Wall Street Week with Louis Rukeyser; 0605; Wall Street Bellweather

The. A. They're running for public broadcasting. Wall Street Week produced Friday July 30.

Your host for Wall Street Week is Louis Rukeyser. Our panelists are Frank Caprio Julia Walsh at Julius West time and tonight's special guest is Robert H. Stovall vice president and director of investment policy Ronald securities incorporated. Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well what can I say. I thought it was safe to leave you for two weeks. Goodness knows the market was in great shape when I last was with you so I'm going through that heavy air above 1000 toward its highest point of the year. So what happened then taking advantage of my absence as it appears to do each year no matter when I try to sneak away. The market proceeded to tumble more than 30 points before I came back on the job today. The stock market really has a nerve doesn't it. And so to all of viewers who wrote me kiddingly I trust begging me never to

take another vacation. I offer my most profound apologies. The dyke was leaking and my finger was thousands of miles away getting a suntan. As for the demons of Wall Street my message is simple enough already. Lewis is back on the job which incidentally is more than you can say for most of Wall Street. This week's trading on the New York Stock Exchange included these second third and ninth slowest days of the year. It was indeed the single lightest week of stock trading since last October. This market may not know how to go up or down very well but it sure knows how to go on vacation. Not so our politicians. Jimmy Carter told us that when it came to inflation versus unemployment his position was clear he was against both of them. Ronald Reagan who had told us repeatedly that he wanted a running mate with whom we could be compatible prove what an easy guy he is to get along with by choosing Richard swagger who was

also compatible with Fritz Mondale. As for Gerald Ford he went running down to Mississippi to explain that things had changed and he was now running as the conservative candidate for president. No wonder the market yawned. Or was it just gaping in disbelief. As for the economy the news was good but not great. The government's index of so-called leading economic indicators rose for the eighth straight month but the increase was the smallest since last November thereby adding to the feeling that the recovery was slowing. The prime rate the interest rate charged by the banks to the nation's top corporations came down a quarter point to an even 7 percent. But most economists thought it was likely soon to be zigzagging back again. And General Motors turned in the second highest quarterly earnings ever recorded by an American corporation beaten only by the spring quarter of AT&T. But even this disappointed many analysts who were looking for more. My guest tonight is a man with special interest in

this subject because in addition to being one of Wall Street's most notable Overall analysts he is a prominent custody end of a theory that holds that what's good for General Motors is good for the market. We'll see what that means shortly. But first let's see what actually did happen this past week on Wall Street. The Dow Jones Industrial Average kept right on sliding until today when the better news on interest rates sparked a mild rally abetted of course by my return of course for the week in any event the loss was cut to just over six points with the average at nine hundred eighty four point six for. Similar niggly and losses were recorded by the composite indexes of the New York and American stock exchanges and the over-the-counter market. And if you find all that depressing just look at the word from our L's there technical market index is within one notch of an outright sell signal. Obviously their best running mate would be Winnie the Pooh.

Our running mates tonight include three panelists who normally hew to the fundamentalist side of the market meaning they pay more attention to the basic economic developments than to the market's internal dynamics. But as with any witches brew their stews tend to include little of Newt as well. Let's see if their potions can help us get some better sense of direction into this sleepy summer time market. What's brewing. Well it's hard to tell I think the problem is that everyone is off on vacation no one really cares because the volume indicates no real buying interest. And yet the economy is proceeding on target. There is a slowdown which I think is healthy. We worry a lot about Carter. But he's the best of all democratic choices. So you know what I've been going for two weeks but I've been looking at some of the mail a lot of viewers think that. Some of you fellows been too hard on Carter. Number of people pointed out that the market has done well it with Democratic presidents over the years in that most food shouldn't be so political when how do you how would

you respond to them. Right well of course were we hear these statistics I would submit that the two greatest markets we have one of which was in the 1920s was during a Republican administration. But we won't go into that in the late 60s. Also with a Democratic president the market was pretty healthy really having to do with the Bible. No I really don't think so. And besides I think things are different now because we're coming out of an inflation period at a relatively high rate say 6 percent versus others. But aside from that I think Carter's a different type of man. I'm very positive on his electability although I think it's going to be a lot closer than people think and we could get a surprise but I think Carter might very well be a fine for the next four years because of a number of things not the least of which is he's a moderate. He has a good economic group. And more than anything else I think he's a fresh face and he can get a lot of things done in the Democratic Congress. I might add that we also have a lot of letters from Republicans who panelists were enthusiastically endorsing the Democratic candidate because they were part of the Democrats so I don't what you think you think you can

win. OK. Do you want your luckier in these fellows that you've been away from us for a while which is unlucky for us but it means that you can come in with the assertion that you've been right all the time you've been gone and what's going to happen next you tell us. I'm fairly optimistic. It's a difficult time I think the political situation does fogged up but I think the next couple months be very very encouraging if not more selective than we'd like it to be. But. I really am more bullish now than I was a couple years ago in terms of the long term and very enthusiastic about the intermediate term. But homeport do you think this election is to the market. I think it's very important but I think it has to also be tied very closely to where we are in a business cycle in terms of employment inflation interest in things just seem to be turning up in a lot of areas coming from Washington of course we're very close to it in. I feel strongly that we are getting a lot of the

pieces fitted together and regardless the political outcome. Things look rather optimistic. So you think we're on the upswing no matter who gets elected. Yes. Julius Westheimer What do you make of this standstill market or at least was tumbling till I got back on the job and you're back. Delighted to be here. I think Frank said something very interesting I just like to hitchhike on it for a minute. He said it's been a very quiet market and there hasn't been much buying and I would like to add to that that there hasn't been much selling either and I think this is a good sign for Wall Street. But what I think really hasn't been good for the brokers is what we need something great after this very dry period with tens of as you just pointed out we've had three of the slowest days of the year the setting. How do you keep busy with it. Well in a variety of ways one of which is calling a number of customers which I did this week and what I found was worrying them was this huge spread between the high return on bonds and the low return on stocks. This weekend bonds are yielding over 8 percent stocks yielding less than 4. But on the optimistic

side Lou I think there's reason to think that this gap is narrowing. I think interest rates could come down because a lot of companies have borrowed in advance hoping to avoid a money crunch. And on the more positive side we have had a tremendous number of dividend increases this year a record number I think fifteen hundred so far. So if dividends are coming up and interest rates are coming down this gap hopefully could be narrowing. So you want your customers to sell their bonds and buy some stocks. Well I want to do something. Only when they are on your side. This is time now to turn from this forum to remarket to our unswerving viewers and answer some of their questions from campy of the continuing tumble in the world gold prices not killed all interest in that metal. Many viewers think it may now be getting down to bargain levels. We want your view on that of course but Jane Morefield of Arlington Virginia is specifically interested in gold coins. What is the most practical way of buying them she asks and in what denomination. How can one check out a coin dealer worthiness etc..

OK well first of all I think gold is an interesting purchase now as opposed to two years ago for a fraction of one's savings. Gold coins are extremely difficult to to invest in primarily because you're dealing with two types you're dealing with the scarcity value. Sort of like buying paintings and here you're talking talking about coins. In the several hundreds of thousands of dollars cost there is and also also another way you buy coins for their gold value. And here you can buy say the five peso Colombian coin which is nominated in about a quarter of an ounce of gold and things of this type the American double eagle. The difficulty is buying them from a reputable dealer and buying them at the right price. Extremely difficult you have to search around for the right dealer. I wish I could give some clues. There are not you just have to ask around and see who's got a good track record who's been honest and so on then follow the quotes in the papers. Wall Street Journal. But I wouldn't courage it I think gold coins are a poor way to invest except for a very sophisticated individual I'd rather buy gold mutual fund if I want to hedge on gold I think it might be

an interesting vehicle. You say interesting is that positive very Pozen 29 was interesting there were no I'd have very positive I think gold at one hundred seven hundred twelve is an interesting hedge maybe 4 4 5 percent of one's portfolio not as it was in one thousand seventy four. Do you waltz. This is Hazel Parker Moline Illinois wants a simple explanation of commercial paper. What it is what it yields these days and how you buy it. You might also tell us whether you think it's a wise investment for the typical individual investor. It's not a very easy one to have a simple definition but what it is is a debt instrument used by a corporation and. Selling it. True indeed individual institutional investors usually fairly short duration 90 day 60 90 days six months in which the corporation has the advantage of being able to borrow it a little less than the prime rate is say and the investor has not to get a little better than the U.S. Treasury bill rate. The problem for him is that usually comes in very large denominations. In terms of individual accounts fifty thousand one hundred thousand and it

is during a period in which it is is issued 60 90 days it is really not very negotiable. For if you suddenly need those funds you really have to wait till the time runs out. So for an individual Vester has these very carefully you can buy it from your bank or you can buy from your honest upright forthright broker. I think you have to ask them too often to come back and if anybody seems like a good investment for any of our massive us who have a few hundred thousand dollars lying around on what to do with it to his west arm How would you respond to Raymond Hemmings and Prescott Arizona who writes this in recent months there's been a number of triple-A rated bond top top ranked quality issued by foreign governments or companies paying close to nine percent in U.S. funds maturing in 10 years or less. What's your opinion of these bond safety convert ability yourself. My opinion of them is favorable as long as investor sticks to a bond whether it's a

foreign government or a foreign company that is Triple-A by Moody. He's probably on very safe ground. Some examples are the Commonwealth of Australia has some triple-A bonds. French telecommunications which is guaranteed by the French government also has and so has the European iron steel community. All of these bond yields very close to 9 percent. They're very safe by conferred ability I suspect he means marketability. They're not convertible into common stock but they are marketable and they're very good investments. OK. Now if even American bonds are Greek to you or if you have any other questions about the world of stocks and bonds just send your queries along to us here at Wall Street Week always 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 our annual look at the five best performing stock groups in the year's first half and also hand out prizes to the five worst. The gold medal in this financial Olympics measured here in terms of barren stock groups went to the movies.

Columbia Disney MCSA and 20th Century Fox showed an average gain of one hundred forty seven percent. The rest of the big five stock groups also more than doubled in the first six months of 76. They were aircraft manufacturing by an average of one hundred forty five percent. Airlines up 140 percent. Television manufacturers and broadcasters up 130 percent and automakers whose Big Four stocks rose an average 113 percent. All of which presumably demonstrates that the best way to make money this year was to travel around and be entertained. So strong was this roaring bull market that even most of the worst stock groups managed to show again fifth from the bottom for example were insurance stocks which recorded what would normally be a downright healthy 28 percent increase. Also ahead were tobacco stocks up 20 percent and grocery

chains up 18 percent only two groups in fact managed to lose money for their stockholders this year. They were liquor producers down 7 percent. And let that be a lesson to you. And the worst of all gold mining stocks which fell 31 percent as the world price of the metal continued to decline. So the market seemed to be telling us in the first six months of this year not to drink smoke or lust for gold but to forget our troubles and go to the movies. What will you be telling us next. For one highly informed opinion let's go over now and meet tonight's special guest Robert Stovall. Welcome with just the lead you can come. Thank you Lewis thanks for asking me. Robert Stovall is one of the most widely quoted market analysts on Wall Street. He started there as a summer vacation messenger at the age of 14 and except for educational and military chores he's been there ever since a period of thirty six

years. Mr. STOVALL has been with runnel securities since 1969 and is now that firm's director of investment policy. Bob what are you telling your clients right now about the outlook for the economy and the stock market. We're telling our clients Low us that we're in an almost ideal environment for investing. We think that the slow expansion of the economy after some very fast months is good. Slower is definitely better. We think that excesses are not showing up and the economy will probably do well through most if not all of next year. We think there's a chance that long term interest rates will decline slightly that inflation won't creep up too much. And we think we might have been a little too low on our earnings guesses for this year and next year. So we're advising clients that bonds are a good value that. Most common stocks. Certainly not all. And we think that the strategy

of writing options against certain common stocks that have already had big moves makes sense. You've given a pretty optimistic forecast through next year just to refer to our earlier discussion. Does that hold no matter who is elected in November. I think it's very clear that the stock market would prefer more of the same the stock market seems to admire what Mr. Ford has done in vetoing all the very expansive spending bills. And I feel personally that were he nominated and elected we have a chance of duplicating the Eisenhower markets under Mr. Ford sort of a caretaker Father image type president in government counterbalanced with the Congress of a different party a very vigorous press and a court Supreme Court that acts like a legislature. I think we could have a duplication of the Eisenhower market and remember the Dow went up one hundred twenty some odd percent under Ike. Governor Reagan might try to push toward a balanced budget quickly if the

Congress would let him and push us into a recession a little early earlier than ordinarily at least I think the market would feel that way. And Mr. Carter we have got a unknown quantity. The market has done well under Democrats so far this century. Actually I have some statistics about 5 to 1 in terms of their performance under Democrats versus Republicans going back some 75 years but still I think as an unknown factor the market would be very fearful of a return to super inflation and high interest rates if you just look at his platform. I want to take you now about as far from politics as you can into the arcane world of technical analysis. I mentioned that you were the Among the prominent kust Odeon's of the GM theory General Motors stock. So we set the stage closed at seventy two and three quarters on April 6th. As I understand your theory it has to close above that mark by August 6th. Today incidentally GM closed more than four points lower than that at sixty eight and a half. Why do you believe that matters and does

that mean that after all those optimistic words you're about to give us a sell signal. First of all Lois I don't believe that any adult should identify him too much with any one theory I don't know of any person who has really succeeded for a long time in this business was locked into one one specialty only. But I am a customer to another General Motors bellwether partially because of these years custodians make more than brokers. But you've cleaned up have you. We have but under this theory is General Motors being the largest industrial concern in the world with hundreds of thousands of employees in and 290 million shares is a reflection of international business conditions. Can't be manipulated is just too big. And what engine Charlie Wilson said years ago that what's good for GM is good for the country. Certainly applies to the stock market. This theory traces the action of General Motors stock as a leader of the market up or down. Back to the early 1930s. And sure enough it shows that when GM is in an

uptrend. And is able to make higher highs consistently the whole market is in no serious trouble. When GM is in a downtrend keeps making lower lows the market is suspect at best. Now you have a very important thing coming up to the growing army of bellwether rights because this coming Friday August 6 unless our viewers unleash their pent up buying power. GM is not going to be able to sell above 72 in three quarters because it's now around as you say 68 or so. We have some bears in the audience too but I guess you do. So as if it's a purely mechanical theory and four months will pass without a high or high and then the GM bellwether will flip into a caution period. Where would you sell at that point. I personally wouldn't. The GM bellwether has been wrong a few times. As I say in my writings on it it's been more correct than any other single technique I know of people who are here to one

forecasting tool but it has made mistakes in 64 and 65 told us to sell then in appropriately and it told us to buy early in 1970 for which was a mistake. To Bob it's time for me now to turn to my own investment policy committee which is chaired tonight by Mr Caprio. Thank you Lou. You just have a bunch of theories I mean the GM theories only one of them you have another called the ages EE theory that I've heard you expound on ask Frank if you write as often as I do you have to have a lot of theories because if they're not all and at the same time. Yes the a disease theory is really the poor man's growth performance index. I thought of this during the early 1970s when the growth stocks the top tier stocks were outperforming just about everything else. And I realize that all you needed to be a good growth stock performer during that kind of environment was a good idea of American industry a firm grasp of the alphabet and a pencil in the stock market tables. I asked myself and

every man type investor what stock comes to mind the letter A. And you'd say Avon right. Abbott B Burroughs. See Corning Glass or Coca-Cola. It wouldn't matter which growth stock you picked. And during that period 1971 through mid 1973 late 73. This age is the growth list outperform the Dow substantially and I feel that we're coming into a period in the economy when the slow growth will continue perhaps for a long time and the growth stocks will begin outperforming the smokestack stocks you might say will be banking the furnace as that smokestack America. If that's the case. This is a growth list will be very useful and I'm in the process of dust it off I'll publish it again in a week or two. Well you have another theory that I'd love to have you expand for our audience and that is your theory of the Importance of every individual investor to the marketplace. Rich people are losing sight of in recent years Julia that touches close to home

because it irritates me to see in the media that the institutional investor is 70 or 75 percent of the market. First of all of the total market universe there's a constant 25 percent or so that specialists and intra affirm intra member trading. So it's only about 75 percent of every day's volume that is outsiders trading intermediaries institutions individuals. And the common wisdom is that 70 percent of that 75 percent is the institutional with the 30 percent for the public. Now I've gone back and investigated the New York Stock Exchange or transaction studies in the 1980s and thereafter and while the questions were phrased the way they were I don't know but included in institutionalise are such things as investment clubs guardianships for children burial societies religious organizations personal trusts. Now on the up and down investment club of Mountain Lakes New Jersey puts in an order to buy 15 shares

of Coca-Cola. I don't think they feel they're upsetting the marketplace or when you buy shares of AT&T for one of your children you don't feel like an institution. When I shift those questionable categories on the institutional side to the individual side you get an almost 50/50 balance. And carry it a step further. Just look at the earnings of the big brokerage houses. Almost all of them derive at least 75 80 percent of their business from individuals and the earnings go up when the volume rises and the individual is active and the earnings come down as it did in the second quarter when the individual is less active. Yet you spoke favorably of growth stock so I love you very dearly. Would you be kind enough to mention three or four that you think are unusually attractive at the present time so I could get back on the right track with some of my past and present customers. I'd sooner talk about industry because I have enough enemies as they are usually a few but we think that some of the most undervalued industries

in the whole universe would include drugs cosmetics pollution control. Brewing. And soft drinks and Representative stocks in those industries which we think are undervalued it might also include oil and gas and oil drilling would include Coca-Cola Dr. Pepper in soft drinks shirts and isor Bush and brewing in gas would be Louisiana Land. The standard of California shale. Drugs would probably be. A merc. And a few others in those categories these groups are of a growth nature have underperformed the broad averages during this market phase. We only have about half a minute left. I should point out that even as good a forecaster Hugh isn't always right you've been a little too optimistic about 76 so far right. What do you see for the rest of the year.

I've been wrong the last few months I thought that the market would be at a new high by now Lois. And it isn't. I think that the market will probably make a new high between now and the end of the year. Eleven hundred or so I think it will go on hire in 1977 in the early months then I'm afraid the market may see its high for 77 by April then begin discounting the new president theory the first year of any new president's term is the time for the bad news. Although I have to stop you but you think you'll be ok till spring. Yes. Thanks very much Bob Stovall thanks to our guests and hope you'll be back with us next week when another of our triumphs of courage over Prudence we're going to take a hard look at the financial facts of the broadcasting industry. My guest will be Dennis Liebowitz a leading expert on broadcasting stocks. So if you'd like to take revenge on TV by taking a profit on TV when I tune into this station. Meanwhile this has been Wall Street Week I'm Louis Rukeyser. Good night. If you would like to obtain a written transcript of tonight's program. Send $1 to

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