Wall Street Week with Louis Rukeyser; 1927; Peter Lynch on the Nineties

Why why. And he knew. Wall Street Week With Louis Rukeyser

is made possible by the financial support of viewers like you travelers. The company that helps provide peace of mind for over 40 million Americans. By Prudential security with a rock solid resources and market watchers in the business of making money. Produce Friday January 5. Our panelists are Howard Pete Cole who's John Dennis OUR had to call her Randall. Tonight's special guest is Peter Lynch director for Management and Research Company. The evening I'm Louis Rukeyser This is Ross we welcome back. Well I don't know what happened to Oros drugs Manual Noriega is alleged to have been sending it into the United States but the stock market sure looked like it was on something

weird this week. It began the year with a super home run on up to a new all time record above 28 10 in the Dow Jones Industrials thereby sending a whole new crew of gloomy group was out looking for aspirin. But then came a series of downers three straight days ending in a manic sell off and the stock index futures market. And along the way there were enough historical reversals in both directions to keep a regiment of therapists and a battalion of pharmacists. Those are you from dawn to dusk. Where are those alleged institutional investors actually smoking these days anyhow. It was on balance a pretty good week for the world highlighted by a memorable double act between the White House and the Vatican Embassy that caused General Noriega to check out considerably earlier than he had planned and for a different destination.

The result surprised all those folks who haven't continued to mis read the lessons of Vietnam have argued heatedly that the US could never successfully use its power anywhere and Wasn't it nice for a change to see a foreign population hearing US troops again how it will play out in the future remains to be seen. But for the moment George Bush who hasn't yet officially announced his candidacy for re-election is smiling only awaiting the opportunity to throw his Panama hat into the ring. Not so euphoric Is that how Gorbachev. And that was one of the markets depressive pills as the week ended Groby whose canonisation in the Western media may turn out to have been embarrassingly premature or postponed all meetings with foreign leaders to concentrate on the Soviet Union's Wapping domestic problems. A decision that fueled speculation that he might now have a better future in Manhattan than in Moscow. The peace mongers

of Wall Street didn't like that development nor were they enthusiastic about a string of late weak economic reports that taken together seem to indicate an economy that was too weak to start another boom. But not we can know to call for a rapid lowering of interest rates and so will the bond market credit and decline and the dollar weakened notably against the West German mark which is expected to be the big beneficiary of the Iron Curtain as meltdown and the general jitteriness even offered some mild relief to gold and silver. The stock market's manic week was as usual exacerbated by the absolute nuttiness of the institutional computer games notably and perhaps more clearly than ever before by the villainous and let it be said insufficiently maligned programmed trading. Talk about your seductive narcotics. But the week was not without its amusing footnotes notably the fasters burial of the would be super pessimist in the history

of Goutam an odd fellow who calls himself p q wall. There was mother didn't got miles of space in the more historical precincts of the financial press this past October when he announced authoritatively that it would be 20 years before the Dow ever again got as high as it was then. It was scary and sure was silly as the market promptly demonstrated by throwing him into that long long line of discredited gorillas in less than three calendar months. Why for once we didn't even have time to put him on the air and expose him before the market did the job for us. Tonight we're going to move from the ridiculous to the sublime and talk with a modest man and who I might be a long string of over publicized rises in the pan actually does have heaps of valuable advice for the average investor. Peter Whats the single best public investor of the past decade. The first call on the attics of Wall Street

the Dow began with a band a new high of twenty eight ten point one five and one impressive market breadth and strength. But then quickly began wimple in Tuesday's fifty seven point New Year's explosion was enough to keep the Dow ahead for the week. But the net gain eroded to just over 20 points as the Dow closed up 27 seventy three point to five. Down the line the results were mixed. The New York of the S&P composite actually declined but the secondary issues on the Amex and the over-the-counter market came on strong as they often do in January as were our chief elves. Ten analysts who rate the market's technical prospects over the next three to six months they lost one vote as Ned Davis switched from bullish to neutral. The net reading of plus two was now only mildly bullish and the lowest in five weeks. And of all those nervousness drives you to drink keep in mind that a survey in bartenders magazine found that the worst tippers were doctors

are the best where other bartenders I guess the doctors figure they gave at the office. Americans of all descriptions are growing more numerous. The Census Bureau reported that we began the year with just under 250 million Americans and will add another two and a half million by next New Year's Eve or roughly the population of Kansas todo. It does look strange around here. What about a what do you make of this wild and woolly start of the year. I don't think it's a surprise. First of all there was an awful lot of money and a way to get into the market and it sure went in on that first day there's no question about that but I think more sober thoughts of then that maybe this is not going to be the greatest economic year in the world. World's history and so there's been some selling all as far as I'm concerned. I'm not pessimistic Lou but I do think it's going to be a year of caution and I think there's going to be a lot of disappointment in corporate earnings as the year goes

goes on. And if those interest rates don't come down by much. Well it could be a negative economic year. You've been leading us to think that we might have interest rates coming down the bond markets and it's a pretty unsure at this point. What's been a bit of a decrease in the prime rate now for weeks and has it happens over a lot of other people and what is the bankers just trying to build up their profits. Oh I don't think so wall I think it's a wait and see this sort of thing as to whether there's going to be a demand for money or not. I still think we'll see rates come down but whether they come down enough to spread the economy is a big question. One last question that caught it because you were a bag of many years ago. Did you ever notice that the prime rate seems to go up faster than it comes down. Well sure but. I wonder why. You have been our guide to developments all over the world.

This is a week in which we focused on Eastern Europe and some of the other parts of the world. How is it going to affect the financial markets of the world as we saw this week. Well I think it's going to affect them positively. Looking back over the last year if a year ago some would have predicted what actually happened the German interest rates would go up from five and a half to a half percent. We never would have guessed you know that there would have been any hope for the German stock market under those circumstances but it finished the year up 37 percent. Not bad when you're fighting uphill against interest rates. For that we would have expected that interest rates in this country to the Down Under those circumstances but our rates did come down. And surprise surprise the dollar really didn't collapse at all. So we got through in pretty good shape no 1990 there telling us that economic growth in Germany in particular could be somewhat better than expected with the dollar down a bit from its peak against the German mark. It could mean it could be a somewhat better year for America too as we export more goods to Europe. Let me go back to the first point you make is a fascinating one. We keep hearing this is an interdependent world that all these economies are interrelated that we can't do things alone. How

can the West Germans push their rates. How can the Japanese push their rates and US rates come down. It's interesting that in 1989 we saw some separation of the seven major world economies and a good thing to really get into the economies of the world in the financial markets and the serious trouble was when everybody goes to a boom together and then you get a bus together. Unfortunately the central bank has managed to prevent the boom together and they did not and started to go more their separate ways and I think we'll see more than 1990 but there are limits. I don't think we'll see interest rates in Germany of 3 percent this year and that means there could be more latitude for interest rates to come down in the United States in the 1990s. What's the key to the next few years the first or the next. I think the next three I think we should reduce our expectations for 1990 because in 1989 when the market was up about 30 percent we borrowed I think some good results and took them out of 98. I also note that the decade of the 80s and the decade of the 50s were fantastic for stocks up about 18

percent a year where the war 62 year experience is 10 percent a year. I don't think the 90s will be anything like the 80s in terms of results of financial assets. The first year of every decade seven out of 10 of the first year the decades has been a poor one and I think we should have reduced expectations. Four thousand nine hundred ninety three are you that I like are emerging growth oil services and technology I mean this was a specific question Was it will Services it was hard to what you spoke of the price of oil I think oil will go up. Oil stocks will do well in 1890 and in the service stocks I particularly like Baker Hughes and Helberg. Why would a post war go up and we will go to will go up because we've had enough then and the companies have learned how to operate in lean times and I think that used to be a 20 percent increase in the price of oil this year. In any event and whatever happens in the markets let's make sure that 99 he turns out to be a very

good year for our viewers. Quite a battle. A number of you as a sent me questions about the U.S. national debt. So for the benefit of Lyle Anderson of Warrington Arden Andrew Mason of South Weymouth Massachusetts and some others. Would you tell us one. To whom does the government owed this money to. When was the last time the U.S. government had paid all its debts and was in surplus. How serious is this problem. How is it affecting our economy and our financial markets. Wow. Well Lou first of all the debt is owed to a lot of investors individuals pension funds banks insurance companies foreign investors and not to be overlooked is our own Social Security system which is one of the biggest investors in U.S. Treasury bonds. The last time we had a surplus in the budget was 1969 the last time we had three years it was 47. And incidentally both of those were precursors of economic downturns and the last time we had no debt.

You got to go back to early 19th century on that one and I don't know the year. It's obsolete so far as the economy is concerned these are affected dramatically because debt creates inflation and high interest rates but it also stimulates growth and already down to questions about possible investment opportunity is being created by these changes and these two are very capital investment and kind of that wonders whether you have any recommendations in the areas of banking and telecommunications in these countries and Rodolfo is working for West German construction firms that might be involved in the modernizing of East Germany's infrastructure. Good ideas all three banks in Europe are also brokers so I don't think you have to go into a bank that is particularly tied with these Germany and my choice on a price basis would be called the morrow or the Amsterdam Rotterdam. There already are as are American depository receipts traded here in this country the price of those is about 42 or 43 at the moment. Telecommunications the way I'd like to play that is to

recognize that all of the telephone systems of Eastern Europe are in need of a lot of new equipment and the company that's sure to profit from that as a German company called Siemens. And again they're already ours available and they trade for about 80 to 90 dollars. The construction engineering firm that I live in Germany and what I'm sure will benefit from what goes on in particularly East Germany and the new year is a company called models mon 80 hours available a little more expensive about 200 U.S. dollars apiece as well no guarantees in any language. Cohen How would you respond to Colleen Colby of Mount Vernon Iowa writes me as follows. If you have a growing national concern about our country's remaining garbage dumps I believe that disposable diapers will become outlawed soon or at least socially unacceptable I would like to buy stock in companies manufacture even a biodegradable disposable diapers or cloth diapers. Can you suggest any such companies.

The MISC code is right in that we've got a big problem with disposable diapers we have about 30 billion a year in there so what a prove to the world that they will be in our dumps for a long time but there's hope on the way Archer Daniels Midland has developed a corn starch ingredient that will make the waterproof layer biodegradable and I think the ABM Archer Daniels Midland is an interesting stock for that reason I don't know. A play on the cloth diapers because people really like the disposable soul. The bottom line here and it's not degrading Is that how these are going to be pampered and made biodegradable. Thank you very much. If you would like to wipe the slate clean at the bottom of things. Are powerless always cut from a different cloth pulling them down and really clean up. Just drop your money questions into our credit Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Mills Maryland 2 1 1 1 7. That's just a little dry humor folks.

And for some other thoughts on what to do tell the financial doctor comes let's go right over to me tonight special guest Peter Lynch. You're welcome. Always a joy to have you. When Peter Lynch first appeared as my guest on this program in 1982 his Fidelity Magellan Fund had about 350 million dollars for him to invest. Today it has about 12 and a half billion dollars or considerably more than the entire gross national product of Guatemala. Well you talk about a television program with an affluent audience. But while his five appearances here may not have heard much more to the point was that Mr. Lynch just kept on producing making Fidelity Magellan not just the largest but the single best performing mutual fund of the entire decade with a gain of more than 11 hundred percent. Peter what do you do for an encore in the 90s. Well I hope I've said this earlier. My goal over a longer time not every year would be the people market by 4 5 percent I think that's a real their objective. If I can do it I'd be very

happy in the accomplishment. My hero. You have told us over the years not to expect much from you that your phone was getting too big. You keep on performing well what are you doing differently why it why isn't everybody doing as well as you are one of a lot of people spend so much time predicting the big picture what the economy's going to do when interest rates are going to do. Now Alan Greenspan heads the Federal Reserve. Doesn't that mean it's Republican I suppose you know that interest rates would be spent too much time on that. I think if you look at 10 companies in upon one it's interesting you look at 20 you'll find to ride with the general public utilities after it doubled and I got a clip a lot of it probably comes with unions I look at companies that are in very good industries people who focus they'll just say I only want to look at rapid growth I think that's a big mistake. Do you think are some of the other common mistakes small investors. Well one thing they do they don't understand what they own and they also play the market that single play the market then more damage I think we've had this great year bull market and people have lost money. It's obvious they're going into the market they've bought options they get out.

You were in the company. You don't want a lottery ticket. The company does well a grom are limited. You can do very well you have to buy the first that you get about limited Apple had 50 stores open you get about 100 stores open. You have plenty of time to do a little bit of work. It's not that hard. People are very careful with their money and they buy refrigerators and when they buy an apartment they rent apartment or care for some reason it comes the stocks they just go google they don't do any work at all. You have exemplified the patience you preach you've said yourself that you're big winners tend to come the second third fourth year you own them out the first week of the first month. Where do you as a patient invest a look now at the great values today of more of the obscure the secondary companies companies such as Bergen Brunswick Circuit City and Collins who's head of the group Hudson Bay Company like Nicole and those kind of companies that Stewart and Stevenson United Technologies U.S. shool to track the verity.

I've got 25 more improvement over the Masterpiece Theater. I mean it's more of the obscure companies that it's not that the mainstream of companies have done very well. They need a rest. You were ahead of the market last year in one respect in that you always avoided technology companies could you say you don't understand what they do right. These are all companies where you understand what they do. I was a very good idea yes very good idea what they come to us you can understand the company finally get comfortable for women you can own things the things that are working. Virtues drive it it's comfortable and they have a turnaround Lenscrafters. I can understand these companies. I do get caught up in technology normally near the high wind up and give up and buy and now some of the technology stocks are actually cyclical and there is a chance of coming like Intel is chance and companies like the turnaround companies that control that of some of those in special situations. Before I turn over the power I want to ask you one other question about your own performance which has been so spectacular but I think it would be instructive to people. How often have you had big declines in your mind that this

ticket. Well I've had in the last 12 years of on the fun times with the client in the 30 percent which is about equal to the stock market the last seven years the market has had 40 declines of 10 percent 13 of those have averaged about 33 percent. Big ones and you know that I don't think we're having one like that coming I think it's very costly. People have to say what's the likelihood the markets and we're down 10 15 percent. What am I going to do one year when that happens my going to buy more shares going at my point when I retire in a year that will send their child to college and you're going to bank now there's you know money market when you stalked a very random over 12 months and that's a big mistake if you've got a three month option you discover that fast. Let's go to the three panelist option quote Wendell who your friend is highly diversified to you because you want it that way or it has to be that way or how diversified should an individual be running a person should only follow five or six companies.

Sometimes they know something about their work in the chemical as they work in nature and history. They supply those industries they have a big edge over me. They see those turn where they have hidden or some local company know something about. So I think we should follow five or six companies and maybe only one or two. You only need one or two good stocks a decade you don't need a lot of action people so confused an element. All you make we were a thousand dollars in the stock or you can lose a thousand approved a lot of times what you make 10000 you can make 15000. You have to be patient. It doesn't happen the first hour for some years and you lose money fast in the stock market you can't make it fast. So persons they should know what they own that that's that's a huge if they can explain it to a fifth grader. One minute or less if the reason they own a stock is the stock is going to go up there after a rough start. It should be a real rational reason we should be watching about 561. Men who are presumed to have a melt down theory for everything every few years and the latest big meltdown theory an excuse for not owning stocks is because of real estate from the wing that they don't know that there's at least a little bit of truth to that if there were would you say to people

who are suffering for that anxiety. With more than one major downturn since World War 2 an average housing has occurred in Texas Oklahoma Louisiana people movie or with her family her job and the oil boom they moved to last. They put 5 percent down and a house. The job one way they look their grandchildren have nephews and sisters they left. They mailed in the Keys. So we have some very difficult commercial real estate money that's in Arizona right now residential mortgages the only thing that was on his own for a certain reason this fall there are a thousand people a day moving into California. First the companies that are in this business like companies like Freddie Mac beneficial corporate America or the West Financial. The average mortgages is only $80000 for these people. There are 65 percent loan to value these are very strong positions. The average house rose 4 percent so far this year $90000 apartment rentals are up 2 percent this year. We're not having a wipeout in

basic housing market that means if you are now you are arguing that we can handle that. So there isn't a disaster coming on this and we have more people million people working than a year ago. Peter there are a lot of very bright people invest a business that would like to have a record as good as yours and they have resources similar to yours. An analyst statistician zone what do you think when you look at yourself personally is the skill that you have that differentiates you from all the other people that are maybe just as bright trying just as hard. Ok I'm very lucky I work for delegate and we don't have an economist. We don't predict the stock market. We just have about 25 or 30 very hardworking people will look at anything we look companies in bankruptcy or bottom before the one bankruptcy that wasn't so great but we look at everything we're very flexible and it's a great company and I think we buy companies that have all sorts of problems some forms of song now they won't buy companies that start with a letter. They say those managers are bunch of jerks. We really emphasize company research and I think that's been the difference. Trying to get the big picture is so difficult.

Who were never out of time you use it as batteries I was fully invested not a market timer but you have been 11 percent in cash and that's with the highest ever for you. What does that mean. Well I've been buying stock every single day the last three months for the first time a long time money started coming to my phone and I have not been able to stop them want. So I'm just gonna let it build up. Put the money to work I bought stock today on the buy stock on Monday. Right I don't expect the big the quality of the public has not been like in 1973 the public a foreign buying was expanding. We've known all of that. Thanks very much Peter Lynch your confidence as always on fashion seems to work out over the years. Thanks to our panelists hope you will be back with us next week. Not once but twice next week. First during the Tuesday night Tuesday at 10:00 pm Eastern time in most cities check your local listings for a one hour PBS special. Louis Rukeyser was 1990 money within a reading of gas from Henry Kissinger on how the rapidly changing world will affect your pocket book to a big city mayor with a unique solution to the drug problem. Two investment losers of every

stripe design for you and then join me as usual next Friday night when we're right up the sky with a program about utilities. I guessed and province and is an expert on the industry that not only provides America's power but has lately been one of the most powerful before mayors in the stock market. But don't forget to switch us on twice next week. Meanwhile this has been Wall Street Week. LEWIS We've got a happy new year again and good night. As it has been made possible by the financial support of the travellers the company that helps provide for American business. Secure the investment in the business of making money for his program

won One Week With Louis Rukeyser owns Mills Maryland 2 1 1 1 7 0 are also available to subscribers of the Dow Jones news retrieval. Why Maryland Public Television sponsible for its content.