Wall Street Week with Louis Rukeyser; 0921; Grand Old Man

Do. Or. Do. This program is made possible by a grant from the Martin Marietta corporation and by this and other public television stations. OK. Wall Street we

produced Friday November 23. Your host for Wall Street Week is Louis Rukeyser Our panelists are Eddie Brown Robert Murat and Carter Randall. Tonight's special guest is Ed sin Goulding chairman of the investment policy committee at the metrics incorporated. I'm going to name I'm Louis Rukeyser This is Wall Street Week. Welcome back. This is a kind of special night for us around here because tonight we begins its 10th season on the air and that gives us a legitimate excuse to toot our own horn for a change and think for a minute or two about all the wonderful things we've done for the American economy and the stock market in the 1970's. I don't want to make too much of it you understand self effacing is our middle name around here. But honestly think what a terrible decade it might have been if Wall Street we could not been on the scene in your behalf. Why the American economy might really have

been a mess without our weekly guidance. We might have had very little inflation. Recurrent recessions spirally of interest rates and a tumbling dollar. Now seriously I know it sounds ridiculous in view of the prosperity we actually brought you. But all of that might have occurred in the 70s if we hadn't been around to stop it. I guess stock market investors don't have to be told how wonderful our contribution has been there. Why if whilst we hadn't been around to keep an eye on things and make sure that everything ran well the 70s might have been a horrendous decade for common stocks. The Dow Jones Industrial Average might have gone in nominal terms absolutely nowhere. Have failed even to keep up with the rate of inflation. And all you happy investors who are now swimming in riches might have turned into quite a suitably cruel indeed. Now I don't mean to boast but honestly folks don't you think you owe us at least a little vote of thanks for the remarkable job we've done with the American economy in this decade. But never fear humility will continue to be our watchword. We make it our middle name if we

didn't already have one. And difficult though it might seem to the gray mass of ordinary men. Will try somehow to bring you an even better economy and market in the next decade. After all even the Edsel could have stood some improvement. So happy anniversary yourself we wouldn't be here without you. And bring on the 1980s. And folks my first guest of the 10th anniversary season could scarcely be more appropriate. He said some Gould dean of Wall Street's technical market analysts and a man who is ready tonight to unveil a startling. And almost unbelievable scenario for investors that he thinks will play in Peoria. And Portland and Pacific Palisades in the decade were about to begin. You can be sure that as usual we'll give it all the stewardship we can. But first let's see what we've done for you lately by scanning the results of what actually did occur in Wall Street in the week has passed. And as the Dow Jones Industrial Average indicates the market continued to hold steady this holiday week

despite some roots scares growing out of the tense situation for Americans in Iran and Pakistan a rally on Friday we do see the Dow's loss for the week to less than four points and the average close that eight hundred eleven point seven seven. And as it frequently has lately the Dow understated the strength of the broader market. The composite indexes of the New York and American stock exchanges in the over-the-counter market all stand tonight at their highest levels since early October. And look here are Elves are getting restless at last. Their technical market index that plus three is giving its most optimistic reading of the year. Within two notches of an outright buys signal. I told you those elves would finally get to work when Christmas was coming. Meanwhile back of the economy there were some additional signs of moderate slowing notably in housing and consumer spending but the government's overall third quarter figures for growth and profits were still surprisingly healthy. A similar diagnosis could be given for the dollar this week. Despite the international strains and the

gold market that customary barometer of fear went for actually nowhere. Could Randall you have been somewhat uncharacteristically fearful about the stock market lately have any of your doubts been us watched. Strangely enough. Yes I'm beginning to. To join the elves here Lou. I mean when you look at health I think the bad news both economic and international strangely enough might turn out to be the turning point in the market and particularly international news I think it might bring back some confidence in the American people and our leadership in the world. Confidence is what we need because surely the stock market is undervalued analytically. What do we need more confidence in our leadership or peaking in interest rates. Well probably both but I think both are on their way here. Oh and the peaking in interest rates I think but the housing statistics coming out bad and they're going to be worse than in the months to come. I don't see any reason for interest rates to go much higher than go to since you

mention housing do you have a forecast for next year. What do you expect in terms of housing starts for this country. It's going to be dismal. Maybe a million two million three annual rate for 1980 Now that's well down from where we are now 77 78 we had two million plus. That's right where we're running right now around a million seven I think. But I'm predicting a half a million down for the year 1980. Ed Brown caught a Randall says he's become a little more optimistic by yourself. Well I think that the actions taken by the Federal Reserve Board ratcheting up interest rates. It's really made the stock market much less attractive than it was prior to October 6. So you're more pessimistic than you were I'm more pessimistic than I was. I think that fixed income securities high grade offering some very attractive alternative yields or potential returns. I do think that there are some attractive pockets in the market. I don't think the market is what you are mentally undervalue what economists feel like. If I had to place my money for the incremental dollar at the moment I think I would concentrate on the small

oil and gas exploration companies and would you get out of other stocks are you that gloomy. I would want to have at least 15 percent to 20 percent and reserves extra buying power. Can I put a number on it in terms of how low you think we might be going. I don't think the market's going to sell off too much. I would say 70 80 as a low so I think Mark is about fair little value but the point is that the fixed income alternatives have given the market something to pause about. You think the market's essentially going nowhere in the fixed income alternatives are awfully attractive these interest rates. I'm hoping what will happen is that. The market will not be forced down to correct that imbalance but that rates will begin to drop. And I do expect that to occur within the next two to three months. But in Iraq we were quite lucky to have you Archie felt here tonight is such a dramatic moment with the eldest of the most exuberant of the year. Are you leading them fairly or are you on the other side. No I'm with them this time I think near-term the market has further to go in the upside I think we've had two successful tests of the 792 796 and low area that we had at the

end of October and came back or we had nearly November after testing 800. In late October and I think there are a lot of positive signs taking place beneath the surface. Well how about the theory that the market's going to go nowhere in this environment do you agree with that or disagree. Well I think the Dow may continue to understate the case for most stocks I think the broad market is going to do fairly well and I think you have to be once again selective but I think the Dow oriented stocks particularly the growth of glamour stock still may lag in this early phase of the up cycle. Well what part of do you like. I'm still oriented towards energy but I'm looking for some of the stocks that haven't moved recently like Williams Companies or dresser industries for example. We carry. With our usual question that someone will be selling those stocks from within the rock buys them. It's time now gentlemen to begin our tenth year of what we at least hope will turn out to be fewer enrichment. CONAN Randall Alexander choko of White Plains New York says he's convinced that we will have either gasoline rationing or what he calls very high gasoline prices within the next

year or two. If he's right he asks which industries will be affected the most and what would be rational behavior for an investor who believes as he does. OK if he's right. If we have both high prices and rational he said either or either or both then. Then I think we're going to have a poor economy overall and I would be worried about most stocks. However the ones be the hardest hit would be things like motels hotels restaurants airlines anything to do with leisure time. The ones that would benefit obviously are the oil producing oil producing companies and those that support them. Incidentally what do you think the chances of being right are. I think there's no question gasoline prices are gone higher and I think there's a there's a 30 percent chance of some kind of rationing. I think the Middle East situation will have a great effect on. The outcome of it. ED BROWN How would you respond to Jay art critic of Portland Oregon who writes this as follows. As public demands grow to relax environmental safeguards it seems likely that

we will experience an increasing number of accidents such as oil spills and the like. Not just huge catastrophic incidents but also many more on a smaller scale. Can anyone recommend publicly owned firms that specialize in the cleanup of such bills and other environmental accidents. By the way if that one doesn't set off your alarm or any other environmentally oriented firms you would recommend. It's an interesting concept but unfortunately to the best of my knowledge there are no publicly traded companies operating in this area. There are divisions or subsidiaries of larger company of publicly traded companies but the contribution is so small that you can't find it on the bottom line in terms of the participating in the broader in a broader sense. I would suggest looking at some of the air pollution or water pollution stocks. Companies like enviro tact morally or even looking at companies offering specialty chemicals and water treatment such as BET's laboratories and now call chemical though those groups have proved quite

volatile in the past haven't they come in and out of fashion. That's true and I think that investor will have to be very alert to changes by the EPA in terms of regulation. The government agency concerned with the about us right now Environmental Protection Agency. Bob Novak Henry Reeves of Laguna Beach California is baffled by the fact that IBM stock is going down rather than up since the stock was split earlier this year he says he thought stock splits were considered desirable by investors. What is the overall record of stock performance after splits and do you have any comments on the IBM performance in particular. I think it's a very good question because I think splits are very much misunderstood. First of all after a split of course you have no greater proportion ownership of the company than you did before. And the statistical studies of splits really show that companies that split their stocks. The performance of the stock is generally better prior to the time the split is affective and afterwards the stocks tend to be non performers. The crucial factor really I believe is if a company raises its dividend at the time it splits the stock in the new shares carry a higher dividend rate then you stand a

better chance of performance. The interesting thing is that reverse splits are very very bullish for stocks and companies that have reverse split their stocks generally tend to outperform the market after the split. Example if I gave you one where you had four before you. Will exactly Leavitt's is a perfect example of a stock that split three for one of the top and 72 163 had a 1 for 4 reverse split at 18 after it bottomed out and now it's been a super performer since then and you have the right side of that on every train on the shores. OK now if your investments are giving you splitting headaches relief may be just a postage stamp away. So look for the mailbox and send your money questions along to us here at 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 one of his favorite technical indicators and it's market forecasting record. It's called the centimeter and it's a price dividend ratio which he says is better than the more common price earnings ratio because dividends which appear on checks mean more to the average investor than earnings which

may appear only on newspaper pages and annual reports and be subject to frequent after the fact revisions for comparison let's look first at the course of the market over the last 30 years as measured by the Dow Jones Industrial Average. The centimeter is calculated by dividing the Dow Jones Industrial Average by the dividends paid by the stocks in the average. The result is the average stock price investors are willing to pay for $1 worth of dividends over the past 30 years and indeed for the history of the stock market the upper limit of investor enthusiasm for stocks has been signaled by a reading of 30 or above. Investors haven't been willing to pay much more than that for a dollar of dividends at least not for long. The lower limit of investor version has been signaled by reading of 15 or below at prices that low he believes investors don't stay out of the market long and indeed the centimeter fell below 15 in June 1949 the same month the market bottom that one hundred sixty one point six zero. But soon began to move up in the long bull market of the 50s and early 60s. The centimeter readers

began to pass the danger point of thirty one thousand fifty eight and past 34 in August 1961. Four months before the market peak that December but the seven meter readings continued above 30 even while the market was bouncing peaks at nine hundred ninety five. In February 1966 and at nine hundred eighty five in December 1968 after that the readings fell back until another series of 30s did signal the all time market high of one thousand fifty one in January 1973. However the centimeter failed to signal danger when the Dow again went over one thousand one hundred seventy six. Right now the good centimeter is reading fifteen point nine to lower than it was even 1074 lower in fact than it's been at any time since the early 1950s. If the centimeter is right this time it should mean the market has virtually no where to go but up. Will it be right for some thoughts let's go over now and meet tonight special guest as in gold. And some Welcome back. It's always a delight to have you. Good to be here. Thank you.

As a girl who tonight is making his fourth appearance in our first decade on the air. It's not always been right as he cheerfully admits but his track record over the years has gained him widespread recognition as the dean of Wall Street's technical analysts a sort of Elf's self if you will. At 77 and holding beautifully Mr. Gould has been protecting the stock market's ebbs and flows since the 1920s. A role he currently performs as chairman of the investment policy committee of the advisory and management firm animatics incorporated. That's when you just come out with what you've called the most important special major report I have ever written. In a nutshell what did you conclude. A very good market in the 80s. I'm very bullish on the market. Well that's. Crazy All right I read the report with pleased astonishment in there you talk about the Dow going over twelve hundred within the next one and a half to three years and then eventually going to and I hope I've got this right

2500 to 3000 by the mid to late 1980s. Now how in the world can you be sure about that long before. Oh you can never be sure about the stock market. Let me say in 1974 I wrote a forecast in our annual forecast in which I outline exactly how the market has worked since I should've stayed with it. It was an up market in 75 at top and 76 down and 77 and the intermediate movements I outlined occurred. I thought then we were going to go through a period of preparation for a big bull market. But with a great advance in the market in 75 and 76 I thought we're going to have another intermediate term rise. And I turned bullish. I thought we have another rise in 77 I was wrong the market came down. But we have we're looking back perform as we did in the early 20s and we did in the 40s and we did. After 30 to what I call the sign of the bull look complete preparation for a bull market.

So for nearly 14 years now as you note in your report the Dow has fluctuated between roughly a thousand on the upside and roughly 600 right the Dow side what's going to cause this big breakout. Well mainly stocks are very cheap of course but they've been cheap for a lot of years by that standard. Yeah but they've done that before. From 46 to 49 you had a tremendous increase in earnings and dividends in this market didn't go anywhere. If this market if the earnings on the Dow increase at the same rate they have. In the last 10 years and play out the same proportion of dividends you'll get earnings of two hundred thirty five dollars in the dividend one hundred sixteen. And you give that 30 multiple times dividends which grows at tops and you get a figure thirty four hundred seventy five dollars. Silly to expect that exactly that figure is going to happen. But I feel confident that the kind of market we have is not the prelude to a bear market or gloom and doom. Very bullish market. Twenty five hundred to 3000 then is your cautious estimate. You think I'm going to tell you when can we expect all this good news to start. Oh I think very soon probably in 80.

What kind of a year do you see for it. I think of a good year. And the 10 year pattern of the 0 years are not particularly good. But I think since 1972 the chief variable affecting the stock market has been the dollar the price of the dollar. And I think that made a bottom. And it's been. Holding a long lead bottom and I think the dollar's going to strengthen I think that will be an important bill will point for the for the stock market. And you've had some terrific calls over the years including some long range calls you substantially predicted the roaring bull market of the 60s you substantially called for a drastic end in the 70s along the lines that did occur but you haven't always been right and I think it's important to point that out so people don't think we finally got the one guy who knows everything. Three years ago on this program for example you said the market was and I quote going up substantially in 1977 in fact it did just the reverse. And you told me to look for a high and I quote between 11 50 and 12:50 possibly higher. Well that's when I looked in vain and what went wrong in 77.

Well I have a rule called the three step and stubble rule and it's a very good rule it's based upon the action of the Federal Reserve Board. Any time they increase one of their rates one of the rates they have jurisdiction over three years look out the market's always going at last. That failed for the first time to a car on time in 73 which occurred in April. And the market topped off in January and I was looking for that to occur. Indicator didn't you when you got your all through 77. And also another sign of trouble is a high centimeter reading 30 above the cut to 27. And as I said I had forecast and 70 for a declining market in 77 and a bottom in early 38 and that's exactly what we've had since and I should have stayed with it but I thought we could complain that we had one move up and 75 176 now look for third in 77 we just did. So you have had an excellent batting average over the years even if it's not a thousand but many skeptics would argue when you hear this yourself every day the times of change that these old measurements don't work in an era of inflation and slow growth. What's your response to them.

Well a lot of the indexes were barometers a lot of fellows use. Don't change really or at least they were perpetration must be changed. But essentially the market is simply a manifestation of crowd psychology going to Human nature doesn't change. You mean people get too gloomy or to your fork. They always always get overoptimistic at the top they always get it with estimates at the bottoms but I consider the stock market a living creature with its own habits its own characteristics its own traits and if you study those traits and characteristics you can develop rules and principles that help them catching bottoms and tops and and tracking the trends in between and speaking of living creatures are I to turn you over now to our panelists running a quarter mile from a live conference is what you're talking about. Oh yes that's what we need for a good market. Now what is going to be a catalyst this time though a conference of people I have no idea. Well I happen to like what I used to change people bullish. Stocks are very cheap and eventually a lot of people discovered. Stocks moved up.

OK so one of the topics easy you couldn't see the speculation in 29 it was a sense that market had to go well and I kind of did because everybody's brother was buying stocks brokers loans were up their stocks were high prices I think well over 30 times during the night I had to have a hard C at the bottom. Yeah. That's And as we move into this bull market and the 80s what groups what stock groups do you think will be the strongest. And which ones will be the weak I thought somebody might ask without it. I made a list of stocks I like now. Right this time I think stocks that are very attractive. Archer Daniels Midland landing which feel about both like industries I like chemical aging in jeans and lube resolve. I think three groups on a longer term basis that are attractive to future stocks pharmaceuticals and oil drilling and exploration stocks. The computers are like our old friend IBM and cigar and Honeywell. Pharmaceuticals I like Lilly Merck

Squibb and Pfizer and the oil drilling and exploration stocks I like Schlumberger that keeps going up all the time. Canadian superior superior pocket grilling. Bacon International. You like them all equally as. I would. I notice when you get very good performance it's because you have only one or two stops that are terrific. Most are mediocre and you get a few bad ones. It's and you've given us a very bullish long term scenario what do you think is going to happen over the next three months have we seen a near-term low in the market I think so you think the market's going to go any lower. Continue. I don't think I want to roll over and get very much worse than I expect. But I think the markets acted very well through the bad news we've had reading is way to triple bottom and the 795 figure I won't go into it but it happens to be a very important level just as and I don't think it was a problem and I have suggested that you were quite a bowl fellow for making a 10 year forecast in the stock market but that's nothing to your forecast for the bond market which I understand goes

into the 21st century. What is that forecast. The doctor that Bonds will move out for the next several decades probably at the close of the year 2000. I mean we've seen the peak enough reality most people don't realize that the first play stocks don't compete with bonds and I think people that say that it's silly to buy of stocks when you can get these 200 seals on a fixed income investments. It doesn't make any sense. The bond market is an early indicator the stock market but the trend quite differently in the bond market. You get these terrific long bull and bear markets they last for decades. You had a great bull market in bonds from the civil war time of the turn of the century than a bear market in 1920 then a bull market in 1986 in a bear market in the 70s. We made three bottom two bottom since I'm 74 I think we're making one now. Does that suggest to you think that we're not going to see interest rates at current levels much less no correlation really between interest rates and one price except over the long swings. Interest rates fluctuate around up and down.

You know as the bond market's been holding recently interest rates going up I think that if they were with us let's assume someone you know audience is convinced by your arguments but confusing stocks are going to go out of sight. The bond markets launched on a bull market for several decades what is my correct investment posture right now. Why buy the locks you buy stocks. And would you get 100 percent invested now would you hold some in reserve at this point. But depend so much upon the individual investor I'm not hedging but I buy as much as I would be comfortable with. Let me get mine if you want to put a question in bonds not you got a very good return. Let me get back to what you said about specific stocks and of course even with that single we don't endorse any of those specific recommendations but you have a long list and when I asked you which you like better you said that you find it in a diversified list maybe wanted to succeed you know I'm not going to ask you which is your favorite but I'm going to ask you is this How many stock should the average person by. Oh I think ten or a dozen off. Ten or a dozen is enough to give you some sampling of the broad market. And all this behind the goal that's been going on this year what would you tell people have done that I think

goes on and I would come down 100 150 points. I'm not sure that's made as high for all time. I think eventually we have to use gold in the international monetary system in some form because we can't continue we're going to get the kind of market I'm looking for we have that would be some international monetary system and we don't. So-called floating. I call them sinking currencies just don't work. Well how about the sinking dollar has it sunk. It has sunk but I think it's reached a bottom. So you think the dollar you had a tremendous decline of the dollar when it's been cut in half in terms of Swiss francs and marks. Are you bullish on the dollar you're bullish on stocks or bullish on bonds or negative on gold. Anything else you're negative on how about real estate. I like we all state I think there's an awful lot of money made and if you're right but. Without having any intimate knowledge of real estate the prices it is going for just scared me out of that where I live in the country which is going for fabulous places. It's in it's refreshing to talk with a young fellow who has so much of the optimism of youth. And we want to have you back

long before 1990 to check with your forecast along the way. Thanks very much for joining us again thanks to our panelists and hope you'll be with us again next week when my guest will be the best friend a bar of gold ever had James Dunn's who proudly calls himself the original gold bug and has been recommending the metal for nearly 20 years straight. For the latest forecast from the man whose golden faith has never wavered. You won't want to miss a single metallic Li precious minute. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. Good night. If you would like to obtain a written transcript of tonight's program send $1 to transcripts Wall Street Week Owings Mills Maryland 2 1 1 1 7.

That's $1 to transcripts. Wall Street would Owings Mills Maryland 2 1 1 1 7. Residents of Maryland Please include five cents sales tax. Wall Street Week is produced by the Maryland Center for Public Broadcasting funding for this program is provided by a grant from the Martin Marietta corporation. And by this and other public television stations the Maryland Center for Public Broadcasting is soley responsible for the content of Wall Street we. Are.