Wall Street Week with Louis Rukeyser; 1939; Templeton on the Nineties

Me me me. March.

Templeton living on Louis Rukeyser This is Wall Street Week. Welcome back. Well it was the first full week of spring and all over the planet the world seemed to be hovering on the cusp changing to a new and uncertain season. Americans who yearn perennially for an end to the Cold War that has distracted them from domestic comfort looked anxiously toward tiny Lithuania where a new chill threatens to disturb the pleasant image of macabre peacemaker and Democrat. Oh it wasn't that we were likely actually to do anything about it. Yes doubtless that long before Vietnam when Hungary ins Rose notably but fruitlessly in 1956. It's that we want this Soviet leader to be the Soviet leader we want him to

be and we don't want any dis tasteful banks to intervene and confuse us. And so as we watch this impotent but transfixed the US economy itself seemed between uncertain seasons just when many Americans were getting used to the idea that after seven and a half remarkable years we might finally be facing another nationwide recession. The garden bloomed with fresh contradictions. Economic growth in the final quarter of 1989 turned out to be more than twice as strong as originally reported. New home sales and consumer confidence were both picking up. A survey of Chicago purchasing agents suggested a surprising rebound in manufacturing factory orders snap back and personal income last month raced ahead more than twice as fast as spending. Oh it was still a long way from anything resembling a boom in construction contracts continued in the

doll rooms and there were fears about upcoming reports on profits and employment. But it certainly didn't smell like over session either. And that was enough to spook the bond market which had been so taken in by last winter's intimations of a severe downturn that it felt sure interest rates by now would have tumbled which they clearly hadn't. As for the stock market its own uncertainty was very much in the mood of the moment. The Bears are again in full retreat. At least the honest ones. As the market not only has held the lows of last fall but as set out toward new highs but the bulls or at least the honest ones have to be troubled too as the broad range of securities has failed notably to keep pace with the widely reported blue chip indexes like the Dow and as the market has shown heaviness and reluctance to soar it has so far been exceeded only by its reluctance to downsize the market we were told of

horrors uncertainty. But when pray tell does this planet ever provide anything else. We tonight will look beyond such passing instability in the company of a man who has shown a genius for the long view. One of the two living members of the first four man we installed last week in The Wall Street Week With Louis replies a horrible thing. John Templeton and incidentally while we intended that such recognition be an honor we plainly didn't know our own strength. Consider what happened to the other living member of the honored quartet Peter Lynch last weekend we installed him in our Hall of Fame this week clearly recognizing that there could be nothing left in this world to aspire to. Mr Winter announced his resignation as manager of the world beating Fidelity Magellan Fund to spend more time henceforth with his beautiful wife and three adorable daughters. We wish him well and he has promised me that he will come back and see us and you from time to time. But now let's get back to the

cranky custody ins of the US and see what really did happen this past week in Wall Street and at the Dow Jones Industrial Average indicates that wasn't an authentic friend in a car world with volume row and conviction row or the index of 30 giant companies meandered to a gain of less than three points for the week. A 27 0 7 point to one. The broader indexes were similarly mixed though only the Nasdaq composite index of over-the-counter stocks actually finished in the minus column or els got a notch gloomier as technical analyst Stan Weinstein shifted his outlook for the next three to six months from neutral to negative bringing the net total to minus to its lowest reading in more than a month. For months we've been warning you of that goal was failing once again to do with the bugs believed it would. This week the medal was slapped with its worst one day loss since 1983 when Incidentally it was selling for more than it does today and close at its lowest

in the early six months. And here's a special reason for seeking good financial advice if you happen to have teenage children. They are as you might have noticed expensive commodities. A survey reported the teenage boys spend an average of more than forty eight dollars a week. Well girl surprise surprise than the early seven bucks more thank you happy hour as one has been through these wars What advice do you have for parents today. I remember my daughters and that's exactly right. You know. Well what do you what do you make of this market I can't seem to set a new hive it doesn't seem to want to collapse either. Well you know we've been waiting since the Japanese stock market cracked we've been waiting for the other shoe to drop. You know what else is going to happen. And I think you hit it this week when gold really collapsed literally there are no buyers. And the interesting thing here is the Japanese stock market has tanked. Gold is down. Real estate's are not a good investment. Bonds are so-so at this point. So really it's back to stocks. Stocks seem to be the best sensible alternative if you have money. And I think that's what's happening. What's wrong

with bonds that we'll have over it and have them. Well I think we're all tired and I'm all tired of saying this if the economy is going to slow down we've been saying it for eight months now and every time we say it there's a pocket of strength and we're wearing ourselves out. Eventually I guess the economy will slow down but it just keeps on in one way or another rolling along and if it rolls along we can have the Federal Reserve lowering rates and the particular uz of stock investing that seem to be more a crock of me looked a few months ago. Well I think probably the safest road here is the telephone utilities. I happen to believe that emerging growth stocks are probably going to do something this year and all that's been said before too but that it's been in 1883 since we got a good small company market. So I think or we might take a look at some of those stocks in that area and there are a couple of nice small I guess emerging growth stocks in the drilling sector. There's a company called First brands which is an interesting emerging growth stock very little known name. So

there's a sector that mess around with a gun. These guaranteed to emerge. I hope they don't suburbs but there what do you think of French fries. I think sickly agree with Frank I think 1990 haps up in 1900 be a transition year in a number of ways. First of all from the from the consumer area that's been so strong in the last 10 years to capital goods and secondly from an area in the equity market where leverage has been highly accepted. I too will return to focus on earnings growth and strong balance sheet a real back to basics sort of situation and I continue to think that that's the case but it doesn't happen overnight. So the washout in the junk bond market would certainly contribute to your strategy. That's another thing that could have had to lift the ban just gave in the market hasn't collapsed under that weight. Well it's not going to knock the stock market down some point it was just too strong. Well I think the stock I do believe that the stock the stock market is strong. I do think the leadership is changing and I happen to also agree with Frank that a while emerging growth may not be a

stellar performer on the upside this year. I could make a case that the stocks for the first time will really go down less than say larger capitalization stocks which would signal a change over the last six or seven years. I think there is a leadership change going on. Bob Stovall you emerge some years ago it was very. What what's your perspective what's going on. All the institutions that still dominate the market and I think they've been burned so long and often with emerging growth stocks that I I think I'll wait before I get involved and I know the public isn't too active but for those that are the utility stocks appeal to me the Utility Index is at a six month low it's actually lower the other day than it was in October of last year when we when we had that that steep sell off and the utility yields are high. Now utilities usually act poorly when the investors are expecting rates to get higher still or a recession there come along. And the word out

today is that the publisher the purchasing agents rather are going to show a strong purchasing statistic on Monday. So utilities are down the yields are up and I think that there's less risk there and perhaps more current return. The counter-argument is that utilities leave the market in that they're poor performers lately suggest that all stocks are going down. You clearly don't accept that. Not this time I knew of all the industry groups that they they do tend to forecast more often than not but I think maybe they've already done the they're forecasting and the worst is over than that regard. In any event panelists It is time now to hope our viewers ring into spring. Frank Cappiello Wall Street analysts often fling around such terms as overbought and oversold but are they in fact doing anything other than running off at the mouth. Ralph Wilson of time rock Florida and Alvin Loeb of New York are among those who wonder whether there are any precise definitions for those times. There certainly are little precise definitions overbought is a situation where the stock or the market in which it's gone up very sharply and

surprisingly unexpectedly really. And in that case the assumption is that sooner or later the stock market has to rest and go down and when it goes down it's called a correction. Now the flip side of that is oversold oversold is where the stock market goes down very sharply. Again a surprise and then it runs out of sellers and the thinking is sooner or later we're going to get a rebound and rebound as the technical jargon for that particular situation got to know the definitions of they're going to play the game which applies today. I think this market is not over bought. It's over right now but thanks. How would you respond to Duane Timmons of Pelosi Grove California who writes me as follows. Year in and year out I read about the rate of Japanese inflation. On the other hand I read that a 600 square foot apartment in Tokyo cost six hundred thousand dollars so much that a three generation 100 year mortgage is now worth it. We also read about the

extraordinary rent per square foot of Japanese commercial property. Finally we hear about the cost of food being so high for the Japanese consumer. No one ever comments on the seemingly contradictory data. How can prices get so high without inflation in excess of 2 percent per year. Well the answer really Lou is in the reporting function. They sickly as far as real estate assets are concerned their assets not in the cost of living index and reflected indirectly through rent. The cost of food has been rising but that's been muted somewhat that effect by the rising yen to date. Also in the area of labor costs they've been rising but productivity gains have been significant relative to our productivity gains. And then finally in the Japanese CPI reading and recreation are significantly higher components than fuel heat and light which for instance in our CPI are very major components. So I guess one could really make the case that relative to our standards the Japanese CPI is understated.

Bob Stovall. Only God can make a tree. But Carl Nordstrom of Lawrenceburg Indiana would like to make a buck out of it. He wonders whether there is any investment opportunity in President Bush's campaign to plant a billion annually as an environmental measure. I think a billion trees a year is a great idea but I really wish the question had to do with feeding the world or improving proteins in Europe because there are some good seed companies here and the decal but there is really no way to focus in on a billion new seedling trees a year because the only tree farms are that are really big are owned by these giant companies. So a billion trees a seedling sell for 10 cents each maybe a penny profit per tree and half way or Hauser for example got all that business that would add maybe five cents a share a little to its earnings and of course they wouldn't get it. If it came about they'd spread it out over Georgia Pacific and West Vaiko and all the other three companies. Thank you for answering two questions. One we're definitely one as well.

And even if you would now like to turn over a new leaf and branch out and boost up your financial life we'll be happy to go out on a limb for you. Stop barking up the wrong trees. Get to the roots of your problem. Squirrel away your best money questions and send them to our nuts. It was Fleet Week. Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland 2 1 1 1 7. And now let's go right over and meet tonight's special guest John M. Templeton. And John welcome overwise again thank your lawyers and graduations on your induction and I'm so pleased that most are surprised to be on the initial cause all of you have always been there. John Templeton remarked the other day with characteristic modesty I am no wiser than I was 20 years ago just better known. What's absolutely unarguable is that viewers of this 20 year old program are a lot wiser today from having listened to Mr. Templeton over the

years. He is after all a part of a virtually invented global investing. A $10000 investment in this Templeton growth fund when it began in 1954 would have been worth more than one point two million dollars at the end of last year. The night Mr. Templeton sets another record as he makes his 10th appearance as my guest on this program. John the world that is your financial oyster has changed dramatically in the past year. What is the significance to investors of those changes in Eastern Europe that just wonderful Lewis surely 1089 will go down in history as one of the great turning points. We would not all of the time when these captive nations became of great boon to the poor people of those nations also will bring prosperity to the surrounding nations and prosper due to the world but much beyond that it will bring a feeling of brotherhood a feeling of release from the tremendous danger of communism and the danger of nuclear war. This will have a profound effect. In short the very optimistically share prices.

Your suggestion will be it will be good for all share prices. Is it something that provides specific opportunities in Eastern Europe before we get back to our market. Yes of course you can't invest in those nations directly. You can only invest in the corporation's nearby who will work with those nations such as the German companies but already the German market in terms of U.S. dollars is up over 50 percent in the last year so it's probably too late to rush in and buy the German stocks today. The chances are that the profits will show up for some years so you will have plenty of time to get in. It's typical of you to focus on valuation for several years. People have been charging you for having gotten out of Japan too soon. Maybe they're not saying quite so loudly this year with the Japanese market off. Is the Japanese market still overpriced in your judgment. Yes louis. We estimate that the market would have to go 50 percent lower than it is

now before we begin to find bargains in Japan. When we began to buy there 25 years ago our average cost for the best Japanese company was only three times earnings. But even today with the collapse that's occurred in the last three months they're still selling for an important four times earnings. Where are you finding bargains where people are selling you never get a bargain except when most investors are trying to sell New Zealand there's an example where the Labor Party won control of New Zealand about five years ago it was followed by a very severe depression with earnings the share prices in New Zealand less than half what they were at the peak and yet the long term outlook for it is of excellent nature it's the same size as Japan more natural resources equally intelligent people but you can buy shares there to depress prices. One more Hong Kong because what happened in mainland China the Hong Kong market last year went down 40 percent in just one month. But in our opinion that's purely temporary. It's

true that there's uncertainty when they become part of mainland China 1997. But there's also potential it could become the commercial and financial center. Billion a hundred million people just like New Yorkers the commercial financial center for portable. So the potential for the corporations and the business people of Hong Kong is excellent. And yet you can buy those shares at one quarter of the price of what some look at this cost in Japan number of viewers of recalled your comment on this program eight years ago that seemed so strange with the Dow around 800 if there was a 50/50 chance that it would end the decade at 3000. We've come pretty close to that. What do you think the 1990s will bring. Will your time there I said there was a 50/50 chance that the end of the decade of the global 3000 they got to 2800. But we missed the mark with another 3000. But now we will say some of the patterns in the OR in the audience say that the decade doesn't until the end of this year so that it will give you another few months.

Thank you but now we will say that the chances are better better than even the end of the new decade the Dow would be twice as high as it ever been before. In fact we would say better than even chance that the above 6000 sometime in this decade. When you were last here you had an extraordinary percentage of your assets in the U.S. What's the percentage today. Almost as high. We're still heavily overweighted in America but not as high as before. We don't decide which nation to put our money and we decide where is their stock selling at the lowest possible price in relation to that estimate of its value. We found more than normal in America especially in emerging growth stocks. Well that's the third time tonight we've heard that mentioned. It's been the coming attractions for so many years now that some people think it will never come. Where do you find the value. The number that literally hundreds of emerging growth stocks in America. There are 4000 new corporations formed every business day and America is the leading nation for entrepreneurship. The only nation where the number of

jobs is crippled in just the last 50 years and the corporations that for example like first investment management or let's say Robert the great supplier of accountants the temporary help they're selling for only about eight times earnings growing 20 25 percent a year whenever the need for accountants if you can find a supply of lawyers would be on the tips on how to are probably thought of Frank Caprio and John of one of your favorite investments at least in the United States is in your business the mutual fund management business. In your account you have Franklin and you have a number of other large mutual fund management companies. What do you find fascinating about these and do you think they're good buys for our viewers right now. Yes Frank they're very good. It's surprising that it's not now regarded as a growth industry. In the last 50 years the amount of money Americans have a new top has increased a thousand fold and it's still in its early stages

because Americans are beginning to realize the vesting are so difficult and complicated that they need professionals to help them and the mutual phones are the most convenient way to do them. So we do think that there are about 12 good mutual fund management companies in America about six encountered and about 12 in England and all of the good bargains to them. And John there are a number of companies out there where there are a lot of sellers right now and these are the companies where there is excess leverage incurred over the last 10 years. And I'm wondering if you see an evolving opportunity in some of these companies that have excess junk bonds or if you see some possibility for investing in bankruptcy looking looking out over the next couple of years. There will be opportunities that are open ended. We have not had a recession for over seven years and eventually there will be a recession. When you do have a recession then that's a happy hunting ground for those companies that went through bankruptcy or or come from news that are highly leveraged. Excellent

thing but let's wait a year or two. John your remark about the Japanese market have to drop 50 percent before it got interesting to you. Do you think that would happen and even if it came close what would that do to the Japanese real estate market where the Imperial Palace is apparently more valuable than Manhattan Island with Jersey City thrown in. It's probably the most exciting thing in the financial field today. It's how in the world in the world can prices be reconciled with the rest of the world. For example the long term Credit Bank of Japan says that the land values in Japan are five times as great as all the land values in America even though the nation is smaller than the state of Montana. Also a single acre located in the center of Tokyo is worth over a thousand million dollars. Those prices will eventually have to come down including share prices. But we do not think they'll come down suddenly. We do not think that this decline for the last three months will last much longer because of controls more than any other nation they tried to control their share

prices in a dozen different ways and so far have been successful. John we have one dissenter in the audience who's written me saying I dare you to ask this question is obviously asking the wrong guy. He says the Templeton Global Fund formerly global too has produced an anemic total annual return of only about five and a half percent over the past five years. While we do not want to offend a group he says it could perhaps be said we would have done as well by placing our money in a passbook account. What's your comment that you specialized in the emerging growth stocks especially the very small ones. The capitalization below 200 million. And since July of 1983 that has not been a favorable category. Sometimes you have to pay a premium 100 percent to buy that type of stock but now you can buy them at no premium above the non growth companies. So if you lose in a position where it may turn out to be the best performer in the future years. Another personal question I mention that Peter Lynch was just 46 years old announces

retirement from his fund this week. You're a couple months past that. What's going to happen to the Templeton Group when you're no longer actively managing it well now that I'm approaching middle age 77 but very slowly. I have no intention of retiring. Louis Robb gave every one of us some talents not the same talents or the same quantity of talent but some talents. And therefore I think he expects us to use them as long as he lowers. So I intend to continue to help people with investments. Thanks very much John Templeton we look forward to at least 10 to 20 more appearances on the program. Thanks to our panel and I hope you'll be back with us again next week. And if you think that time is everything. My guests have be right on the mark for your old Pella know that authority on timing investments with one's where and how and most of all when I hope our time will be you have time before opportunity marches on. And while this event last week I'm Louis Rukeyser tonight.

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