Wall Street Week with Louis Rukeyser; 2022; A Gloomy Christmas for Retail Stocks?

Ier. Wall Street Week With Louis Rood geyser

is made possible by the financial support of viewers like you by the travelers insurance and related financial services working to provide financial peace of mind for American business by Enron providing natural gas which holds the promise for a cleaner world and a more energy independent America. Enron core and be Enron Foundation and by Prudential based securities rock solid market wise. Friday November 30. Our panelists are Elizabeth dater James Grant and Martin Zweig. Tonight's special guest is Joseph H. Ellis partner Goldman Sachs and company. With a man on the US through Kaiser The Wall Street Week. Welcome back.

Well tis the season to be jolly but apparently nobody told the American economy. As Christmas shopping gets underway in earnest. The mood in the country seems to have been programmed not by Tiny Tim but by Dr. Seuss's Grinch. Consumer confidence continued to plummet. The government's lean economic indicators dipped for the fourth straight month which is supposed to be a sure harbinger of recession in case you were in any doubt and the mood of most economic coverage suggested that the country was about to pay dearly for the awful sin of having had a few years of prosperity. It was also uniform that you might be forgiven for assuming that it was truly anonymous. But look here the fellow who really should known is the most powerful economic officer in the country is Alan Greenspan. The chairman of the Federal Reserve Board. And while every news report on the air on land or sea headlined his view that the economy had entered what he called a meaningful downturn this past month.

Far less attention was paid to what else he said. If Greenspan's timing is right for example it means that the economy however sluggish clearly was not actually in recession until long after Saddam Hussein invaded Kuwait. An assessment confirmed by this week's report that the gross national product in fact grew quite smartly in the third quarter. And though you might not have gleaned this from the frightening bulletins Greenspan doesn't think this meaningful downturn is anywhere near as bad as most folks have been led to believe. On Wednesday for example he said and I quote The world out there when you look at the Hard data is not in as bad shape as it feels. But who can make a scary headline out of that. So today Greenspan tried again the Clarion an apparent bemuse meant the consumer confidence surveys we've seen are far weaker than the actual data we've seen. In other words people are being talked into thinking the economy is in much worse shape than it is. The

trouble with that is that in economics perception can become reality. One reason the professional economists of all stripes are so often off base in their forecasts is that human beings do have feelings and sometimes those humans don't act the way the computer says they should. And if consumer confidence evaporates the economy can spiral downhill. Tonight we'll be searching for the calmer reality and we'll start with the Grinches apparent booty. This year's Christmas. I'll be talking with the nation's top expert on how retail stores really are likely to do. And for those whose cheer has not yet been completely stolen by the gloom stirs I'll be showing you some of the hottest items that will be there in the stores to tempt you. Meanwhile the Japanese seem to have more faith in our economy than we do as much good read to buy MCSA the biggest purchase ever by a Japanese company in the U.S. And amid cutbacks by Detroit's automakers. Toyota announced plans to build a second factory

here. Merry Christmas Emperor Akihito. The Dow Jones Industrial Average brightened a bit at week's end stirred by what it took to be peace overtures by President Bush toward Iraq. Which in turn helped Vons and pushed oil prices well below $30 a barrel for the week. The Dow gained thirty two points to close just below 25 60 making it a one hundred seventeen point advance for November. The Dow's best performance in six months and all the broader indexes caught the Christmas spirit too. It was even enough to stir one of our chief elves Mahdi's why EXE which from berries to neutral on the next six months pushing the index into plus territory for the first time since the Iraqi invasion. He felt Zweig is here tonight to tell us why a man so worried is no longer a man so bearish. The precious metals showed minor losses for the week with the much battered dollar whose cheapness has encouraged those Japanese purchases strengthened amid uncertainty about which way the

Middle East will jump next. Well as indicated Maudie's wide just jumped a small step in that market outlook Samadi. Does that mean that you're going to be all smiles and get a New Year's Eve. With New Year's Eve but this year not necessarily next year. You know the question asked is where we think the market's going to be in six months in some relatively neutral short term I think the market's going to go higher. Long term I'm very skeptical and I think the market could go a lot lower later on. You've talked to us before about debt problems you've talked to us about problems in the financial system is it. Are there other things that worry you. That's a big one. Most of my other indicators are positive the tape is acting better. Interest rates have come down and there's a lot of pessimism. But you had this monster out there if the debt unwinds it could turn a recession into something pretty ugly and if it goes on for long enough the market will go down. Is the market in a fool's paradise. I don't know the answer before in everybody now believes we're in a recession and usually when you get to that point the market rallies and

usually it's the start of a new bull market because the Fed will loosen up and prices take off and you kind of you'll turn around within six months. But if it's a false start and the economy if the economy's going to go down for several quarters more. It's going to be a bear market rally and that's it. You've always said don't fight the Fed don't fight the tape. The Fed the Fed is easing the taper say looks pretty good right. Watchability been a buyer of stock now for the last four to six weeks but I just think let me just this to this to can change it fine if if it goes up for a month or two I want to be with you. I worry about the long run later. I think you know about that the word. I always think about the D word and she said it's a possibility yes. I believe that what happened was I said sounds if you think we're going to have a very severe recession as you said if we're lucky. That's correct. OK. Now. Marty's relative share I turned to Jim Grant whom I can always count on to put me back in the dumps. It's money taken in by the fully super optimist.

Marty is a traitor as I am a skeptic. And. I was impressed by many things this week. Among them the fact that the interbank market in London this esoteric place in which banks lend to each other suffered a couple of days of great unease. Rates spiked up and there were a few nervous hours in which it didn't. It wasn't clear that Japanese banks be able to fund themselves. None usurious interest rates in our domestic commercial paper market. The difference between high rated issuers and next tier issuers spiked on Wednesday that it opened up dramatically. So these goings on the money market barely reported in our press I think constitute some evidence that there might be developing a worldwide shortage of what the economists call the quickie in which the rest of us know is cash. So you think that the fragility extends to the whole international finance. No I think it's I think that's the

point. What ails banking is worldwide Barclays this week disclose some unexpected to the market predictions on the losses it was heavily marked down. Banks in Australia were similarly treated and in general the convention's it was growing that what is wrong with credit is a worldwide problem not merely a domestic one. I take it you're not buying bank stock yet. Correct Norma deposit with money and that's not true. Well yes but is that OK we're best they don't tell me what you think. Well if one is a traitor and one is a skeptic I try to be a long term investor in equities where I think one gets a pure returns over time. Albeit I may be one of the few remaining And I think Lou that there are all of these problems out there I tend to think we are in a bear market rally at this particular time. Having said that I think there are terrific opportunities. I think that we have borrowed the growth

of the 90s in the 80s the question is how much and how long it will take to work through it. Having said that consumers and businesses at least now are in a bunker mentality. I think you're starting to see that there is a process of real equivocation taking place. I would expect to see the savings rate go dramatically higher and I think all of that all of the signs point to long term significantly lower interest rates which I think will be very positive for equities. So it's worth hanging around. Yes carefully. This is the point the program when we normally pause for a round of you a question tonight though that time goes to your local public television stations so it can remind you to put it at the very top of your 1990 Christmas list. God bless us everyone. But we'll soon be back to our usual traditions so keep your questions comments and Season's Greetings coming down our chimney at Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week always Mills Maryland 2 1 1 1 7. Now before we meet tonight's special guest Well Uncle Lou put on his Santa hat and take you shopping as we see

what's hot in a cold economy. The hottest gift this year continues to be Nintendo those sales projections are down from last year. The Japanese company still expects to sell 4 billion dollars worth of games like trick shooting. Take that Saddam Hussein. Teenage Mutant Ninja Turtles are now a bungler again this year with one billion in sales expected thanks in part to new friends like total cause. Everybody wants to get into the act. Barbie remains indestructible with seven hundred million dollars in sales projected possibly because she knows how to move with the times. Animal loving Barbie is new for this year and I'll pander to that in an effort to combat sexism but tells magic nursery doll doesn't disclose its individual gender and to take it home and soak its gown.

Which I'm about to do so I can see what I've got. Mine's a boy. Well as a first time for everything. Typos My Pretty Ballerina dances to the Nutcracker and it's just too too sweet Hasbro's baby. On the other hand does about what you'd expect with a name like that and gets diaper rash to boot. Poor baby must have had a bad year in the market and for all you really rude Bart Simpson fans you can have your choice of merchandise this year from a phone for insulting adults to a doll that will talk back to you. Is all this junk worth what they charge for it. Next year we may have to make him a panelist. But well enough to get gifts too. And

according to hex which supplied this merchandise sales are big Schembri shirts for men made by Liz Claiborne and Warren with floral ties like these look like a blooming trend for women so-called status handbags like this $230 trifle are selling well. And while fur is more and more this year a poor girl's got to keep warm and goose down comforters and Christmas new sweaters are definitely in couples saving on eating that were making do in style with popular items like this bread machine sandwich maker and a special machine all of which are selling like croissants and coffee. And if you don't know how to feel about this economy try a mood ring. The old fat is back. And for those on a budget a real bargain at around $10 at which Price mine doesn't seem to be changing color at all. Maybe I got a ring there. What kind of mood

are the storekeeper's themselves likely to be in this Christmas. For some thoughts on that let's go over now and meet tonight's special guest Joseph HLS. Joe welcome. Nice to see you again. See you Lou. No other analyst in the business dominates his specialty more than Joseph Ellis dominates the retail industry for 14 years running this Goldman Sachs partner has been voted the number one retail analyst. Obviously Joe knows retail. And viewers of this program have long benefited from his remarkable insights he's tonight making his seventh appearance as my guest. So how bad is Christmas 1990 going to be. I think it's going to be a poor Christmas. Perhaps the worst since the 1970s. Retailers are already running many of the large retailers are already running declines in sales of their comparable stores that is sales without their new stores. And it looks as though to stay that way through Christmas that's a that's a pretty poor trend. It's it's certainly worse than last year.

As we know the retailers whine every year but this year the wine is for real. Yes this year it's really from a consumer's point of view. What does that mean and how is it a wise shopper take advantage of this. Well I think with business having slowed rather sharply in October November you can see more markdowns in the stores in November and December rather in December that started this past weekend and I think there will be good markdowns and bargains in a lot of the stores throughout the Christmas season. That was true last year of course but I think it'll be equally true this year. Is it too soon then to start getting interested as a buyer of retail stocks. Well the retail stocks have actually been outperforming nicely for the last four to six weeks they have a tendency to get up to underperform early in a stock market decline but then they have a tendency thereafter to rally for a while while the economic downturn moves into the manufacturing sectors of the economy. Typically as we move along in a downturn in the economy they then have a secondary down trend. When the when the downturn reaches climatic proportions and I think we will see a reverse in the stocks and have them come back down with the

market over the next three to six months. Then we may see a bottom sometime in next year. Are there any that you would like at a given price. The growth stocks really look I think outstanding Still they they should outperform the market even in the difficult time of stocks like Wal-Mart which is a perennial favorite of ours and remains so limited gap. Date Hudson's a stock we've been recommending Home Depot Toys R Us these are the quality growth stocks in the industry. We're looking for opportunities to recommend stocks like Diller department stores Tiffany and Nordstrom which are very fine companies too but we really think that investors should stick with quality growth names. And would you would you wait for them to sell off what other 10 percent are going to that arbitrary. We can't do it in terms of the degree of sell off I want to see with our leading indicators consumer spending turned more positive right now they're they're still negative they suggest business is going to stay tough through at least mid to late next year when we see some signs of life in the leading indicators consumer spending then we'll start recommending more stocks it's a function of time rather than the price.

We talk about growth stocks that suggest that you think there will be growth eventually. Oh absolutely. One of the things that makes me even though I'm probably more negative than most people on the intermediate term outlook. One of things one of the things I find very encouraging in this downturn is that it seems very normal we have this appears to me to me to be a normal economic downturn accompanied by a normal bear market and I don't see this is something exceptional it's a it's a normal cyclical event. If they're going to go down again are there any they would sell short at this point. No I think they've all been pretty well discounted on the downside. Most of the stock's been beaten down pretty well. Many have come back a bit. But no I don't see any specific names that I would be shorting or selling. We have. Two wise men the wise woman here to ask some questions I start with my eyes wide. Joe you noted correctly in the 1980s that a lot of retailers that were the most successful either newer companies were ahead with marketing techniques is that going to be true in the 90s or are there new companies that you would keep your eye on.

I think the interesting thing about the 90s. Let me just reflect back on the 80s that the companies that were most successful in the 80s companies like Wal-Mart Toys R Us Home Depot were new formats and new companies that really were some of which had not even been started in the 1980s. I think in the 1990s we're going to see the companies were successful in the 1980s continue to be the leaders in the 90s these are the best managed companies in retailing. And so I think we're going to have the same growth companies for this decade that we had in the past decade the Wal-Marts the Home Depots the Toys R Us is the limits etc.. Joe you emphasize the normality of this cycle. Isn't the spreading bear market in residential real estate something out of the norm. And isn't the dependence of consumers during the late lamented 80s and installing dead isn't that reliant somewhat out of the norm. Those two things conspire to make the downturn deeper than otherwise. Yes I think this could I think this is likely to be more than a normal downturn in terms of depth but I think we'll come out the other side that downturns have different size

lengths and shapes I think this one could be longer and perhaps a bit deeper. But I don't think that it's going to be so protracted that it won't be a typical cycle. I think on the other side in the 1900s consumer spending is going to be more suppressed because of the large amount of consumer borrowing that took place in the in the 1900s. Certainly consumers somehow are going to pay back the SNL 500 billion dollars and. And so we make a lot less quickly and we may go less far may not go as far on the upside. But retail stocks are leveled leave it on the upside the consumer is the only sector I think that can lead us out of out of a downturn and I think that'll be a classic this time. It may not be as far or as long. What we're looking at further bankruptcies in the retailing business at this point most particularly I guess with regard to Macy's. That's hard for me to say I don't know. Macy's is not a publicly traded stock so it's not it's not one that I follow or have a close understanding of their financials. I get around to a lot of their stores they certainly the stores look wonderful. They continue to be one of the best merchandise department

stores in the country. There will undoubtedly be some bankruptcies in the retail sector there are a lot of highly leveraged companies. But predicting which which ones are going to have trouble that's difficult to say but I would have to I have to go with Macy's being unlikely in that regard simply because their stores are so well managed they really have a place in the business. So we only have a minute or so left left to some hopscotching. How bad is it because we're going to be in numbers but percent decline after that. I would say that total general merchandise sales should be up in the area of maybe 2 percent but that with an inflation factor of of perhaps 3 percent we should see a modest decline in unit sales and that would be the first unit decline that we've had in the in almost a decade. It's not a debacle and no it's not a debacle. It's a good solid downturn but not a debacle to what extent do you expect next year's tax increases to hurt the economy and retail buying. It will certainly have some suppressing effect. But by the mid-year If inflation comes down the spending power of American consumers should start to improve and that would

signal an upturn even while the unemployment rate is going up incidentally that's that tends to lag what we're going to watch the spending power of the individual American consumer. The items I showed seemed pretty familiar. Is there any new trend on the same. No not really. Electronics continue to be very hot. Men's ties are very very hot this year more there's a lot more accessories a show I think as we go into recession. People try to accessorize more than buy the basic outfits because if they can get by with a little less that way. A tuneup instead of a new car. Exactly. I've got a very hot time on so I'll be careful. Thanks very much Joe Ellis as usual for your comprehensive survey of the retail scene thanks to our panelists. Hope you'll be back with us again next week then my guest will be the seven billion dollar woman. She is Christina Sykes who runs that much money as boss of a leading investment management firm. And she'll have some presumably by amik advice for those of us with slightly fewer dollars than that in the bank. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. Good night.

Wall Street Week With Louis Rukeyser has been made possible by the financial support of viewers like you by the travelers insurance and related financial services working to provide financial peace of mind for over 40 million Americans by Enron providing natural gas which holds the promise for a cleaner world and a more energy independent America. Enron court and the Enron Foundation and by Prudential Bache securities rock solid market wise for a printed transcript of this program send $5 to transcripts Wall Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7. That's five dollars two transcripts. Wall Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7. 0 Street Week With Louis

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