would that suggest in terms of how much farther this move might well that would suggest that the Dow this year would end at somewhere around 20 to 50 and then next year around three thousand eight hundred fifty. Well that's when I was an eight hundred fifty. Yes next year. Yes but I have a problem with that because it would mean that I have no problem with it. Ideally if it were to follow through and that would be determination of the bull market and we don't see long term terminations signs of the Belmont What are the signs that will tell us when and when we terminations is near and you know well first of all I think you have to see a lot of excess public speculation. I think you'd have to see terminations of the move in utilities. There are many factors that mitigate against the terminations of this bull market. Rob let's suppose somebody out there an apprentice elf perhaps says if Ralph Acampora says so it must be SO WHAT DO I BUY. What do you tell him.

Well I still stay with the quality. I would stay with the stocks that were leaders in the past several months and I think they will resume the leadership talk about like Westinghouse and the Dow Jones Industrial Average American Express or Philip Morris. These are key Dow Jones industrial average stocks. Triple M and Merck are also in that average And I think they will support the Dow going to new highs as far as the former leaders in the insurance area coming to the fore. We like American International. We like some of these depressed biotechnology stocks like Biogen. Two weeks ago we saw the market turn. And I think the breath of the market is improved that we're starting to bring new names and new groups to the fore and that's that's impressive. What do you hate. I think it's too early to be a big buyer of the capital goods sector. I think they will participate here I think the secondaries will rally the tradeable but not investable low. I think next year you might want to switch out of the consumer's into the capital goods. But for now you think that people write in the well-known blue chips can find good buys still yes. Oh yes I think that the blue chips are the backbone of the bull market and if we're right the Dow goes

to a new high this year they will be responsible for that move. Remember folks this man might be right. Now let's turn you over to our panel thought it might be good. If you get that change in leadership that we're talking about you're talking in terms of the Dow moving a strickly forward there and you do come into the capital good to begin to come in with a couple good theory would you regard that as a negative factor or would you think that would you think that's a signal that the Dow or the bull market is beginning to come to an end. Well that kind of change in leadership will probably happen after a pretty good move in the market and I would think that the Dow would probably be exhausted and would be set up for a correction and then that correction the current leaders would lose their luster and then you'd want to get out of those horses and into a new set of leaders. Yes it would be the terminations at least near-term for the global market move in the Dow. Well. Over the next four months how would you rank these four industry groups for performance or oils. Computer manufacturers. It's a male's and insurance stocks.

OK oils I think a tradable especially the domestics the internationals or investible they've done well and I think they'll continue to go you mean but you buy myself I just I just don't trade them and buy them. I be long on the on the on the energies the computer stocks. I think if we're right near term on the market after a correction we go high I think they are also tradeable. That's the Motorola was and Hewlett-Packard's of the world I think you're a third group was that SNL SNL. Same story I think they should benefit from declining interest rate and so then environment is good near-term for SNL. And lastly insurance stocks we look at them as beneficiaries of interest rate environment and I think they'll also do well. Thank you Ralph you are one of the prime Dow theorists and the Dow industrials are in new high ground as are the utilities of the transportations have been liking just what does that mean to you in simple terms. Well the Dow Jones Industrial Average went to new highs over the May-June period and into early July and the transportation average did not in the deck in the Dow

theory Paula is that they are virgins and calls for a correction that's exactly what happened. So I think Dell theory work very well. But on the decline bought the transportation everyone should new successive lows with the industrials didn't so on near-term basis that's positive not confirmation which says to us that it's just a correction and not the beginning of the bear phase. On another occasion you compare this market to the late 50s and early 60s when there was a good sustained rise that was not followed by a crash. How do we know which one this is. Well I think it's the late 60s early 60s and one of the big reasons for saying that Lou is that the quality of the leadership then is still the same today at that time we had the backbone of the leadership was utilities food. It was insurance stocks it was drug stocks and they move that consistently year in and year out in the utility stock so that might be peaking near term usually peak out in a major way a year or two before the bull market in so we're kind of kind of encouraged by that leadership. Aside from your reading of historic parallels what are some of the other indicators you've been looking at.

Well we like to look at sentiment statistics that say you know all of the other the hallmark card to me in this you know. Now we're talking about insider activity we're talking about smart money like the member short sale ratio where we like to look at the volume statistics it's a flow of funds you want to see where the action is going what groups and what stocks. And lastly momentum itself you know is the market building up and gaining momentum a waning a momentum and I think all three factors are important in our final conclusions. But in the short term you're hesitant wife. Well only because the market has done well and it actually is headed in the direction we want. We we feel that the market will be 150 to 2000 by late September early October. Just a little bit faster than we would like to see and I think on that basis it's just probably hesitate a little bit. And we just don't see that there's a lot of talking people trying to talk the market down we think there's an awful lot of cash out there and the sentiment I think will move aside how much lower do you think we might get before we start moving up again near term. Oh I don't know maybe 20

30 points from here maybe back to eight hundred forty eight hundred fifty going to be a shallow correction. You said you expected interest rates to continue down. Are you very bullish on bonds. Yes yes we think the old highs in bonds will be eventually breached. And you think this economy is going to come back obviously if you have a look at that Yeah well I'd say probably early next year old next 1984 and that's where the capital goods and Ariel start to play a big role. Thanks very much I have a computer and I you know why this man is considered such a great teacher. He also speaks little English which is nice. Thanks to the panel. Hope you will be back with us again next week. Then we're going to look at the financial effects of one of the biggest issues facing America now the liability insurance crisis that is raising prices and limiting services. My guest Michael Flynn quickly will talk about what this controversy is doing to the insurance industry and to what stocks you are liable to find it interesting. Meanwhile this of them awfully weak. I'm with you guys tonight. Wall Street Week With Louis Rukeyser has been brought to you by a public

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