Wall Street Week with Louis Rukeyser; 3026; W$WW/LR's Year-End Review

Every week for more than 30 years America's most widely watched and trusted source of economic and financial advice Wall Street Week With Louis Rukeyser is made possible by the way into whose people began stealing silicon. With Wi-Fi. Will send cyberspace. For professional services. The answer is the people. Of the world and to. Buy A.G. Edwards committed professionals providing a full range of financial services and investment advice. A.G. Edwards trusted advice exceptional service. By Oppenheimer Funds. Where a long term approach to investing has helped put financial security in the hands of millions of Americans. Oppenheimer Funds the right way to invest. By the Kauffman fund. A small company aggressive growth

fund. And by contributions to your PBS station from viewers like you. Thank you. Produced Friday December 29. Our panelists are Elizabeth dater Louis Holland Barbara Marson and Brian Rogers. Good evening I'm Louis Rukeyser. There's a Wall Street Week. Welcome back. Well folks now you know why they call it black. Much of the world of investors regards 2000 as a year of mourning for profits passed but bubbles burst. The Bulls D horned and for certainties crumbled. And let's face it. It wasn't always fun. As Winston Churchill put it. I'm always ready to learn although I do not always like to be taught. Virtually nobody except the nonstop pessimists who are still stone losers over the past decade

foresaw the viciousness of this year's declines. Although the year was contradictory even there for example is this a bear market. Well yes and no. Even from their highest heights in early 2000 the Dow Jones Industrial Average and the S&P 500 have declined far less than the 20 percent that traditionally has defined a bear market. But for the formerly high flying technology stocks personified by the Nasdaq this is not only been a bear but the growl of all time. Nasdaq which never does things moderately fell nearly 40 percent this year and is off more than 51 percent from its March 10th high. That makes this not only the worst year ever for the 29 year old Nasdaq but the biggest decline for any of the three major indexes since the S&P 500 lost 47 percent in 1931 during the Great Depression.

So devastating was this latest and most severe tech wreck that any attempt to put it in perspective by pointing out say that Nasdaq has been the bullish phenomenon of the past decade and that again more than 85 percent in 1999 alone is likely to seem like irrelevant ancient history to today's bleeding tech investors. Are they right. Is this just a temporary reversal of a fantastically promising up trend or is it truly the end of a boom era. Where the downward catalysts of 2000 a fierce Federal Reserve a steeply weakening economy and a nation driven to embarrassing self-doubt by the election that would not die a passing phenomena or Auguries of enduring change will try to get to some meaningful answers tonight in the company of four sharpshooting panelists whose recommendations actually made our viewers significant money

in 2000. While the markets and most of their competitors falter it will review what really did happen in 2000 to the economy and to investors. And we'll see if those four can be at least as helpful to us in the year ahead. In which not to put too fine a point on it. Wall Street owes us all a lot. But first let's see how the best performing got better and the worst hit got hysterical in a characteristically mixed ending to a thoroughly mixed up here. The Dow Jones Industrial Average ended on a stronger note despite a final day sell off gaining more than 150 points to close the year at ten thousand seven hundred eighty seven point ninety nine making this the Dow's first losing year since 1990. Most indexes fall of the Dow's upward lead with the conspicuous exception of you guessed it Nasdaq which ended the year at less than half its March peak. But the elves

filled with the holiday spirit. Or something continued to insist that better times lie ahead both for the Dow. Where our halos go as usual to those who voted neutral three months ago. Since when the Dow is up by just a bit more than 1 percent and for Nasdaq which we now insist they also predict to see if that can improve their worst overall yearly record since they were created. There were minimal changes in the bond in oil markets and the dollar had a mixed week as the long suffering euro continued its recent rebound. And if your investments this year are giving you palpitations try munching on some of those holiday sweets you've been trying to put out of your mind. A new report in The American Journal of Clinical Nutrition says that chocolate may protect against heart disease. The theory is that cyanide found in the candy health prevent buildup of blood platelets

run ideas. What's it going to take to build up investor psychology in Wall Street. Well Lou I think what we've what we've seen is a very natural transition a share away from some of the higher flying sectors of 1999 and I think investors as we enter the new year will be focused on earnings progression. What the Fed does with rates and I think an awful lot will be determined at least in the first part of the year and what happens to mutual fund cash flows. When will we know that we can do it now and I think we'll see a lot of indications and yeah I think the Fed will meet several weeks into the new year. I think we'll see trends in mutual fund cashflow data evident by the end of January and then we also have the January effect I suppose we can look forward to to see how the first month of the year shakes out. So basically if things don't look a heck of a lot better by mid January that's going to be a bad sign. You can take the rest of the year off at that point. Thanks for your encouragement. Well Martin what do you think that's going to take to prop up the investors. Well I think that we have much more reasonable expectations of

profit and growth priced into the market here and I really think that what happened this year was it was really a narrow group of stocks that really that the market down it was the same technology and telecommunications stocks which boomed so much last year and last year you could have a reasonable return which would look very mediocre if you weren't invested in those stocks. And this year if you have a reasonable return it looks very good because the telecom and technology stocks declined so much. So I think it's really just been a matter of resetting expectations and I I think we can still have a good market here with a broad number of stocks attractively priced. So it was a good thing that those jazzed up flyboys came out. Well I think it sets us up for a better year in the stock market certainly yes. Brian mentioned the first How important is the federal list. Well I think the Fed made a big mistake I mean they raised interest rates you know six times in 15 months you know basically the economy inflation was not an issue at the time that they were raising it. And now of course they took money out of the system because they put a lot in at the end of 99 for Y2K issues and now they've

taken it out. So really I think they've dropped the ball here and I think that they're going to have to cut rates here over the next month or so. How much impact will World Food expect them to do that. Well I think I think it does. Wall Street expects that but I think again to see it is to believe it. And I think to the extent that Greenspan has sort of been a follower he has not been a leader. So I suspect that any positive action here will be received relatively positively. I mean the markets have let him. That's exactly right. And they're now leading them to a rate cut. Exactly. Well I hope to be inspanned understands that. That's it what do you think. Well that's an interesting point because I think typically the stock market is driven by the economy. What's sort of interesting about the last year and a half is that to some extent the economy's been driven by the stock market and the wealth effect. And so I think what's going to be really important to watch here is the consumer and whether the consumer can adjust to a year in the stock market where you may have gains that are more like 8 percent than

25 or 30 or high double digit gains. Consumer didn't seem to be too sanguine this Christmas. Now the consumer seems to be retrenching definitely somewhat here and I think the question will be back to Brian's point what will happen when the consumers see their fourth quarter results in some of the mutual fund business. Something to watch very closely I think you know there was a follow up in the rate of that input into mutual funds last month which is not surprising. What do you think why should people turn around put a lot of money in them for now. Well I think there's I think that the consumers also have to adjust to the fact that you know the same 25 stocks are going to carry everything that there are areas of diversification such as fixed income value and other styles of investing where one can still receive good returns over time. Already. Now before we look ahead with our winners of the year let's review where we've been in the year most investors would love to forget. The Dow Jones Industrial Average was the year's first victim falling nearly 2000

points after peaking in mid-January at a record eleven thousand seven hundred twenty three. But then again most of it back ending with a loss of just over 6 percent. The S&P 500 peaked later in March but recovered less. Losing a bit more than 10 percent for the year. But the true carnage was restricted to the Nasdaq which was butchered by more than 39 percent. In contrast both the New York and American Stock Exchange composite indexes which track all the common stocks traded their eked out small gains for the year while the small stock Russell 2000 was down by just four point two percent. Even a bad year for stocks and a hint of inflation couldn't revive the fortunes of the investment world's longest sufferers. The gold bugs whose favorite metal continued to tarnish and silver did even worse. The strong man of the year was the US dollar which easily outperformed all other major currencies with a

particularly dazzling gain of 12 percent against the end. Meanwhile the US economy continued as it has now for nearly 10 years. What has become a record expansion. But new doubts about its Dura bill of the Euros as growth slowed in the third quarter to just 2.2 percent and the fourth quarter seemed even weaker. There was a slight whiff of inflation midway through the year helped along by a stunning rise in oil prices and a period of excess money creation by Fed officials who last year took the Y2K threat too seriously. By November there was some relief. Consumer prices for the past 12 months had increased three point four percent. Ahead of the pace a year ago. But off the summer highs. Continuing to defy old fashioned economic textbooks. Unemployment remained low even as inflation blipped and the economy chug forward. U.S. unemployment reached a three decade low with 3.9 percent. And

as of the last monthly report in November was still holding at just 4 percent. Even the ever edgy bond market stopped trembling about inflation and with the prospect of a softer economy the ghouls rejoiced. The yield on the 30 year Treasury bond was driven down to five point four six percent more than a full point lower than where it was a year ago. But short term rates which are more easily controlled by the Federal Reserve climb nearly as much as long rates Phil. The average yield on taxable money market funds is now up to 6 percent. The year's big international economic story was oil from below $11 a barrel just two years ago or oil climbed over $37 this past September before retreating to today's $26 80 cents a little more than a dollar higher than a year ago. For the fourth year in a row the U.S. trade deficit is setting a record in

2000. And next April or mark a full quarter century since the U.S. last saw even a monthly trade surplus. And where do we go from here. The Conference Board's index of so-called leading economic indicators has been anemic throughout 2000 with outright negative readings in four of the past five months. Ron Rogers what Ulis number is even though he is the one to watch in the 2001 markets. Lou I think the most important thing will be what happens to corporate earnings in the first half. Things have been sluggish in the second half of this year and I think as we enter the new year of corporate profitability will be the most important thing affecting how investors view markets. And what's your guess on how that will turn out. I think we'll have a decent profit year but I when I say decent Lou might My best guess is in the 5 to 7 percent range and not much more than that from a corporate profitability standpoint. Do you think the markets are expecting that. I think the markets are expecting a little bit more than that which makes me think we might continue to have some again some choppiness in the first part of 2001.

Barbara Martin what are you going to give your I'm going to keep my eye on the consumer confidence levels. You know we had 3 forces which slowed the economy this year at the Federal Reserve raising interest rates. High oil and gas prices and really a sharp drop off in consumer confidence as the stock market fell and that slowed spending a lot and I think that if that were to get much worse or consumers really stop spending that could display a little bit more into companies incorporating that having layoffs and really then we could get a recession so that's what I keep in mind these rumors have been the heroes and heroines of this whole expansion. Yes some signs of flagging a little. But you want to see how much. Yes. What's your guess. I think that right now I'm not predicting a recession so I'm not predicting that they're going to fly that much more. We just had this week the third straight month of a fall in consumer confidence and I think that perhaps come the New Year we can regain that but that is what I'm concerned about. Well and how about you. I agree with Barbara. I think the consumer sentiment has deteriorated and I think that it's probably greater

than 50/50 chance that we're probably going to have a recession. It's sort of the old notion of the Federal Reserve pushing on a string in order to get the economy going by reducing rates or injecting money into the system and I'm not so sure that the system will swallow it quick enough to stop us from falling into recession. So you think the Fed has waited for too long. I think so. Do you think there's a chance that they'll cut more than a quarter percent. I think it's possible that they could have an interim meeting to cut and I think it's very possible they could cut a half a point. Beth can you cheer me up anymore. I think I think it gets down to interest rates because I think that is that. But that is what will ultimately influence the consumer confidence. I'm a little bit concerned about the dollar in here I mean I think that we have had a huge amount of foreign investment also into our capital markets here and if the dollar were to weaken substantially that might be at risk and we might see some repatriation of some of those foreign investments.

All right. Now comes the moment of truth when we turn the spotlight on what these folks said 12 months ago. And what has been for decades the toughest competition in investing in the list cannot be changed for any reason during the ensuing 12 months. It was a tough year even for our certified geniuses though the average of all our panelists continued to beat the performance of the S&P 500. Let alone the sagging Nasdaq. You can track all the records on our website they will be up after midnight tonight as you'll see the five who actually defied the odds and made you money in 2000 included the four stalwarts here tonight. Brian Rogers to show what a weird year was. You were the second closest of or panelists behind him predicting the Dow's 2000 high and close though even you were too optimistic by nearly eight hundred and a thousand points respectively. That was

good this year. But but in the far more important actual moneymaking part of the competition you excelled with a portfolio of specific recommendations that according to calculations by our friends at Bloomberg Financial markets was up a whopping forty two and a half percent. Aided by three timely short sales and a near double in Bergen Brunswick Congratulations. Thank you. Robert Martin with. Both you and Brian here. It's clearly the value of players night out. Well your prediction that the Dow would get above 14000 turned out to be ridiculously high. You came within 11 points 11 points of mail in the precise Dow low of ninety seven ninety six point zero three and better still your portfolio is up more than 40 percent in this generally grim year thanks to the best single pick of any panelist Everest reinsurance holdings which rewarded you with a two hundred twenty two percent gain. So Thanks Barbara for bringing us so

much value. Thank you. Lou Holland Welcome back to your fourth year in appearance. The most of any panelist here tonight. And you earned it while your high loan clothes were way off the mark. A familiar song this year your portfolio was up more than 28 percent powered by the more than doubling of Washington Mutual. Way to go Lou. That's data this is your third year in program and your cautious approach to investing in 2000 including putting 20 percent of the portfolio in three year treasury notes paid off with an average gain of more than seven and a half percent. In 2000 I looked awful good. So congratulations Beth. But enough of the complements however well earned in the year like this past when there's a new and we hope different year ahead. And what have you done for us lately. For starters in our annual triumph of hope over experience. Let's hear from each of you. The true inside word on the highest close the lowest close and the final

close for both the Dow Jones Industrial Average and Nasdaq in 2001. And this time gang let's all get it exactly right. Run for the Dow I have a high of twelve thousand five hundred a low of 10000 and a close of eleven thousand nine hundred. And for the Nasdaq at a high of 3000. A low of 2000 and a close of 20 to 50. What if a high of thirteen thousand ten thousand five hundred and a close of 12000 and for Nasdaq a high of three thousand two hundred a low of 2500 and a close of 3000. Look for the Dow I have a high of twelve thousand nine hundred thirty six. A low of ten thousand one hundred ten a close of twelve thousand five hundred four for the Nasdaq I have a high of 3000. Oh 90 a low of 21 0 1 and a close of twenty eight forty two. So Lou for that Dow I have a high of 12000 175 a low of nine thousand

seven hundred eighty one and a close of eleven thousand seven hundred forty. And for the Nasdaq a high of two thousand eight hundred thirty four a low of 2400 for an a close of two thousand seven hundred thirty three. OK well one thing is for sure this is my only personal unqualified guarantee of the night. At least some of them will be wrong. But if you'd like to see the full predictions with specific stock selections from all 22 of our panelists all those lists will be included in tonight's transcript which you can get for seven dollars fifty cents by writing to your own transcript. Wall Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7. Or you can order online for $10 by visiting our website at PBS dot org. And now let's see what these fabulous four Think of the very best buys for 2001. Run a encore. Cypress Semiconductor. Disney Exodus Communications. Fortune Brands Hasbro. Morgan Stanley emerging markets fund.

Motorola OC tell rider sprint and you know Source energy. But I'm keeping the two from this year's list it did not perform in that Cendant and Mattel and I'm adding Compaq WorldCom Lucent the ral AT&T Wireless and Motorola. A little tech in their decks can have a welcome back to this ride tech and telecom maybe some of those living people will be very happy to hear that from a core person like yourself. OK I have kind of a corp CC entertainment Ceridian corp. Chlorox company Chase Manhattan Bank Cognos incorporated Intel one of your favorites in the US. Home Depot J book circuit. Microsoft and WorldCom. My favorites are the ones that go up the ones I hate are the ones that go down you know what Will Rogers said there's nothing odd about the stock market you buy stock when it goes up. You sell it. I don't go up you don't buy it. But that you list only 25 percent weighting in three year U.S. Treasury notes. The balance

equally weighted in Amgen Berkshire Hathaway Cisco Systems Intel MedImmune Mellon bank Morgan Stanley Dean Witter Royal Dutch petroleum slumbrous day Wal-Mart and Westwood One. As much financial services as I do it is either an interest rate forecast as well it's an interest rate forecast and also it's a call on valuations which I think are still very interesting in that area. How about some of those fallen giants that you picked that suggest to me that you don't think it's the end of the world. I do not think it's the end of the world and I do think it's a time of some uncertainty and it's a time to think of preservation of capital. First and foremost and therefore I'm going with some household names at this point especially some that have been not so far down exactly the valuations are coming in to. Resemble the Brian Rogers let's hear from you on interest rates. What do you think. Lou I think we'll see a normal or normalization of the yield curve this year so I think we'll see short rates fall the Fed will cut rates probably a couple of times and

I think. I think the big gain this year was in the long bond in calendar 2000 I think that game is probably mostly over. It would be my best guess. And short term rates you don't think are going to fall that much. No I think short term rates will fall causing the curve to look. But how much you think they'll fall. I think they'll fall at least 50 or 75 basis points this year. OK if we can get that the next two weeks that might help some of your inflows into your mutual fund I will be happy then. Thank you very much that we do have to stop. I hope you'll join me next week twice first for our regular program I guess will be the incomparable Abby Joseph Cohen and then for a very special hour long we're through crisis 2001 Money Guide. My guests will include four world class industrial Titans true shapers of our future in the year and the century ahead. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser Wishing you a happy and infinitely more prosperous New Year. Wall Street Week With Louis Rukeyser is produced in association with RU Kaiser television

incorporated by Maryland Public Television made possible by. The way. To. Businesses have always had to face. Trial jurors who can return to nothing facing the economy as well. For a business services the answer was. That people. Were going to. Buy A.G. Edwards for providing a full range of personalized financial retirement and estate planning. A.G. Edwards trusted advice exceptional service. By Oppenheimer Funds. Every year millions of Americans place their financial futures in the hands of one mutual fund company. Oppenheimer Funds the right way to invest. By the Calphalon fund a small company aggressive growth fund.

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