Wall Street Week with Louis Rukeyser; 1712; Gold and the International Markets

But. Wall Street Week With Louis Rukeyser. Brought to you by a public television station by Hansen trust a 10 billion dollar transatlantic company with 23 consecutive years of growth in earnings and dividends by providing essential goods and services fiber eventually baked

securities. The investment firm with rock solid resources that's leading the way to the Future for Investors and to buy primary. The new name in financial services and specialty retailing a company with the resources to fund growth for tomorrow primary got a name to remember. Produced Friday September 18. Our panelists are Carter Randall Joel stern and Julius Westheimer. Tonight's special guest is John PDSA our publisher bestsellers Journal. Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well that's it for now folks your television set will now go to black for six minutes. I hope you don't mind but I want to be a network news anchor man when I grow up and I've got to get some practice some time. No actually I'm just getting in the mood around Wall

Street was black enough this week. So what else can I say about the news this week. Well I did have one original thought as I was walking into the studio tonight and I'd like to share it with you now. We the People of the United States in Order to form a more perfect Union establish Justice insure domestic Tranquility provide for the common defense promote the general Welfare and secure the Blessings of Liberty to ourselves and our Posterity do ordain and establish this Constitution for the United States of America. You like it it just kind of came to me as I was approaching the couch. I expect to be one for President on it next year unless Joe Biden claims that he said it first. Poor Joe he didn't understand that in modern American politics. You're only supposed to steal from your own speechwriters. But I don't know why they're beating on him so hard with a 2 trillion dollar national debt. It's not as if nobody else in Washington ever did in the borrowing. Actually

my favorite candy of the week was Albert Gore. Not because of anything he said but because he summed up what's really going on in this campaign when he want to prise of the I was state fair for best bull the Triumph could carry him to the White House. But the other Democratic candidates believing there has already been more than enough corniness in this campaign have so far refused to be counted. Meanwhile back of the economy the wall street bum steers didn't like anything they heard when the economy was weak as in the record trade deficit or in faltering auto sales. They worried that the big bull market had gotten ahead of itself and where the economy was strong as in better than expected retail sales or factory operating rates. They fretted that the Federal Reserve Board might be tempted to be too vigorous in raising interest rates. And so the stock market trying to figure out whether it is finally ready to have its first 10 percent sell off in more than three years

spent most of the week grimly living out the belief that to coin a phrase that just sort of popped into my head when I was shaving this morning. Discretion is the better part of valor. You like it I'm playing to use it in my first inaugural. We've tonight will be talking with a man who is a true original with investment ideas that span the globe. But first let's see who was stealing from whom in Wall Street in the week just passed. And as the Dow Jones Industrial Average indicates every little rally had a failure of its own. With the Dow suffering its second biggest weekly point loss ever. The average is now down nearly 200 points since setting a record August 25th. The blue chip index closed at twenty five twenty four point six for a loss of more than 84 points for the week. And all the broader market indexes just like the Dow are now right back where they were in late July in the glimmer of hope Department though the devastation has finally gotten to our elves. Their technical market index is now

registering a mildly bullish plus to its sunniest forecast since July 2nd. Elsewhere it was Bonds down. Gold up. Silver down the dollar mixed. And a guest on route to try to straighten out all that confusion. But the real answer may have been contained in the news that for the first time in history Americans this year will eat more poultry than beef. But this wasn't a bull market or a bear market on Wall Street this week. It was a chicken market. It could handle do you have any red meat for us. No Lou I'm afraid we're probably going to have a little bit of the same doldrums for a little while longer while people try to figure out what's going to happen to the economy next year. Corporate earnings etc. but I think the bull market will will come back or it will stay with us for that matter but I think maybe we're going to have a little indecision for a while. CUTTER you are not a technician the other habits are good. You've heard a number of different numbers on this program for precisely how well the Dow would go do you think there's any way to make

that kind of forecast. No I think well it's a lot of baloney talking about where an average is going to go with any kind of certainty. But I think you can see trends and the trend right now is uncertainty worries about high interest rates worries about whether inflation is coming back which incidentally I don't think it is. And oh those worries are horrible home bringing sellers to the market. But the but the fact is we're going to have a much better economy next year than this we're going to have higher earnings and of the bull market will resume. What do you think will start the market to believe that again. Maybe if we see oil prices coming down a little bit them will be convinced we're not going to have in place in any great extent ahead and a good economy. So it was time you were bearish all of the bull market last time you're here you had a made a call and it's been downhill ever since. Would you please go back to being a bear. Well I'll tell

you the present root cause or do we have to salute you net. No but I think a certain amount of deference and the lowering of the head I discussed that actually with the Prince Andrew and Sarah this weekend and we decided a little more royalty and America is what we need. All right well with all deference to you I think what we've seen in the last couple weeks in this 200 point drop since the high is sort of the beginning of sanity returning to Wall Street as I said before I thought it overextended self terribly and never expected it to. I'll tell you on the way up all we were hearing was this great wash of liquidity the Japanese are pouring money into our blue chips all the foreigners are coming in with lots of money. But now the new competition has developed in the stock market. You've got bonds now yielding over 10 percent. Governments are almost at 10 percent. Where is the average stock yields less than three. And when you have that real wide spread there a lot of people are going to turn their backs on stocks and go into less risky bonds was a whole market overnight. I think the beginning of yes I think we're we've seen the beginning of as I say

a toppling of stock prices. You never feel the splendors on the ladder till you start to come down it. And now you write that like you said I think. You never feel the splinters on the ladder until you start to come down and see the first time actually that just occurred to me. OK good I'm glad to hear that. So I expect to see more of the down trend within the next couple weeks if interest rates stay high and the spread continues to widen. Joel Stern you have an advantage over these fellows we haven't seen you for a while so you have no bad predictions to recap what do you make of what's going on now. I think it's the high interest rates. If if you if you use a very simple model of valuation as I choose to if you assume that corporate returns are not improving at all over the last say four or five months and you just take a look at the increase in interest rates that have taken place it fully accounts for the decline in the market we've seen. OK it takes us where we are about where we're going what's going to have that effect. I think interest rates still can move up on government bonds to about 10 and a half percent if the

interest rates move to 10 and a half the Dow will be down at about 22:00. Would you then see a reversal do you think this is the end of low interest rates and well it will. Yeah I think it depends really on whether or not the economy will be very strong in the fourth quarter this year in the first quarter next year. I think the economy is going to be a lot stronger than most people think. And I therefore expect they'll be some recovery in stock prices in the fourth quarter. Joe you were a disciple of Milton Friedman at one time. You have your own views. One other of his former Bronco who was just resigning as chairman of the Council of Economic Advisors suggested this week that monetarism had not worked in this decade that the money supply been growing but inflation had not gone up. What's your comment on that. Well I think that the money supply figures have been difficult to read. I've been watching something called the monetary base which is what is referred to as high powered money. If you watch that more carefully than the money figures themselves it gives a much better reading. But I think that the adjustment that took place in this decade was the precipitous decline in

inflation and the result and the fact that people were willing to hold a lot more cash than we thought they would. I mean there's a mental. What part of this as well people think that inflation not going up the behavior is different. Yes I do I think that the most important thing is the expectation effect on inflation and the effect it has on the amount of cash that people are willing to hold with you then people expect now. I think they expect low inflation but I as I said to you before I just don't understand frankly why interest rates have not had their effect on inflationary expectations because with interest rates as high as they are you'd expect that inflation would be pouring along at about 7 percent already in any event. Gentlemen it is time now to provide the answers to some of life's other most profound questions. Quite a ramble. Joanne O'Brien of Medford Massachusetts would like your views on so-called second door mutual funds the kind that invest in only one industry group. So yeah so these more appropriate to consider in specific areas where it may be more difficult to choose an outstanding individual company such as biotechnology.

Yes I would use sector funds if you really want a concentration in a particular sector biotechnology could be one petroleum another over chemicals etc.. And if you want broad diversification and money managed by people who are experts in that particular area I would use them. I must admit that I like the kind of sectors that are a little broader than that such as maybe emerging growth target stock sectors or foreign investment sectors rather than individual industries. Already do is Westheimer as the only stock broker here. There should be the one to answer the criticisms of John Easter burg of Richmond Illinois and Jess Newell of Burlington Ontario. Both of whom object to the practice of firms listing a stock as a whole rather than as a buyer a sell as the use of Berg says that in his experience the stock is either worth buying or was selling. Mr. Newell observes any day that a decision is taken not to sell a stock which one holds whether by default or otherwise the result is to

recommit the funds that could have been available from such a sale is to agree that a hold waiting is really just a brokerage firm cop out. Not really. I use Hold on some of the lists I prepare for clients old o myself so it obviously can't be wrong. Let's see. Let's check Mr Easter Burke's question first. He thinks the stock is either worth buying or worth selling when brokerage firms prepare these buy hold sell this they calculate something called the risk reward ratio and if a stock looks like it has more reward than potential risk they put it on the buy list and if it has more risk than reward then it's a sell. And if if these characteristics sort of balance out then it's a hold so I think there is a place for a hold on these lists. Jay Newell the claims that by holding a stock you are daily recommitting the funds to that same stock and you don't have the money to use elsewhere. And she's right about that. But I raise the question what's wrong with holding the best lists I ever see Lou or

ones that were created many many years ago and basically not changed very much. My first mother in law didn't make one change for 50 solid years despite my rantings and ravings and pushing and pulling. And she did just fine. Bill Stern one of our panelist last week said many bank stocks look cheap to him. Mary Catherine ship of Cape Coral Florida would like to know whether you as a former banker agree and James Kerner of Glendale New York is curious as to why so many banks these days seem to be going public and offering shares of their stock to outside investors. As a former banker I can tell you that the banks are fairly priced. The reason why the low priced banks the money center banks are doing so poorly is that they lost a lot of money and now they're selling stock in the markets afraid they're going to pour that money into equally poor loans. What the banks need more than anything else in the Money Center area is they definitely need a method to compensate their people closer to the way investor bankers get paid their incentives are all wrong.

They have to restructure the banks and get themselves off. The other banks of course the ones that are priced very high are the regional banks because they're being protected under regional compacts and then there are the smaller banks that we all expect are going to be taken over with regard to the banks that are going public. On the other hand those are the ones to really buy but you've got to get it at the beginning because they are also potential takeover candidates already. If you're looking for investment you can bank on. Think of all those good questions you've been saving and loan is the best. Yes deposit your query in the nearest mailbox and they'll be a lot of interest I'm sure. Here your friendly neighborhood 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 performance of the U.S. dollar against other key world currencies in the two and a half years since the dollar hit a recent peak a period in which America's rueful slogan might have been the buck drops here. The smallest decline among

major currencies has been that of our neighbor to the north the Canadian dollar. But the US buck still buys 6 percent fewer of them than it did in February 1985 the fall of our dollar against the French franc has been much more dramatic. Fully 41 percent nearly as great as the more publicized tumble against the Japanese yen. The traditionally strongest European currencies have gotten even stronger with the dollar falling 47 percent against the West German Deutsche mark and 49 percent against the Swiss franc. But the biggest gain of all has been the British pound against which the dollar has lost a whopping 54 percent in two and a half years. The all time peak for gold as it happens was five years earlier in January 1980 when it's over eight hundred seventy five dollars an ounce. Since then there's never even been close to losing as much as two thirds of its value at one time. And even now with the price at four hundred fifty eight dollars an ounce it's down 48 percent from its January 1980 price. Silver's dissent has been even more precipitant as

so-called hard money turned soft and squishy from its $50 peak in January 1980. And I'm so so over lost as much as 90 percent of its value. It's much touted recent comeback to $7 36 cents an ounce is still fully 85 percent below the January 1980 peak. Will a dollar's future moves against currencies and metals. When American investors big bucks or just small change those and thoughts on that let's go over now and meet tonight's special guest John P. That's our. Son welcome we're very pleased to have you here. John does are says it became a global bargain hunter after losing nearly all his investment in high priced American stocks in 1973. The former Citibank money manager seems to have learned his lesson well over the last five years debt sours journal as he calls the newsletter Republicans on Cape Cod has been among the top performing investment advisories and Harvard's financial digest rates at number one for what it calls at risk adjusted return.

John what message do you employ to limit risk in investing. Well Lou I use the principle method is what I call having an international perspective and that doesn't necessarily mean investing in every market around the world but it means watching at least the major markets very carefully. And then I am a bargain hunter that's one of the legacies I have from my experiences in the 1970s and never again will probably ever in my life pay 50 or 60 times earnings even for the best growth stocks. So I look for the cheap ones. Tell us how you break down your recommendations today. Today we are presently my particular view is to have most of your money right at the moment in the U.S. market in spite of some of the negative comments that we hear especially during the past week or sell outside the United States I prefer to have about 25 percent overseas and within the U.S. market we've got about 25 percent of the total portfolio maybe 30 percent in some cases invested in small companies where I think the risk is quite low and the opportunity is very attractive and the balance then in the medium and larger sized American companies.

Do you have an automatic cut off point where price earnings ratio is too high. I don't know I don't kind of feel like some of the other philosophers who go back a lot further than I do in this market. The rules are not necessarily of a great help when you're in a market so rather than having any kind of cut off I prefer to watch the sentiment in the market in terms of the stock itself and then watch the fundamentals both for the market I'm involved in and for the company as well. When they all turn negative or just look like they're just plain too high then I look for the exit. What are your favorite U.S. stocks now in the medium or larger size category I would include Citicorp. And you know I know it's a big money center banks but have done very well with Citicorp for the last several years and expect to continue to do sell Foote Cone and Belding in the advertising group next year after all is a presidential election year. Usually good news for the advertising people. There's a little utility out in the northwestern part of the it's not so little actually in the northwestern part of the country Puget Sound Power and Light sometimes now looked at as a takeover candidate itself with a nice attractive yield. And in the small

companies I like to look for stock such as COM share in the software business what I regard as undervalued Djoser sin's International a talent agency Midway Airlines is another one in Chicago that I like very much. Everyone says U.S. markets are overvalued. Why do you value hunter like the US market so much. Well I look at the U.S. market I think everything is relative so I look at the United States in the context of the global bull market that's now more than five years old. And when you do that you find out that the U.S. market since 1984 has been a laggard not a leader. That includes this year Morgan Stanley's world index is up about 38 percent this year. The U.S. market is up about 38 percent. The dollar would have to actually be over 3000 today just to be even with the worldwide bull market and I just don't think the U.S. economy or the U.S. stock market deserve that kind of a bad bill. The U.S. stock market has belatedly joined you and looking at the currency markets. The fate of the dollar seems to be very important to Wall Street what what's your forecast for the dollar now.

Well the dollar the Volcker legacy really has been a dollar that's quite volatile. You know we got almost back up at the peak in 1995 to where it was in the early 1970s against the German mark for example and now we're down again. I think we're setting the stage right now with slower money growth and higher interest rates for a stronger dollar in 1988 than most expect. I don't think that the day of stable currencies has arrived just yet. We have a highly international panel for you tonight starting with Lloyd Carter mantle. Thank you sir. John I have a two part question really. First of all do you agree with most people who say the Japanese market is overvalued. And if so what would a major correction in that market what effect would that have on other world markets. If we had a major correction on the downside. Well the answer the second part first I certainly agree with the likes of John Templeton and others who say that if the Japanese market really tumbled that certainly that would create problems for every

market around the world because whatever cause that could be very infectious and there will be a sign of trouble so you really have to have a pretty firm feeling about the first part of your question. And I do not agree with those who say that the Japanese market is overvalued I look at the numbers and I understand it five times book value that's higher than four times book value in this market. At the peak in 29 it's high historically compared to Jeff unease of stock market history. But then I say to myself now who is buying those Japanese stocks at five times book value. And it turns out to be the very same fellows that run sody and Mitsubishi very prosperous successful Japanese business people bankers and so on. These are people who have beat the Germans of the camera industry the Swiss at the watch industry and us at the auto industry. And I don't feel therefore that we should very easily say that they're crazy fools who chase their own stock market to hype. I may not completely understand why it is so high but I certainly do respect it and don't automatically come to a judgment that it's therefore overvalued John.

A lot of people are calling their bankers and brokers these days and saying in effect I have a $5000 or a $10000 certificate of deposit coming due. Realizing that everyone's situation is different I'm not trying to put you on the spot. What would you suggest as a broad general rule renew their certificate buy long term bonds buy Ginnie Maes buy mutual funds. What advice would you give it. What if I'm looking for performance and you say to yourself what can you get on the CD so I've got to get something better or expect to get something considerably better. Otherwise I'd pick the CD that's that's how I look at the situation and I think that something better can be obtained in selected stock markets around the world. I think the U.S. stock market is going to go higher in 1988 and as a matter of fact my greatest fear is that we will do what we did in 1983 and that's gone so far on the upside that we really do get ahead of the world trend and then we'd have a problem with respect to a correction. Thank you John. What would have to happen next year in the election that would turn you off to the U.S. stock market. What types of economic policies would have to be announced.

Well an economic policy that would balance the federal budget would really bother me a lot because I don't think you can balance the federal budget either by cutting spending or raising taxes without doing severe damage to the U.S. economy. And if you do that if you tilt the U.S. economy into a recession why then I certainly would want to be out of stocks before that occurred. That is what happened of course in the 1930s 1036 when FDR was running the great concern was the federal deficit. They had to do something about it they did they raise taxes and by 38 We're back in a recession. So I will be watching 1088 for that reason very closely and I worry about what I call might be the crash of 1990 therefore that would be the same calendar event again. John we have less than a minute left give me some quick thoughts on gold and silver. I think Lou the gold is going to come down from where it is right now because I think inflation worldwide is going to be lower than we expect. I would guess that the low point coming up and go will be sometime next year summer fall perhaps. And when that occurs I think there will be a major buying opportunity in silver silver is undervalued now but I think it will

follow gold on the downside. But when I feel there is really a bottom and gold minister been established then I'm going to say let's buy silver because it at that point will be just dramatically undervalued and ripe for a nice upward move. Given your dollar forecasts What do you think of the international bond funds. Well international bond funds like the U.S. fund the U.S. bond market have suffered since May. So therefore there are some selected values in bonds overseas. But that's a judgment not so much on currency as it is on the fact that those bond markets have been crashing as well. Your favorite country for overseas bonds. Favorite Country for overseas Bonds would have to be Germany right at the moment. Thanks very much John that's our for a fascinating and fast survey of the world you really have covered a lot of bases in a short period of time thanks to our panelists. I hope you will be back with us again next week when I'll be talking with a man who says that markets speak volumes of only we know how to listen. Yes Mark Leibovich a leading technician with some provocative thoughts on how the much overlooked volume figures can provide moneymaking clues to the future. So turn up the volume and join us

in one of them off the week on the life of God. Tonight. Wall Street Week With Louis root geysers has been brought to you by public television stations by Hansen trust a 10 billion dollar transatlantic company with 23 consecutive years of growth in earnings and dividends by providing essential goods and services by Prudential Bache securities the investment firm with rock solid resources that's leading the way to the Future for Investors and to buy a primary got the new name in financial services and specialty retailing. A company with the resources to fund growth for tomorrow primary got a name to remember. For the transcript of this program send $3 to transcribe. Old St.

Louis Owings Mills Maryland. 2 1 1 1 7. Bets $3 to transcribe. Wall Street Week Owings Mills Maryland 2 1 1 1 7. Maryland resident fees at 15 cents sales tax. Wall Street Week transcripts are also available to subscribers of the Dow Jones news retrieval service. And. Wall Street Week With Louis real geyser is produced by Maryland Public Television which is soley responsible for its content.