Wall Street Week with Louis Rukeyser; 0846; The Market Tells Me True

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

Produced Friday May 18 your host for Wall Street Week is Louis Rukeyser Our panelists are Frank happy hello how are you. At Daniel long tonight special guest is Joseph Granville author Granville market letter. Good evening I'm Lou if you guys are. This is Wall Street Week. Welcome back. Well folks never say never. The cynics may laugh but this was a week of wish fulfillment in America week when seemingly impossible dreams came true. Why just for starters Jerry Brown went to Washington the AFL CIO and a bunch of Republican congressmen went to court on the same side. And stocks believe it or not went up one more week like this and they'll have us believing in the tooth fairy again. Jerry Brown's trip to Washington was fuel you might say by the threat that the gasoline

lines in his laidback state might soon turn into lynch mobs if they were laid back any longer. President Carter who would like to see Governor Brown remain in Sacramento permanently promptly promised to pump some more gas into California and if necessary presumably to send Fritz Mondale to wash windshields. That outcome was happier for the president than the sight of those strange bedfellows George Meany and the GOP teaming up in court in a request to have the penalty provisions of Carter's wage and price guidelines thrown out. On the ground that they are actually about as voluntary as a fist in the face. Meanwhile back in Wall Street a place where a hot tip lately has meant hearing about an open gas station five weeks of adversity finally came to an end. The stock market checked its oil and its oil stocks and decided that the world had not yet come to an end. And so at the peak of unleaded despair it put on a

rally. Not everything about the economy was dreamy this week though the government announced that this year's first quarter have been even worse than it thought with real growth of less than half a percentage point. Other signs of a less vigorous economy included declines in industrial output and housing starts. But without a last a decline in inflation whose first quarter ravages were revised upward. All this brought to light the owners of gold which hit a new high of two hundred fifty eight dollars an ounce. Even though the dollar also strengthened. My guest tonight is a man who regards all those developments as the stuff of dreams. Joe Granville and says that the only thing you have to watch in order to predict the stock market is the stock market. And he claims it's spelling out a highly dramatic future. If it's been mostly a nightmare for you lately you won't want to miss it. First though let's see what happened when they finally rub the sand out of their eyes that this past week in Wall Street. And as the Dow Jones Industrial Average

indicates after a 50 point tumble the market struggled to move upward again. Thursday's fourteen point gain was the biggest since March. But the week's disappointing volume the lowest in more than two months left many observers unconvinced that the rally was for real for the week though the Dow was ahead by about 11 and a third points to eight hundred forty one point nine one its first advance in six weeks and the broader composite indexes of the New York and American stock exchanges in the over-the-counter market or closed strongly at their best levels in two weeks. Also Chuck Lane are the elves whose technical market index moved into positive ground last week and this week again shows a plus to read. That's still three notches short of an outright buy signal. But what do you expect from an elf. The nation's main preoccupation this week was energy. Not the usual. Who is to blame and what might we be able to do about it. But I'm more actively terrified. How am I going to be able to get to work.

Frank Caprio what Outlook the U.S. Now the nation's energy supplies and its economy in the long hot summer ahead. Well I think we have supplies somewhere but I think most probably go now. But you know we don't like oil we like refining capacity refining takes a couple of years ago in the place and basically what we're talking about is probably as Miss Smith says you have a problem too right I think. Probably unrelated to the president. Do you think we have a problem but the problem is is one of allocation rather than supply them. Well it has been one of allocation there clearing it up now they are allocating supplies in the proper manner but this is a problem won't go away because growth is there. The growth in the consumption of gasoline and if you don't have that kind of growth you have to have a short supply and it all gets back to refining capacity. That's part of the problem. What do you think of the oil stocks now in light of these developments. I think there are large oil stocks who are probably not good investments at this point in time unless you have very long range investor. They're very visible they're going to be like electric

utilities in the sense that we have all sorts of pressure on them. Politicians blame them and so on the smaller oil companies or the oil companies that have interesting speculative plays in the offshore areas or oil drilling would be the way to go if you're going to participate in energy. And I might add coal stocks might be interesting. The thesis that you buy your straw hats in January. You know we're Which way for the market as a whole. Well I think the market is probably going to surprise us by continuing to drift up simply because there's this anticipation of the enormous buying power around 20 billion dollars now is in money market instruments money market funds. That's a lot of buying power out there. People who own you have some of that buying power as president of a mutual fund what's your version of where the market's going. The market really can't decide what constitutes good news and what constitutes bad news. In fact some of the people that are most bullish on equities are looking for or encouraging higher interest rates. We're going to have a recession and they want to get the interest rates up and get it behind us. But we've got a

an operation let's do it and that White House seems to share that view. Yes they really don't know what to do either. I think they're looking more towards a November of 1990 than anything else. I think the market's a drift here. Well what does that mean. Stay on the sidelines and the market makes up its own mind. I think as long as you can get these kinds of money market rates that existed near 10 percent that you should stay on the sidelines except for some participation like the oil group as in particular. But I would not you agree with what Frank said about them being so exposed in such political footballs that some of them are dangerous. I agree with his thought that the smaller companies look better than the big companies but I do think there are some big companies that still are underpriced. Want to name a couple forces. Well Exxon would be one. I think that Mobil Standard Oil of Indiana and stole California. Whether or not you're right those companies will be pleased to hear someone saying something nice about them this week. I hope so they deserve it. We want to welcome you to our revolving panel. What do you make of this market.

Well Lou I'm very constructive about it and I believe that there's so many people anticipating the right answers that by the time the right answer gets here which may well be we're session the money it will be too late to get into the market at that point so we're heavily committing right now. Then when you were a guest on the program last year your prediction in August for the low for the year was within about five points of the actual low. With that behind you what are you looking for this year in terms of high and low. Well it's quite a risk but I think we're fairly near the low now. My guess would be that we will probably penetrate 785 and go into the mid 700 760 perhaps would be a good guess. And I'm looking for a big high. I would say over a thousand perhaps by the end of the year. Well if you're so constructive as you put it and you think it's going down to the mid 700 why you're so constructive Why don't you wait and get constructive and well I don't think that's too far to go and I think a lumber of the securities have bottomed already. We also like the energy issue so I suppose that makes me a little wary of the unanimity of opinion here but we like the energy you find if you agree with the other panelists that's a better indication. Say that.

Well thank you very much gentlemen in any event it's time now to bring some Mayflowers to our April shower viewers. Frank Caprio I'm a fine communicator like you should be just the one dance of Billy Hartman of New Orleans who wonders about the possibilities of smaller telecommunications companies grabbing more of a share of the business from giant AT&T. OK well it's a growth industry and there's no question about the possibilities in terms of revenues going to be hard to make money because AT&T does dominate this this business which is basically a telephonic communication by microwave or by telephone between major uses. Business uses the competition has come in but the Federal Communications Commission is investigating this area departed to really determine what kind of competition is in the public interest. If they decide one way some of these small companies like MCI Communications would be a very interesting play because it's a pure play does nothing but microwave communications for business. They have 10000 users but it's highly speculative. I'd stay

away from the industry and say we got some reading from the Federal Communications Commission or some legislation. An interesting growth industry would be computers talking to computers via satellite. And here. Come said it would be my bet. But no guarantees when you change your mind on the other group you give us a ring. Yes people go home. LW banks of Decatur Alabama would like to know what happens to a really stubborn stockholder if he refused to sell his shares to a company trying to take over his company. The other company gets nearly all the outstanding shares anyhow. What becomes of his holdout shares. What happens to a shareholder in that situation depends very much on the nature of the takeover bid and the particular circumstances. If it's a tender offer for part of the shares really nothing happens to the individual shareholder because he has a continued publicly traded stock. If it's a tender offer for all the shares of the company he ends up basically with an illiquid stock and no daily quotations because insufficient trading volume. If

it's a merger proposal his stock will disappear because his company will disappear and he can go into court for appraisal rights if he doesn't like the tender offer. Usually there's a premium on these offers and they're made attractive. You have to look at the specifics and I'd suggest that if you have an individual situation you ask your investment counselor or your local broker or your lawyer about what your options are. If you have many tender offers as you are. Some I would like to talk about. It's encouraging that optimistic then long Buckholtz of the textile town of Burlington North Carolina is not believed in the outlook for stocks in that industry. What's your view. Well Lou I think there are four main problems with the textile industry. Frankly it's capital intensive. A lot of machinery and equipment it's very much labor intensive. Also you have an import question you know the question of what the dollar is relative to other currencies for other producing countries. The other thing that concerns me at the present time is with increasing energy costs the feedstock costs are going to go up for the mills and perhaps in synthetics their profit margins will

come under significant pressure I would think the group would lag in any market recovery. All right. If your portfolio is already woven out of whole cloth you'd really like to find something suitable. Just throw on anything casual stroll out to the mailbox and send us your investment questions here at Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland. 2 1 1 1 7. Now before we meet tonight's special guest let's take one of our periodic looks at how the Dow Jones Industrial Average really is doing when you take it reported figures and shake them hard to eliminate all the inflation that makes them seem larger than they truly are. Our point of reference is 1913 when the Dow hit a high of eighty eight point five seven and this first line shows the reported numbers each year the pre-depression peak reached in September 1929 was 381 point 1 7 from which lofty point the Dow crashed nearly 90 percent to forty one point two to

less than three years later in July 1932. It wasn't until after World War 2 that the records of the 20s were surpassed. After stopping just short of 1966 the Dow reached its all time closing high of one thousand fifty one point seven zero on January 11th 1973 and then lost nearly 500 points before the end of 1974. In 1976 it was back over 1000. But this year's high didn't even reach 900. Taking the very long view though as of today the Dow was a husky eight hundred fifty two percent above where it was back in 1938. That performance looks a good deal less impressive however when you track the Dow in constant 1913 dollars in other words in the buying power of the dollars with which we started as measured by media general financial weekly. The 1999 peak that's one hundred twenty nine peaks shrinks from one to from 380 one to 216 which still happens to be nearly twice as high as where we stand today. The record high now becomes January

18th 1966 when the constant dollar Dow would have been at three hundred six point three eight. Since then gathering inflation has dimmed the market's attraction as of today with a nominal Dow of about 840 to the constant dollar Dow was only around one hundred eighteen or a puny gain over 66 years of a less than grand total of 33 percent. Why that's not even half a percentage point a year. When we first run this test in the bicentennial year of 1976 we calculated that it through new highs in the Dow would have had to have been an eminently patriotic 1776 by now the number that would be needed for the data set a real new record would be get ready for this one now. 21:19 well over two and a half times what it actually is. Will it ever make it in our lifetimes. Because I'm thoughts on that and other vital questions. Let's go over now and meet tonight's special guest Joseph mantel.

Joe welcome we're pleased to have to say it was. Joseph Grenville is no shrinking violet. It is May 11th newsletter he says of himself and I quote this I have made more money for people in the stock market than any other person alive today. And this is a matter of record that goes without question. Well without question from Mr. Grenville In any event. Joe Granville began publishing his Granville market letter in 1963 after writing the daily market letter for him for six years and he speaks well of his work. In an advertisement this week for example he describes his forecasting record as and again I quote. Incredible job. Since your most recent headline prediction was that the Dow Jones Industrial Average would hit 950 by May 1st and since the actual Dow in that day was eight hundred fifty five a nearly 100 points lower. I want to be fair to say you're forecasting record has descended to the somewhat credible.

Well Lewis let me say this. We get people in at the bottom and we get them out at the top. Therefore if I didn't get people out of 878 it implies that it's not the time we got incidentally that that wasn't it that was that's how it was made by one of the market makers at the CBO stood up in my talk at the Union League Club in Chicago on February 27 which was the day of the buy and they came in across from the exchange that day the market dropped 14 1/2 points a day. There were little members of hostility throughout the audience and I was very bullish. You know I didn't get to 950 that we missed that by a hundred points. The point is this. Maybe somebody who bought stocks thinking who's going on 50 and following me they still have them with me and those who are going to have you on the program this week we've got a lot of mail from readers your newsletter. Not all of whom were in trance. Let me just quote from one of them quoted your January 16th letter in which you. Called for a bullish breakout of the market that day incidentally was higher than it is right now. And you also said and I quote this I have

absolutely no doubt as to my ability to be right on the market. I cannot forsee ever making a serious mistake again in the market. Well you made a mistake it was a series of better to be all right right now. Louis that letter came from an absent player because they're the greatest warriors there are and I write a market letter not an obscene letter and we get people in it bottoms a lot of times we've got people in in November. So since that's the bottom and we're still in we haven't seen the top yet. Therefore I'm implying we're going to go above 878. Well I want you to apply what you tell me where we're going right now. OK we're going to over the next few weeks couple of months. My results in this area look for a major top probably with the 5 week pullback we've had delays in other months so therefore we could make as late as July. When you say a new high you mean over 870 right. Forty two.

That's not the most amount of production ever heard. People love to make projections and I give the illustration is about 90 miles from Chicago to Milwaukee and you say well I'm going to Milwaukee 90 miles north of here. All right so you're halfway there and I can't cross the road. What do you do when you're breaking Do you turn in other words we go where the market tells a viewer this program can't buy the Dow even for a thirty six point rise. What would you do there. I would I would say this that you're much closer to probability of getting 100 point rise from this area. We look for a bottom last week and we got it and it's good enough to support a hundred point rise from this over the next couple months. Just going over your past predictions I find they were very confident but they often vary a lot. Not even not just from what happens with each other let me just give you a couple of examples that you comment on it in November with the data within 15 points of its bottom. You were very bearish in your letter you talk for example about a near term dropped to 575 maybe and you recommended a short sale of value at 40 and that stock was 70 today less than a month

later though I read more from Joe Granville then you reversed totally Then you were predicting a possible one thousand on the Dow by the end of 78 which didn't happen either. Now when you go gravel do we really give it to you clearly because a lot of people come in the middle they get this out of context and we've got people out of the market the third week of August we went short across the board the first week of September 1978 we were famous October 10th straight down letter 48 hours before the crash. Now if we got people out of the tub and we're going down obviously you're there is all the way down until you turn blue is right. So therefore since you're bearish the week before the bottom as I was extremely bears it didn't matter because we got people out of the top and they're making money on their sort of sales. So therefore when the market told me they covered my shorts in November we covered it we put all the people back in the valley at 33. So yesterday about the stock at 70 they want to sell 40. Yes because I think it's going over a hundred in terms of the splits.

In other words we get people in the bottoms of what do you use. Aside from tea leaves had already let's keep it very simple because the simplest things in life are the most profound. There are only two things and was a person. There are only two things that can change the price of the stock and don't ever forget it. They're called supply and demand. I mean at that down there. Ok ok the economists teach one textbook you know supply and demand are the only two things that can change the prices. Supply demand are only measurable in volume the way I'd measure it with my proprietary indicators. Therefore since it is the only thing they can see is that it has to be your number one indicator. Now there are a lot of them to give to the market only paused it was in terms of its own language which is. But the most important indicator is you can't move anything without supply demand moving first. Then you changed my life.

But what does everyone look at they look at price. They're human beings. You know that prize what they pay for is that we go in and what they get when they go out there you know what you're saying that if a stock advances on heavy volume then it declines on over a period that's a favorable indication yet. Yes it's under accumulation. I have a favorable indication for you I'm going let you go now and talk to these panelists. So if I can show you claim that you don't own stocks you publicly made that I don't own any stock. OK. And yet if you're as correct as you've indicated. Why don't you. Why sell your service for a couple hundred bucks. Why not get a million dollars together and if you're that correct. You needn't bother with the clients. Well. First of all Frank I make a million dollars a year and I don't own any stocks OK. After taxes I'm going to get my services and the reason I make that kind of money is because I give that kind of service to the people out there. And therefore now that I told you before there are three reasons why I don't own any stocks number one. Because once you own anything on God's earth you are biased in favor of what

you own consciously or unconsciously. Now if I had a large portfolio of stocks and the markets going that way if I was flying to any I'll hold this hold this another couple months but not owning any stocks. You see I'm completely flexible and I go with the market. You can't be hurt either right now. Number two reason number two reason for investigation. What I mean by that is the regulatory authorities the FCC your state level regulatory authorities the first thing they look for in a fly by night Advisory Service. I mean over the years we've had many of them they come and they go with you know the first thing they look for is your position report what you own. When did you buy it. When did you recommend it and so forth because a lot of these people you know they used to recommend it and then their clientele. So that's impossible like a third reason. I put the money I make

from my business back into my business as much as I can for obvious reasons. You get the maximum tax deductions to buy stock in as little as like a biased writing Joe on the philosophy that it's better to be vaguely right and precisely wrong and that the key decision is where you want to be in the market at all. What three things would you say that our viewers can look at to tell whether the market's going to go up interest rates or earnings What three things do you look at or tell our investors take a look at or tell the direction of the market Well first of all. Interest rates have nothing to do with the market this may surprise a lot of people out there. Gold has nothing to do with the market the dollar has nothing to do with the bargain. Nothing has to do with less. The market is responding to it now a market response to anything is a technical function of what I mean by that is technical is nothing more or less than the language of the market. Now if. The market

chooses to disregard rising interest rates as it did in the first half of 1978 is turning a deaf ear on an otherwise negative development. If I went up 175 points between 1970 and August 1970 in the face of rising interest rates in the face of a slumping dollar in the face of slumping presidential popularity in the face of double digit inflation it wasn't listing all those negatives. Then when I turn bears the third week of August 1978 the market was telling they had the only authority the result of my is the market and we never ask why because the market has its own total authority. We never question that. When we got out of the market in August the market was telling us that now it was going to respond to the negatives and turn a deaf ear to the past which it did which it did show it. If you're using the market as an indicator itself it seems to make it difficult to anticipate changes and then you might be shifting back and forth quite rapidly and your bias is in your in your language.

Six to eight months might seem random. In our business of catching market swings in other words we went into the market and there were nine hundred seventy eight. We went out in August 1978. We went to short across the board in September of 78. We covered in November 78. We're still long because we're in the second phase of a bull market which hasn't seen its peak and so these swings tend to average six to eight months. These changes of direction. Right. Joe we only have about a minute left. Why don't you be a panelist for the night and tell us what the closing the highest close on the Dow be this year the lowest close and the closing close all right. I think I can give you that you have to change your mind. Well I haven't changed my mind every 27 the day that may be about making nine fifty and I would say that is still a reasonable projection for the year. I think I mentioned a thousand as a reasonable high for the year and I would hold to the same projection I made

in March when I last saw you. Presented yourself as a short time fellow but you also have a long term projection to buy 1981. Very very definitely have a long term projection. Time to get into it since I said that the bull markets tend to move in three days I need a number of time. OK. I would say eleven hundred eleven fifty by the end of 1980. OK maybe we'll live that long. I hate to interrupt our time is up. I have one to thank our guest Joseph Granville and our panelist for joining us tonight and I hope you'll be back with us again next week when my guest wee Victor Al had an expert on oil and gas tax shelters for the relatively little guy when the Rolling Stones sang Gimme Shelter they presumably didn't mean taxes at least not till the royalties started coming in. But if that's becoming your favorite song Be sure to join us. Meanwhile this has been Wall Street Week. I'm Lou if you guys are tonight. If you would like to obtain a written transcript of tonight's program send $1 to

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