Wall Street Week with Louis Rukeyser; 0339; Can You Profit From A Monetary Crisis?

Were. There one Center for Public Broadcasting. This program is made possible by grants from the Ford Foundation and the Corporation for Public Broadcasting. Wall Street Week produced line Friday June

28. Your host for Wall Street Week is Louis Rukeyser. Our panelists are Frank Cappy yello James Price and William waters. Tonight's special guest is Harry Brown author you can profit from a monetary crisis. Believe me I'm Louis Rukeyser This is Wall Street Week. Welcome back. In the interest of the public health and safety it might be appropriate for us to begin tonight with a warning our own revised version of the cautionary announcement that sometimes appears before television shows are expected to be more than usually racy or gory. The following program may not be suitable for children. On this case it's not the kids we're worried about our version would read more or less like this. The following program may be dangerous for adult investors with weak hearts. The danger lies in the words we're going to hear from my special guest Terry Brown. That might be described as the

1970s version of the town crier in the current cult of gloom and doom Brown is at least an archbishop. He has written bestselling books telling us that we ain't seen nothing yet thereby demonstrating that he at least knows how to profit from the monetary crisis. Just last night he gave out his views at Carnegie Hall to an audience that paid up to 40. Admittedly depreciating American dollars each. Tonight you can see I'm here for our customary price of admission no gold coins or mountain retreat necessary but if I were you I would keep some smelling salts handy. Since we're hearing so much pessimism from Brown later in the program I thought it would be a good idea in the interests of journalistic balance and possibly mental health to begin with some exceptionally cheerful and optimistic news about the economy. It was a good idea. But it was the wrong week. Economy just plain refused to cooperate. The two features that are most obsess in the stock market just now inflation and interest rates

both boiled along that excruciating double digit pace is the prime interest rate which as every American schoolboy now should know is the one the banks charge their biggest and best corporate customers. It's currently looking its flames just below 12 percent which happens to be the rate at which many ordinary Americans can borrow from their banks just by overdrawing their accounts. If the Prime gets any higher it may then open up the interesting spectacle of people like you and me telephony in the treasuries of General Motors and US Steel and asking them if they'd like a couple of bucks to tide them over until payday. But don't hold your breath. Do take a moment though to look at the impact of all this depressing news this past week on Wall Street. The Dow Jones Industrial Average is continuing to look like that down Jones industrial average despite a small and highly temporary technical bounce early in the week. The index of 30 blue chip stocks wended its way further downhill to within about seven points of its 1974 low for the week the Dow average

dropped about 13 points to eight hundred two point four one. In addition to the now prevalent 11 and three quarters percent prime rate the market also had to contend with two other disappointments. U.S. exports dropped last month for the first time in nearly two years resulting in the second biggest trade deficit in our history and loan demand at New York banks rose another half a billion or so suggesting that those high interest rates are not about to come down. What did come down was stock prices as the end axis of the New York Stock Exchange the American Stock Exchange in the over-the-counter market show but not even all this news plus some downward revisions from the president's Council of Economic Advisors could discourage our indomitable if not infallible elves. Their Wall Street Week technical market index continues to maintain that a rally that will explode your pumpernickel. It's just a matter of time. Remember you heard it here first. But forget who told you.

Meanwhile I'm indebted to Guy grace a viewer in Piedmont California for sending us a clipping about a would be prophet in Japan who predicted a major earthquake that somehow failed to occur. The gentleman in question then did what he considered the honorable thing flashing himself across the stomach with a samurai sword. Was he later explained to police his way of assuming the responsibility for a wrong prediction. How do you think that would work on Wall Street. Probably pretty well for some brokers I couldn't bring a sword couldn't fit into the car with all arraign. It's not part of your tradition at least not in my ethnic background. But. You know what we need in this market is really patience and it's pretty tried these palpation is sorrow. But what you know we used to live month to month statistics not too long ago. Now we're living as someone quoted from Thursday to Thursday. These business loans may put the market up or they may put the market down and there's no question in my mind short term the market is going to go up or down

based upon the prime. And we're all guessing now will the prime go through as well and I still think that 12 should be the top. But you know I said not too long ago that we probably wouldn't go through 11. But that's immaterial really the point is they struck out something. That's right. And look at him. But the point is that we're darn close to the top. We are peaking and that's the important factor. I just like to make one other comment. The Fed is persisting and in a way it's very painful it was a yes. I'm confident I know I'm one of the first OK. But painful uncomfortable but the important point is if they are really in a fight for inflation and if they win we're going to be better for it if they don't win and I think we're going to blow the whole ball game and maybe Harry Brown will be will in reality be right in the water. You have the advantage of not having been with us for a while so you don't have a lot of predictions you have to explain to us tonight. Frank said everything was peaking you feeling piqued and you

broke it off and you know the program visit our office a couple of months ago and I'm glad it happened then. It's very gloomy though the guys I stood out we didn't have you know you didn't but if you had come out it would've been really you would have heard the phone ring. It would have been a very dead scene I stood out in the boardroom today for almost the whole time the market was open and the customers are staying away in droves the phone isn't ringing. You know they say though that a bull market starts at the point of maximum despair and our guys are at maximum despair one of our one of our wags said today that the market being in the market these days is like taking a random walk through a minefield and this is the same gallows humor that we're hearing in the boardroom so maybe we are at the point of despair and I mean you know where our problem in Europe was the obit. We're working on it. Jim price you have the same vintage Bill as you have been here for a while so you can come in and pretend you were right all the time you warn here and tell us now exactly what's going to happen are we now at the bottom and we're going to bounce up and have a big rally. Well actually I guess I have to say pretty much what I might have said a month ago was these interest rates are a factor. They did surprise us by popping back up again

and frankly in the face of several kind of nasty pieces of news you concluding I think the fact that room pass or interest or some such thing. We are in a position where we had a fairly decent market it could have been a lot worse now. I do think that to get this thing over with you've either got to have lower interest rates you've got to have a slowing of inflation or you've got to have a period of the extreme pessimism of the market everybody just says I give up. In which case that will attract the speculators is but it's a tough period and I think one of the things that Bill brings up. We see customers have gone into neutral and not willing to sell they're not willing to buy they're not willing to swap. Well I think I've said this before this is roll. There's got to be some constructive moves they can make. So interesting that the real sign of the times I think the best comment that any of you could find to make about this week was it could have been worse. In any event though it's time now to move from the general market to the private problems and answer some questions from my viewers.

Frank Cappiello an item's in Silver Spring Maryland. Albert Tod Lee of New Britain Connecticut and Joel de Schultz up in Montreal all share a common problem. Airline stocks or is Mr. Pataki and puts it. What advice would you offer to a poor sucker whose life savings are tied up in airlines. Well hopefully something constructive. If he's in the right type of airline the type that I think is not attractive would be the transatlantic carriers those carriers that depend upon traffic to Europe particularly Pan-Am inflation in Europe. High fuel costs the devalued dollar disposable income problem that Americans have. Make that kind of travel less frequent and less constant. I would avoid these if he has them. I think he should think about selling them the domestic trunks the United Airlines the Delta's brand of are in much better shape I think here we may see the beginnings of an improving profit margins better traffic higher

efficiencies in terms of people carried on. Percy that kind of thing and I think these these airlines should be retained and probably should be bought. The regional airlines the Southern Ozarks. I think you have a liquidity problem that is there's not enough stock out to really interesting institutions and the other ones are going to put the stock up eventually. And I think you may have some operational problems. So if he has Braniff. Delta trunk lines like this I would keep them. So there's good news for those areas you want to make my usual disclaimer that Mr. Kapinos investment recommendations in the airline field or any other carry no guaranteed estimated time of arrival. Bill waters can you help. Mrs. Mabel Hale of Omaha Wes how does one know the strategic time to convert a convertible preferred stocks and convertible bonds and one of their real advantages and disadvantages. First of all maybe I ought to say what a convertible is it's a senior security carrying a fixed rate either a bond or

preferred dividend stock that can be converted into the underlying common stock under certain terms and ratios basically convertibles are mostly good not bad Lou. A convertible has the investment merits of having a fixed return it's a fixed income security. So in the down market for the stock the convertible will sell on its own merits based on its yield in an up market. For the stock the convertible will tend to go with the stock. On the upside I think the main thing that people should be careful of in investing in convertibles is don't look at the convertible security look at the underlying security if you like its investment merits then buying the convertible may be a good way to stage into the comp price Mrs. Helen a fisher of Philadelphia would like to know exactly what is meant by a tender offer. Oh you should ask that tender. A list so it's a. Situation where an individual or a corporation or perhaps a company itself attempts to buy a stated number of shares of a company at a stated price. As a rule the

prices above the market not always but usually they offer a premium in order to attract people to turn their stock in. As a rule it's an attempt to get control over something of that nature and by going into the market where a stock may only trade a few hundred shares a day or a few thousand they couldn't do it so they pay a premium. OK now if you're concerned about tender offers that matter not so tender offers are you have any other questions about investing just send them along to us 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 a quick look at why many people are ready to believe that whatever else an American dollar may be these days it is certainly not as good as go in the middle of 1970 in fact the dollar has had the worst three years in its history among major world currencies only the British pound has done more poorly and that just barely. The dollar is worth 1 percent more in pounds than it was three years ago. The move away from the British

Isles and George Washington is smiling no longer. An American dollar buys 11 percent less than French francs than it did in 1970 while the two dollar devaluation have contributed to even greater depreciation against the Japanese yen. A currency of which the dollar now buys 20 percent less and against the West German Deutsche mark in the Swiss franc in both of which cases the loss in dollar buying power is about 30 percent. All that is bad enough for American tourists and U.S. buyers of imported products. But the worst decline in the dollar's value has been against gold of which the dollar now buys less than a quarter of what it did when the price was fixed at $35 an ounce. So three years ago without argument it would have been a lot better off converting your money from German marks or Swiss Francs or into gold. Except that's illegal. Instead of holding dollars that is the same thing necessarily true today. I had hoped at this point to go and find out from Harry Brown. Yeah we heard. I was afraid it was going to happen

in four years of doing this you know we know it's going to happen someone is not here. We thought he's going to comment during the show he took that he missed one plane and his later plane apparently they're getting from the airport here is delayed in traffic. I hope he's going to show up before we were off the air. I mean one of the take these buzzards over I'm going to talk about his book anyhow and hope he comes in to defend himself. Let me let me tell you a little bit about Harry Brown. His official biography says that he was born in 1933 and lived most of his life in the Los Angeles area tried twice to go to college but my quote He quit after a few days because he couldn't stay awake in class. I didn't stop by Harry almost ever since and teaching us his individualistic brand of economics. Lately in big selling books called how you can profit from the coming devaluation. How I found freedom in an unfree world. And now. His latest you can profit from the monetary crisis.

Well you know one thing that I think may help the sale of Brown's books is that he always seems absolutely positive that his gloomy forecast of a major depression ahead is unquestionably correct. Now I want to ask you guys whether you think there might be a glimmer of possibility that he's right that we are going to have a big depression. What do you what do you think that's going around him. Well look I think that we have more of a possibility today. That we've had in perhaps 30 years since we had a depression. There's no question there are a lot of monetary problems around the world. And there's no question that under these high money rates a lot of things are kind of coming apart at the seams and you know low money rates and good business covers up a lot of problems. The other thing is if you want a balanced answer I hope. I want an honest answer. OK I'm all right. It's on the other side of it is these books are being written all the time. Used to be a fellow named William J Baxter you know him and he wrote something like this

for 30 years in fact I once went back in the library and re read what he'd written. And he was bearish from 1933 right through nineteen forty nine or fifty you know him on a stop you there because as proof that we tell the absolute truth on this program always Harry Browne is just wrong and it was not a big put on. He's not quite with us he's being fitted for a microphone at the moment while we're waiting for Howard to join us. Let's just quickly what is what do you think I don't think so but we're going to find out now from her. I think we will be resilient. Welcome nice to have you here to see you guys. I've already introduced you and possibly sold a few more copies of your book but you don't need that. And when I was going I just mention that one of the things that may help to sell you books is that you seem absolutely confident in your belief that sooner or later a major depression is going to hit this country and I want to ever get worried yourself that maybe some of the right. I don't think I have to convince anybody of that. All they have to do is watch Wall Street week every

week. They get a pretty good idea of what's going on. All you have to do is read the newspaper. What I was predicting in 1970 has already come to pass and that is anybody who isn't and somewhat average position in this country meaning 80 or 90 percent of the people who are living at a lower standard of living than they did a year ago and they know full well that they're in a depressed area whether or not they believe that everybody else is. Well I think what you say here has a lot of truth in it there's no doubt that a lot of your basic analysis is political. Governments all over the world are damaging their currencies by inflation and the people all over the world are losing confidence but what I wonder is whether you don't go from what is an essentially conservative analysis to an essentially risky recommendation. When you suggest that the ordinary citizen or do engage in what have been historically two of the most dangerous forms of speculation in commodities gold and silver in this case and in currencies.

Well all times change sooner or later and we're at the end of a cycle rather than the beginning of someone had done this in one thousand fifty or nine hundred fifty five obviously he would have been very disappointed but the time wasn't right for then. At that time it was better to be in currency than the thing that's backing the currency. But we've long since passed the point that's what I said what I was saying before that in 1900 I was talking about the future. Now we're talking about the past in the present I don't have to convince anyone that gold is doing a lot better than the stocks I don't have to say just wait a couple more years and he'll end it although you know there's no argument that the recommendations three years ago was an excellent one I'm just curious as to whether it's necessarily equally good today. Yes it's very easy to think that to get in now would be to get in at the top and watch it go down because historically when things get popular then you become a little bit skeptical of them. But. If you just look at the number of paper dollars that are in circulation you see that you would have to have a gold price of at least two hundred seventy five dollars bare minimum before the United States government could restore convert ability of the dollar. In other words open

the doors and say anybody who wants to turn in dollars can get gold for it. Anything less than that in the gold would be wiped out in a few days. Now if inflation continues and you're going to have three hundred three hundred fifty now all of this is without even looking at the industrial demand for for gold. And of course with silver we're talking about a world wide deficit shortage that has been overwhelming the users of silver. And you would think that at 450 or $5 that would have been alleviated but the facts of the matter are that for 973 consumption went up about 15 percent and then production went up about a half a percent and the shortages hasn't even begun to be really felt yet. So whereas a few years ago I was looking for maybe six or eight dollars in silver and now I'm looking for 15 to 20 dollars because it's going to take that kind of a price to cut down consumption to the point where it will be equal with worldwide production which is not going to go up. Let me ask you this. There's no argument that three years ago the price of gold was accelerated tremendous rate when in fact most people who got into the gold buying business this

year are not making money. Gold stocks are down from their April peaks. The price of gold today is one hundred forty five dollars well below where it was earlier in the spring. Maybe it's a little late in the day is not sure. Well anyone who bought kool last early fall at one hundred twenty seven dollars or about July August it was last year could have well felt that same way in September October when the price went down to $90. And I don't advise anyone to just run out and buy gold because if he does what's going to happen is the price is going to ease off $10 $15 and he's going to say I blew it again and he's going to sell out and then a few weeks later a few months later the price is going to be 50 or 60 dollars higher and he'll have missed it always. The object is to understand what it is that's going on not just grab the hottest thing that's going around right now but understand the underlying weaknesses in the economic system where they point what would have to happen before any of these weaknesses could ever be corrected and we return to normal. Then take the positions

in gold silver Swiss Francs Dutch guilders the things that are going to survive this and then cancel your subscriptions to financial newsletters in The Wall Street Journal and quit reading the financial page start reading the entertainment page in the comics and just don't worry about it you have a book to write. Just don't worry about what's going on in the short term because these fluctuations will always happen but the overlying trends are up with the assurance of inevitability about your thesis. I'm sure a large part of its appeal. But what I want to suggest is that maybe it isn't inevitable and I want to put this to you. The major industrial countries of the world as you well know are among those with the least gold backing for their currencies. They have no incentive to go on the gold standard which you regard as inevitable. They would have every incentive to continue to try to Dean monetize gold. And the theory behind the monetizing might be that it would drive the gold price down. Is it your feeling that they could not do that. This is where the misunderstanding arises. The world is on a gold standard. It has been for 6000 years it's governments that are not on gold standards. Governments issue

paper money that they say are substitutes for gold and then tried slowly but surely to get the gold out of the way and make the paper paper currency and money. But it isn't and as a result of that the paper currency doesn't serve well as money and consequently the people themselves in making contracts and looking for security turned to gold because it is the only real money around. So my thesis is not based upon the inevitability of governments recognizing the value of gold. It's based on the fact that you have only two alternatives. Either governments will or else the marketplace will turn to gold as it has been doing in the last three or four years. So if I'm not depending on governments to do anything I want to move away from gold for a minute because one of the more melodramatic suggestions in your book is that the average citizen ought to have a sort of financial bomb shelter a retreat stocked with food and other necessities to which you can go when and if the rest of the population becomes an unruly pauperize mob. Two questions about that. First do you really think that's likely to happen. And second how if it

did would you retreat really provide any protection. Well how much protection the retreat would provide would depend on where you put it how well stocked it was how well you prepared you were to isolate yourself for quite a while. I'm not saying this is something one must do but if he's concerned about that it is a way of Levy aiding the concern. You see my object is not to shock or scare anyone. My object is to remove the fears to remove the anxiety the gloom and doom that exist today as in the financial sections of the newspapers the people who are into these investments are spared that they're insulated from the despair and frustration that's facing everyone else they're going about their business relaxed and happy as I do. And if a retreat helps to provide that kind of insurance that kind of security that kind of getting rid of the anxiety then it's a good thing for the individual and there are a lot of guidelines he can use. How do you say you're relaxed and I think that's great for anyone to be not right minute having just had a hectic two hour drive from the Washington airport.

We're delighted to have you and we appreciate the special effort you made to be here. But in your book and in what you've told us tonight you suggest that investing is really pretty simple you get a Swiss bank account you go into gold or at least gold and silver coins you turn your dollars into stronger currencies and so forth. It's all that easy. What do people get when they pay twenty five hundred dollars for a consultation when they pay $40 is going to go. Well a lot of people feel that they want to be absolutely sure they're not looking over looking any alternatives. And obviously someone who has $10000 to invest isn't going to pay me twenty five hundred dollars for a four hour consultation to confirm that. But someone who has one hundred five hundred thousand million may well feel that it's a good investment. The inevitability I'd like to come back to the reason I feel that there's a certain inevitability is because I'm basing my investment recommendations on economic theory. Where as I think most investment recommendations are based upon technical factors in the market which of course are never inevitable but merely guidelines as to when to get in when to get out when to look out and so forth. And

that's why I feel a certain inevitability about it and that does not mean I know what the price of anything is going to be three weeks from today but I know that certain factors are at work and will have to result in certain consequences over a period of time. I really just have a few seconds left I want to apologize to my panelist was an I going to get to question you although we started to question them a little bit before you showed up. I just want to ask you this and this is going to be a short one. Many people are concerned what they consider a somewhat free and easy moral tone to your book as they see it. You seem to suggest that each American decide for himself whether to break the current laws about owning gold or paying taxes. What is your view on that. Well I believe there is a free and easy moral tone but not mine. The free and easy moral tone is the one that says that anybody who's sitting in a federal board in Washington or anyone else can make more moral decisions for everyone else in the country which to me is absurd. Each individual is in this life has one life has to decide for himself what the world is all about what reality is and what makes sense to him and to be browbeaten by someone

who says you shouldn't think that way you shouldn't do this it's not fair to the rest of us. That's just silly. And I have to stop you have I thank you for coming in. Sorry that we didn't have more time with the bungler that you did that's my fault. I hope you will be with us next week my guest will be one of the best auto company analysts on Wall Street assuming there's going to be a Wall Street is named as one of Lance and will be asking him whether he thinks Detroit can once again provide some mileage for investors. Two other announcements what Wall Street Week first starting next week will be on an hour later in some areas. So please check your luggage check your local listings and second for all of us complained about our practice in previous years of lounging around for four months each summer. Wall Street Week will now be on the air 52 weeks a year. Effective immediately. You asked for it now you're going to get it. Like it or not. Meanwhile this has been Wall Street Week I'm looking. At. If you would like to obtain a written transcript up tonight's program. Send $1 to Wall

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