Wall Street Week with Louis Rukeyser; 1616; Will Everything be Made in Japan?

Why. Why. Room for. The. Wall Street Week With Louis Rukeyser brought to you by a public television stations and by Hilton Hotels. America's business address and its subsidiary Conrad international

hotels competition makes American business Xcel Prudential Bache securities the investment firm with rock solid resources that's leading the way to the Future for Investors. And the Sperry corporation providing high technology computer based systems solutions to the complex problems of business government and defense. Produce Friday October 17. Our panelists are Howard P. call home. Robert Stovall and William waters tonight special guest used chairman of Sony Corporation. Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. A favorite debate of historians is over whether individual men and women can truly change the tide of human progress or whether such people are in reality jest borne along by irresistible waves. I

kind of like the first argument it does after all give us a better excuse for going on living. And tonight I'll be talking with a man who not only embody is one of the most dramatic changes of the last 40 years but personally had much to do with bringing it about. His name is Akio Morita. He is the chairman then guiding spirit of Sony Corp. and more than that the flesh and blood symbol of the country. So many in American business and labor have come to fear and even hate the country that perform the most astounding economic miracle of the 20th century by losing the war. And winning the peace. Japan. Americans with long memories can recall the time little more than a generation ago when Made in Japan was a label to be avoided suggesting the shoddy the imitative the cheap and the secondhand. What a reversal today when Japanese manufacturers have been so brilliantly successful at selling to and in many cases even

taking over American markets. Practically every politician in the US is scrambling to touch our nerves of xenophobia and to find a way of restricting and weakening these seemingly omnipotent foreign devils. Consider the news this week alone when the US government reported that more than a third of our trade deficit in August was accounted for by Japan alone 4.7 billion dollars. Well over twice as much as we had with any other country. Or look at the all too typical furor this time involving Japanese ship producers who were accused this week of the awful crime of selling their semiconductors outside the U.S. at steep discounts thereby it was alleged sabotage in still another U.S. Japanese trade pact designed to keep the other side in check. Are the Japanese unfair traitors sneakily invading foreign markets while stiffly excluding us from theirs. Or are they a phenomenon

from whom we can better had learned. Or is it maybe just maybe a little bit of both. Then I will be putting those questions to the one man who may be best equipped to answer them. Who has been called Japan's unofficial ambassador to the world. But it manages in his outspoken way to say things that irritate politicians on both sides of the Pacific which means it can't be all bad. First let's turn from the gentlemen of Japan and see what the Lord High Executioner has of Wall Street were up to in the week has passed. And as the Dow Jones Industrial Average indicates those who keep counting in this market out will food again. In its best weekly performance in more than two months the Dow scored its fifth straight weekly advance and finished solidly above 18:00 for the first week since September 5th. For this week the average of 30 big blue chip stocks gained nearly 44 points to close at eight hundred thirty seven point zero four. Most of the broader

market indexes also had their best showing in weeks with the notable exception of the energy heavy AMEX which was constrained by uncertainty over the outlook for oil prices. They yawn of the week was earned by our elves whose technical market index was stuck at a mildly bullish plus two for the six straight week. One more report like that and we'll have to follow it with the announcement. This is a recording. Not much action for the U.S. dollar either. While the precious metals lost a bit the economic news was the now familiar mixed bag retail sales up primarily because of the latest auto incentive deals. Housing starts fading and industrial output the weakest spot of all. Bob Stovall has this market turnaround made you a believer yet. I'm looking for a leader just like the world is I guess and I think I see where you're getting it in the transportation sector. I didn't get much publicity little but the Dow transportation average made a new all time high during the week and that's one half

of a Dow Theory buy signal. The industrials would have to move up to a new high above 1919 to confirm that. But what happens then. Well the people who believe in the Dow Theory will get some reinforcement of. But of course by that time we'll all know that the market is really moving up just not gradually as it has been. I make sure I understand that if the market goes up we'll be convinced the market has gone up. Dow theorists Well most of us would have known it beforehand. Katie bar the door then goes in 1920 it goes to 6000 according to that theory. Yes you know you don't really believe that stuff. All I like to have it in my my quiver of arrows you might say but generally the market is moving up very nicely when you consider. That the election may give us a surprise and we've had no reinforcement for earnings or interest rate so it shows that a large amount of buying power the power out there is committing itself to stocks without much evidence that is the way to go. If surprise the election might be if a developing issue. Exactly exactly. But what has been with us for a while so you are presumed to have called every turn of the market

since then with total accuracy. What do you call it now. I think the market is showing some time signs of getting tired Lou I can see it going up into the lower 1900s but this move I don't think it will be on its ride yet to 6000 I think in the intermediate term I would settle for two. Well I'd settle for that but I think we've got to come down and test a bit down around 700 maybe a touch below to build a base for the next leg up but I think long term we're still in a secular bull market. Would you explain why the market has to the down low to go up catch its breath. You can't run up a hill without stopping and sometimes you have to slow down a little bit to keep running down to about 17 40 70 and 50 and then turning around. So yes there it is it has to go down and not turn around. Well I think it's going to go down and I think then the thing that will kick in on the upside is going to be a further reduction in interest rates I really think the key to the future of this market is interest rates or the bond market was ailing this week even while stocks event which surprised a number of people including yourself including myself.

Well if you were surprised I'm just totally dumbfounded because what do you make of what's going on. I think the big factor in the market is the impact of the tax bill. I think there's a lot of capital gain selling because the capital gains rates going up in January. I think people realize that business taxes are going up. Even personal taxes are going to go up in 1907 to a question come down in the election year 88. And there's a lot of changes making for mergers and acquisitions done in 1986. So the tax bill with all its implications is affecting the market. Do you think that's going to be a negative right through the end of the year. Yes I think there will be maybe talk about December 15th when it's all over. And to me the most attractive sector of the market today is the over-the-counter market. Why is that. It's been out of favor. It is under the selling because more people who are taxable own shares in the over-the-counter market than the big stocks which are tax exempt organizations. The stocks are out of favor and they have been out of favor really for two or three years. And I think I'd have money in small cap mutual funds. You have followed energy very closely for years what your forecast now on the oil price

drifting slightly upward not going anywhere. I don't think that is yet an attractive area and I'd be on the sidelines still slippery still safely sliding away. All right in any event gentlemen it is time now to strengthen the balance of payments of our viewers. Bob Stovall a number of viewers are concerned that the growth of speculative financial innovations like options and futures is paving the way for a 1929 style crash. For example Gerri mayor of Novato California says he's convinced that stock index futures are in his words nothing more than gambling. And Ray Jones of Council Bluffs Iowa finds an eerie similarity between options trading and the very low cash margins that were required back in 1999. You think they're right to be scared. No I don't think they should be scared I think people are fearful because they don't understand it and the programs are machine driven and that they're rather new. But to try to answer the question specifically it's not gambling who is gambling what applied to people who bought the

options and leverage themselves and hopeful of a big movie the opera down but most users of these options are institutions of usit index funds or in portfolio insurers they use it for hedging. They use it as an insurance to keep a big move from developing. Now the final aspect of the question having to do with margin calls options. You can lose the total amount of money you have in the option no more. The futures you can be called a market so it's not nearly as risky as the low margins of the 900 twenties. I think the water is John Robert Douglas of what you will of Florida. Notice that over the past two or three years as he puts it many shares of stock of older more mature companies have been withdrawn from the marketplace through corporate takeover companies buying back their own stock of companies going private. He wonders whether there are any statistics on how far this trend is going and whether a supply shortage of stocks available for purchase is in fact the driving force behind the market's recent upward moves.

Mr. Douglas is right on Lou in the last two and a half years almost 200 billion dollars of equity has come out of the market and that's about 9 percent of the overall equity in the market. And then when you match that against institutional cash being the highest now in two years corporate cash for further buyback programs being the highest it's been in two years and lots of demand for U.S. stocks from foreign buyers. You've got a classic supply demand situation more dollars chasing fewer shares. So he's absolutely right. We better buy these stocks while they're still available and I think there's a little element of that in there and I think this is one of the things aside from the fundamentals which have been strong this is one of the things that indeed is fueled this market. People call whom William a tease of Tallahassee Florida figures that with the greatly increased volume of trading in stocks these days the brokerage house stocks themselves want to be good buys. So if you are not a broker and therefore presumably dispassionate in these matters would you tell him whether you agree with him about any particular brokerage firms. Listen he's right that there have been a great deal interest in the brokerage stocks. About

20 have gone public since 1982 and basically it's the thought that financial assets are more attractive than tangible assets. In the last year there's been a lot of speculation that major Wall Street houses would be taken over and in the last few weeks of the Sumitomo Bank from Japan took a major interest in Goldman Sachs further increasing the speculation. I don't think the major brokerage firms are attractive because of the speculation they may not may or may not be true. I do think the regional firms are interesting too in particular A.G. Edwards and Alexander Brown and Baltimore. But on balance I don't think I'd tell my broker to stock up on brokerage house stocks unless I was looking to give him a big commission long enough to form a commission to applaud you for that one. And then the event. Now if you folks out there would like to go for broke loose and he wants them. To make some money out of them for a change why not commissioned us to give you financial advice that is absolutely free and guaranteed by me to be worth it. Send your no account questions 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. And now let's go right on over to meet tonight's special guest. A Keogh Morita. Welcome we're just delighted to have you here. Please have a seat. Forty years ago Akio Morita a teacher of applied physics and the heir to a venerable Saki brewing business co founded what is now the Sony Corporation from fragile beginnings with a simple rice cooker that failed. The company has grown to become a seven billion dollar industrial empire that covers 170 countries employs more than 40000 people and has shares traded on 23 stock exchanges in 12 countries. And he has just coauthored a book titled appropriately enough made in Japan a P.O. is Japan an unfair player in the world economic game.

I don't think so because that maybe that is a difference in the viewpoint. For example from us some time American troops fear for example America all the money for export but on the other hand them buying from Japan automobile and those yet they built it increasingly saw such as for us the fish do you think that Japan should open its doors more to American products I think that the Japanese monkey does apply to all and out many many Japanese company and I'm a gun company and doing good business in Japan. You have often spoken out against your own government though in suggesting that it ought to be more open. Yes Judy did not Jerry. Yeah some buddy. Did you call flow for 14 so I was walking 2

to diminish such a program. Why do you think there is this outcry in America against Japanese imports. I mean you know that Japanese products coming in so many American politicians talking now of protectionism Why do you think this is happening I think that the Japanese trade imbalance has been quite a bit. But but from my own viewpoint we have never forced American to buy a product by the American industry buying one in one Japanese component and it was jumping the machine even with them we've completed all the models to what extent have you gained an edge in Japan because your labor is cheaper than the labor in America now that you know that you can reach Unchained at quite a bit to keep us in the last two or months. Now jet planes are labor is much more expensive than American labor. You find work or for work or the Japanese labor is now more expensive.

Oh yes the street is that why you are establishing more operations in America. Yes yes already we establish our open regime in 1970 but the sense of being we are expanding more than one one and a specie of JE fly. We are expanding production output in Cheney's country. Getting some of that cheap American labor. Yes yes we are. What's been your experience in San Diego or did you find that American workers were lazier and not as efficient as Japanese workers we found American accent. You know interestingly enough when we made the announcement of a starvation factory we received inquiries from American with America made Sony has a same quality. But now you know we have an excellent quality and exceed in productivity and the wonderful love. Plus we have very much that's why the American walk you have suggested strongly but the problem is not that the American worker is weak the problem is that American management is weak. Yes but you will spend on what I think American money

running company is too short sighted bases because they are warning about profit. Stock up on the court they procreate. So that's why America money to run the company leases is that Wall Street for because it puts pressure on the companies to have those. Maybe money will be free when the system is wrong. Maybe How would you change it. But for example you know I make money flows to disclose every cool detail but such a detail result and each womans result is nothing to do with a company from wrongdoing the point so it was still present go on up and down you should say I did base it does danger. It's hot the Long-Range site here your company has had many mammoth

successes. It's also had some that were not so successful and some outright failures. As I read your book and study your history I find that the cliches break down for example the cliche is that there was a great consensus in a Japanese company that everybody works together but you almost singlehandedly made your company produce the Sony Walkman. The consensus was against it was not an exception to your own rule. Of course you know that when I got the idea people didn't understand and I didn't agree with me but I watched the video to get them understand my concept why I reached this conclusion and then finally I got a consensus that's why we went to the must production. Many American firms would have taken a consumer survey would have found there was no demand for the product and wouldn't of made it. Do you not believe in consumer service. Some consumers of either you are asking the consumer the people who need this wheeze and people don't

understand that future trend of growing by the company elite norm. I won't ignore it and that we must create. How to Use your eyes. I want to grow into what kind of problem. That's what I don't want to ask the general public. How many how many of our problems in America do you think are because we have as compared with Japan. Too few engineers and too many lawyers. You know we have a lot from the United States for example. I'm a gun industry have opprobrium the quality control but the basic idea of the quality the role we introduce from United States. So I think you have ABC security bases. People are already in full bloom in how to implement that. Your fuel your idea and Your Honor we have assembled a panel of Globe girdling experts So let's start with the large girdle of Bob's.

Very few of the larger you know we have a new tax bill in this country and yet most Americans are confused about the impact it will have if any. How deep how do you think your company will react to the new lower corporate and individual time I think it's a good wast to to to expand opening these countries who can get the benefit of both a lot of that corporation. It's a game I put more capital to work here yes. Yes we do and also you know under the say that I striation it's better for us to move the production proceeds in this country. Mr. Reed I want to go back to your labor costs. You talked about with Louis a minute ago with the strength of the in your labor costs are indeed high in fact many times higher now than the labor costs in say Korea or Taiwan where the goods have a quality image as well. How are you going to keep your market share and your profits in the face of that how are you going to carry under these circumstances. You know with a change of 50 plus and change with the last two months

it's very difficult for us to keep appropriate N Korea Taiwan that currency is almost you know it's not. So we lose that advantage substantially to these countries. So that's why I'm always saying that today's exchange rate system is wrong. Lol for you and for us and because we don't know and the we cannot make any forecast or prediction for the future. So I don't I could be said today's ruling says there. And also the exchange rate so much repartee by the money trade. And you know the success in Japan has probably made Japan the world's banker and by that I mean that 15 years ago there was no Japanese bank in the world's top 10 banks. Today seven of the 10 biggest banks in the

world are Japanese. Four of the five biggest banks are Japanese. What is Japan going to do with this new power and responsibility particularly with the less developed countries. I know the banca saw the supply media always at the station and I don't know how the Japanese bunked we react because I can read the Japanese bunker. But as a Japanese become reach to feel our responsibility to help. Developing countries. What advice would you give to an American manufacturer who feels that his company knows that his company is losing ground because of Japanese imports. You know know know you had such a weak dollar. I hope you we paid production but into the United States because for lost pay is wired to strong use you shift your production outside the United States and they you roast your

jobs and also you must import it would seem to the United States. That's where you will be increased. So I think I'm making industry must produce the goods in this country. How much of your own early technology was in fact made in the USA of course you know for example basic the Chinese that we get the license and the mini menu to grow and we learn not only basic weed on that money. Misspelled accounting missile quality control missile missile but we we tried to utilize the concept of the missile into our put. But but to make real good business as an industry cool invention is only basic invention does anything and is we have a good product running concept and also good marketing creating you know who

is who to create to be kewl product prime and also marketing. Creativity is necessary to to establish a new market when we know you are out of time. How soon do you think the U.S. could get rid of its trade deficit if it is the things you suggest. I don't know when when but I think depend upon your input. Where should we start. I think that your budget deficit must be corrected fast. But it's interesting that it seems so clear from overseas it seems clear to most Americans but when you cross the District of Columbia line it becomes complicated. Thank you very much Akio Morita thanks very much. Panelists hope you'll be back live again next week then we'll look at the serious money in Philbin's toys. My guest Robin Young is a leading analyst of the toy industry. So if you have a thought that the Cabbage Patch Kids and Teddy Ruxpin made a lot more sense than most of what you hear on Wall Street it may be your chance to find out how right you were. And while this event last

week. I'm with you guys in the night. Wall Street Week With Louis Rukeyser has been brought to you by a public television station. And by Hilton Hotels America's business address and its subsidiary Conrad International Hotel competition makes American business Excel. Prudential Securities the investment firm with rock solid resources that's leading the way to the Future for Investors and the spiri corporation providing high technology computer based systems solutions to the complex problems of business government and defense. Britta transcript of this program. Send $3 to transcript.

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