Wall Street Week with Louis Rukeyser; 0620; 1977--Post Election Gould

A. They're running for public broadcasting. Friday November 12th your host for Wall Street Week. Our panelists are Frank Caprio Robert and Marcus one light special guest. It's an investment committee chairman and a

metrics incorporated. Welcome. Well it's been 10 days since the election I was still stubbornly voting and it's almost time to demand a recount of the Dow Jones Industrial Average. That closely followed index of the stocks of 30 big American corporations has lost 40 points since the election and is now trading at its lowest level in 10 months. Does this mean that you should now despair about the future of the president elect. Be the country see the economy or D the sanity of Wall Street not necessarily the stock market as we have often pointed out around here can be a highly imperfect short term forecast it is in a Reno overpopulated with nervous nellies and its tough facade often covers a spot of jelly. Indeed we'll be hearing tonight from an

eminent Wall Streeter Edson Gould who has prosperously survived a half century in those precincts by frequently advising his clients to do exactly the opposite of what the market was doing. Mr. Gould will be giving us his latest forecast for the year ahead and it suggests that many investors may be counting out the corner market for too soon. Meanwhile back of the economy retail sales were reported sluggish inflation worries were reported soaring as well as the price of gold and the chairman of the Federal Reserve Board Arthur Burns was reported determined not to pump out as much new money as the new administration might desire. All in all a week in which just about everybody seemed to be a little bit surly stick around and we'll see if we can find something to cheer you up. And incidentally in case anyone thought it was partisan of me to eat a peanut butter sandwich last week by way of extending a friendly welcome to our triumphant president elect let

me say that we are as always totally nonpartisan around here and will prove it by giving President Ford equal time on the menu as soon as the delicatessen man Iran moves with my order of lame duck. But first let's see what was on Wall Street's menu in the week just passed. And as the Dow Jones Industrial Average indicates last week's post-election slide continued almost all of this week the volume of trading was lukewarm and so was the enthusiasm for the week. The Dow Industrials dropped another 15 points to close at nine hundred twenty seven point sixty nine a level not seen since January and the broader composite indexes of the New York and American stock exchanges and the over-the-counter market also declined though not quite so far. They reached lows not seen respectively since June October and February. Tonight we're going to start something different with our technical market index and additional numbers showing the difference between up and down indicators because that's the real key number plus 1 in this

case. If the index ever gets to plus five that's supposed to be a signal. And if it ever gets to minus 5 that is a message from the Elves to sell. Later in the program we're going to take a hard look at how reliable those messages have been in the past. Our panel tonight includes two technicians including the compiler of the technical market index the elf in charge of new Iraq. So I guess it would be appropriate to begin by asking him what if anything the technical side of the market is trying to tell us and whether indeed all this talk about economics and politics is superfluous if we just know how to read the charts. What strange messages are they giving you Bob. I don't think it's so strange Lou and I don't think economics and politics are superfluous but I think the index is saying if you've been following a weekly most recently very closely. I just read religiously devoutly right. I think it's saying that there's been slow but gradual improvement underlying the market and I think that the political events really have turned out to be an excuse for people to

rationalize their decision. The index previously was telling us that there was too much bullish optimism factored into security prices and that realistically most people were fully invested without additional supply of money or really a demand influence the market would not go up much I think we're in the process now of correcting the overoptimism. And I think we're setting the stage most likely for a further rise a little farther down the road. Well suppose somebody is sitting out there with a few hundred dollars or whatever. Little skeptical about whether to put it in the stock market the way it's behaved. What would you tell me the point I think that there is sufficient improvement to look for a rally near term I think we're very close to a near term low. But as far as looking out another three to six month months I still be a little bit skeptical and I still would be cautious only on a short term or trading basis but I take a positive stance I think the market probably is going to rally and then come back down and test the area in which it is now a nine ten nine twenty year. That's pretty cool his up but you know your fundamentalist stuff in between like the bologna in the sandwich.

Whoa whoa whoa wait a second I thought it was a ham. Well I I share Bob's short term enthusiasm I think the market is close to a short term low. Whatever you guys call it and I think we'll rally off maybe nine twenty nine ten area. But basically the economics are such that I just can't believe that this market is going down to say a 50 or 80. Well let's pursue the economics because certainly the headlines this week have been negative when economics are talking about slowdown. The word sluggish appears. Is it a pause or is it just a decline. Why are you so sanguine about this as well. There is a lot on the economy low there's no question about that but if you look out into next year you can see in place a good housing year. Looks like we're going to have 1.8 million plus starts up from 1.5 million starts and that's a healthy increase. Capital spending should start moving up next year and inflation is coming down and long term interest rates are down and look like they're going to trend down. So it's hard for me to believe

that we're going to roll over and go into a recession. And if you believe that then Carter is good for the economy because one thing President Carter that is one thing that President elect Carter is indicated for us is that he's going to hype up consumer spending and reduce unemployment. That's good for the economy. So you say that the economy is probably good on its own and even if it isn't that's OK because President Carter is not pump it up. Absolutely. I don't know what the technicians are saying that's the way money is one of the Bluebirds of happiness for having your backyard too. I don't know whether flying a little bit on the getting in there with the economics. I have a model of the economic indicators the leading economic indicators and it gave a sell signal a few months ago and it's been verified since by a couple of down ticks a last two months in the leading indicators. Now since in the past when I've gotten cell signals on this index the Dow Jones Industrial Average has declined about 17 percent thereafter. In this case that would point to a Dow in the low 8 hundreds and this is based totally on the economics. Whether or not we have a recession it doesn't even matter because in sixty

two economic indicators turned down there was no recession there was just a slowdown in the market crash. You think the next significant move will be downward. About 100 points on the Dow Jones Industrial Average from here I wouldn't say a hundred. I've been saying one hundred two hundred fifty and we're down about 90 so I'd be looking for maybe midday hundreds. As a rough guess now it could happen quite soon if the market cracks badly in the next few weeks which is possible so your advice would be not to buy would be to sell. Well I think the selling should have been done a while back I wouldn't buy yet if the market cracks or I might want to buy them. Very cautious group of people might accept. Negative positive I'm in between. Thank you glad you got straightened out. In any event the film is now time to turn from the big board to little splinters and answer some questions for my viewers. Bob knew Rod Forrest Jay Nelson of Venice Florida wonders why he hears so little talk these days about floating interest notes. He bought one which he says was great but now he adds the

interest has gone to only 6 percent and may even go lower. However he goes on the note stays at par on the market which seems unusual. Would you tell Mr Nelson what's happening and also whether you would advise him to sell his floating interest note and buy a regular corporate bond instead. I think the answer is the floating notes of some kind. I think. That sums it up they were issued basically in 1984 when interest rates were much much higher and they offered a novel means of financing for many banks or a few banks anyway and the interest rate is tied to a short term interest rate such as a prime rate and it lags it really by six months. Since the prime rate is down another short term rates are down the interest rate level in those has come down but that they stay or trade at par value principally because their short term where the banks that have issued them stand ready to redeem them on a regular basis every six months. So we won't lose its capital. That's correct. But I think the key really for him is to decide what his objectives are whether he wants to tie up his money for a longer period of time or not and that might govern whether he looks at longer

term bonds where the yields are much greater or even conceivably shorter term or medium term government treasury notes where he has as much safety he probably will be able to improve his yield as well so it might make sense for him to look elsewhere for a better yield and equal safety. If I can be a little right on over to you. This is Georgia Wieber of Orinda California would like a simple explanation of closed and funds and why in her words they always sell with a discount. Will a closed end fund is really a mutual fund with a limited number of shares outstanding and the traded over the counter or any American or New York Stock Exchange just like an ordinary corporate stock. The price of a closed end fund really depends on a number of things investors attitudes towards the market. The psychology towards the management of the fund and finally the day to day fluctuations on the supply demand bases open and on the other hand has unlimited number of shares outstanding in trade at net asset value and there's a guaranteed redemption at net asset value. Now because of the changing investor

attitudes you can always buy closed end funds historically at below the net asset value or at a discount. Many people look at this and they say gee I'm getting a lot of assets at a discount and that's an illusion. It may work out that the discount will narrow in event you know you'll make some money on the other hand. Usually the discount tends to persist and indeed it may widen. However there are some good closed end funds that have some very good operating records as well as open and bonds. Isn't your statement always too strong Don't some of them in fact historically sell at a premium at more than their individual there have been a few Madison fund was one that for a long time sold it at a premium because of the investor's faith towards management. True there were not many though. Dan Duke of Birmingham Alabama wouldn't appreciate a post-election appraisal of the outlook for nuclear energy and the prospects for uranium mining stocks in particular. How he asks Will expected increases in the price of war affect them. All in the election Lou. Half a dozen states turn back proposals that would have restricted

nuclear power plants and California did the same a few months ago and that's bullish for the group. On the other hand President elect Carter has a policy for energy. We're in the nuclear power is low rung on the totem pole and that's negative as far as the price increases of worried appears that there will be some price increases but it could be offset by higher mining costs as they begin to open up some marginal mines. On the other hand there are some contracts that have been negotiated in the past for or that will be renegotiated at higher prices and that's a plus. But I think it's probably been discounted in the stocks which are up quite a bit. For example United Nuclear which is the perhaps the best play the group is up some 400 percent already and I don't think it's perfectly cheap right here although if it dropped back 6 or 8 points I might want to buy it already. If you like your own savings to show a little more energy. Nuclear or otherwise. Just dump your questions about investing on us and we'll fall out and try to answer them. The answer of the advert for all your questions is lost we

always Mills Maryland 2 1 1 1 7 that's rust we always Mills Maryland 2 1 1 1 7. Now before we meet tonight's special guest it's time to take one of our periodic looks at. How our elbows are doing by shining a spotlight into the dark caves with their charts and graphs are compiled each week and seeing whether the technical market index that emerges has anything much to do with the way the market actually performs. It's just over two years now since she fell for a new rock revise the TMI. So let's look at its record since then along with the progress of the Dow Jones Industrial Average. The technical market index has given only one straightforward buy signal in that period and it did so at just the right time on December 13th 1974 one week after the Dow Industrials hit bottom at five hundred seventy seven point six zero. After that while the market soared the elves began to turn a bit hesitant but their buy signal never was reversed for 14 months until January 30th

1976 when the Dow industrials stood at nine hundred seventy five point two weight a gain of probably 65 percent for those who bought when they all said Buy and sold when they shouted sell. After that the technical market index really became negative firing off or more sell signals before moving back into the neutral range. Meanwhile while the Dow has notably failed to collapse it did in fact eventually go almost 40 points higher. It never regained that massive upward steam and is now trading almost fifteen points lower than where it was when the first sell signal sounded. So the Elves while they haven't always called the week to week and month to month changes nor do the dog mean little things even claimed to have been doing reasonably well on the major turning points. If you'd like to know exactly what their 10 indicators are and precisely how you're supposed to interpret them. We have an updated brochure on the subject prepared by the elfish mission in Iraq. Fourteen

thousand copies have been printed up by his firm and they are fairly priced being free. If you'd like a copy please send us a stamped self-addressed business size on follow up to this special addressed TMI Wall Street Week Box eighty five Owings Mills Maryland 2 1 1 1 7. That's TMI. Wall Street Week Box eighty five weans Mills Maryland 2 1 1 1 7. And please do remember you must send a stamped self-addressed business sized on below. And now let's send ourselves by special delivery over to meet tonight's special guest. And welcome back. So I think it was legit How could it be. If there is a technical market analyst in Wall Street with a better track record than Adam Gould. We haven't found him yet in seven seasons of looking. Even Mr. Gould who is

undeniably the dean of his field has come up with some clinkers as he unlike the charlatans of Wall Street cheerfully admits. But he has also called so many turns right in both directions that his forecast as the investment committee chairman of animatics and cooperated have an immediate market impact that no other technician can match. Them Is it possible that you are so respected now that your forecasts become self-fulfilling because many people rush to do whatever you say is in that you say it. Well I don't believe the lowest of the markets to begin with. Well if the market's so big that it has a life of its own. Where do you think that life is leading that now. I think the market's going up substantially in 1977. How much is substantially. Why look for between 11:30 and 12:50 possibly on the Dow Jones it doesn't allow Jones Industrial Average in the third quarter 977. Now before we go beyond that because. You've given us a very good timeframe on it that's a pretty strongly optimistic forecast compared to many others we're hearing these days.

What is it that you are seeing in the market that leads you to this conclusion in the first place. In 1974 or late the market may and in my opinion a very solid bottom it's the first bear market we've had in years since 1937 and after a bear market bottom like that you expect a full fledged advance what I call three steps up what we do and I look for the third. Does that imply that this move for the next year is the final stage of the current bull market. The rising star in 74 yes I look for correction for the whole rise thereafter probably in the brigade. Are you able to see in your crystal ball how far down we're going to go in 78. I prefer to take one of the time to go. Wouldn't surprise me to lose 25 percent of the value that is a 12 under that of a 300 maybe do want to point out I have no idea how loudly for an hour I it goes and how it looks at that time. Since some people incorrectly regard you as a bear because you were correctly pessimistic at certain key junctures including 73 but in fact you've just given us a pretty optimistic viewpoint

and I've heard you talking about even higher figures for the ultimate future do you still see 3000 4000 5000. Oh yes every generation has its big bull market the Blow's OP we had in the 20 years we had in the 50s and 60s were good in the 80s and 90s. You think that in the 80s we will be twice or more where we are now then three times four times three or four times. But along the way we're going to stumble pretty badly now. Your whole philosophy of investing is not to buy and hold to my rights but that is where you get burned. But the average person who tries to trade in and out of the market seems to be a loser. What's what's the meeting ground what can you tell that person. Right I believe in creating the market in and out. When we try to avoid the hundred point declines of the more. But I think a good average investor can and probably should buy bottoms like 66 and sell out at tops like the summer of 68 and buy back a bottoms like you made in January 73 and buy back in late 74 that's not

particularly difficult. Aside from listening carefully to you what are some of the signals you can look for when we know that it's time to start selling stocks on the first place. Money we're going to tighten. It's very easy and getting easier all the time. And has been since the 74. The monetary factors are the earliest indicators of a change in the market they're always earlier than they turned in twenty eight for instance. Make turning 31 or long before that when the conditions get easy on the way down before the bottom they start tightening before the top. And I haven't yet. Billy's OK so we still have a long ways to go. You have always in your work given special emphasis to dividends as do many of our viewers we see it every week in the mail. But many of the heavily boiled institutional favorites. Pay little or no dividends. Is this a danger signal. The fact that so much money is going into low dividend stocks no so-called growth stocks are worth a premium because manifestly if a company can go all the way to 15 percent a

year and they got very little in dividends and invest the money in the business they're doing a lot better for their stockholders and other distributors dividends so you always have a growth stock you just had a lot of recently but I think the concept that one decision stocks buy and hold on forever it's been proven very wrong. Well for someone who wants to go along for the ride for the next year where particularly would you tell him to put his money. Well we like. And enjoy the stocks. We use in oil and gas and flora. I was like I said with a little more cooperation. If I were you war we like some of the glamorous IBM Bros. Disney. And. We like some of the basic industry stocks. We just paper. Like chemical. We like the. Interest rate effect of stocks like some of the insurance companies at travelers. Pretty good standard stuff we don't know who tried awfully hard to get

something that's going to double or treble while the market goes up only 50 percent. I should of course point out that even as heavy a hitter as Edson girl doesn't bat a thousand and that some of these recommendations might go down as well as up. And I also want to say Edson that my own technical indicators tell me it's time now to call in our panelists starting with Bob Novak. It's in your record is been superb through the mid sixties and up through the prism in the early 70s and through the mid seventies. But some market analysts believe that the characteristics of the markets have changed and reverted back to what they were in the 20s and 30s and we're dealing with different circumstances. Do you think this might be the case and if so would it have any effect upon your techniques that you used to forecast the market and hopefully accuracy. No no the circumstances change always but the market doesn't change at the same kind of market no matter whether it's dominated by the individual the little battles. Or the big institutions. The markets always the same. So we're not going back 100 years as if your technique still will be valid for that of these and 80s I think the market lived a life of its own and

you can't correlate it with the interest rate you can light it with business conditions. There's only one. It's this last leg before it ends we see the average investor the smaller individual investor that was in the 68 market when he came into this market will conditions be such that will come in. I think I'll come in on the Usually the public comes in on the third third step as people come in late one thousand seventy seven whether it be the same extent over whether you get the critical evaluation 1967 Six-Day gate I don't know I rather doubt it. But there will be a lot more than there are right now and I've been to date. You've often used the London stock market is a leading indicator. I think in your words you say the London indicate the London markets often a good leading indicator is it dropped about 37 percent from the high though we have so far this year. Does that bother you and if so how. Well I pointed out it is a one one probable factor in the Outlook but I don't think it's

dominant it can be very early. As much as a couple of years already. Let let let me pursue pursue that in another way. This is your third appearance on Wall Street Week in May 1973 you correctly told us it was time to sell. In October 1974 you correctly told us it was nearly time to buy. Are you as confident now with your current forecast as you were that don't happen. So you're not worried about little problems around the fringes like the London Stock Exchange. No. OK only very thing I guess you mentioned monetary policy which you regarded as favor but what are some of the other elements going into your conclusion. Well stocks really are on a dividend earnings basis are very cheap cheap in 1966 when the Dow sold a 1000 and one of the Dow was earning $57 and paying twenty nine and one thousand seventy two. The Dow or in 67 was being 32 the Dow sold it then 67 now the Dow's currently earning ninety a ninety seven

and it's paying forty the current rate is forty one dollars and ninety cents and the Dow tops. That important stops always sells at least 30 times the dividend 30 times 40 as well 100. 30 times 40 190 is 12:57. When you are making your annual forecast you do it by ear and you have a set percentage that you give to each of several elements like monetary power so you like the economic conditions like the dividend yield. Well there are three factors that determine I think the level of the stock market and the trend that you can list them as economic monetary and what I call psychological. Now the monetary factors are always early but they're very important given the early warning of a change. The economic factors are always late. And after the fact by the time they turn the moves usually have forward and the so-called psychological factors that I use there right. Current. The. Monetary and the economic factors provide the

environment in which this creature lives and the political environment is favorable it does well very well. If it's unfavorable doesn't do civil. But it goes on leaving it's own life has its own traits and characteristics who sat on the pyramid in the half century you've been watching the stock market has anything changed significantly in the way it reacts. The markets become very volatile. It's it's a much thinner market than we like him who shares are outstanding than it used to be back in the 20s. Businessmen generally were in the market. You know with an eight point you couldn't swallow tremendous vitamin stuff and the spices don't have that money in the market but they use that and the volume trades it in the market are very large so when they get these mornings when they want a lot of the way down to the specialist pull their bids there I have to stop you having concluded that the market is going to simply move up.

And thank you very much as in gold on our panel as I hope you'll be with us again next week will be taking a look at the most hotly debated new concept in investing in index funds which are based on the idea that if you can't beat the market you should join it. My guest Dean LeBaron is a leading advocate of such indexing will ask him to explain it and defend it. Meanwhile this has been Wall Street Week Louis Rukeyser good night. RUTH. RUTH. RUTH. 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. Bets $1 to transcripts Wall Street Week Owings Mills Maryland 2 1 1 1 7. Residents of Maryland Please include four cents sales tax.

Wall Street Week was produced by the Maryland Center for Public Broadcasting which is solely responsible for its contents and was funded by public television stations the Ford Foundation and the Corporation for Public Broadcasting.