Wall Street Week with Louis Rukeyser; 2032; The Futures of the Market

You know. Wall Street Week With Louis with guys it is made possible by the financial support of viewers why he spied the travelers over 40 million Americans benefit from our insurance investment services and managed health care. Why and why. Providing natural gas which holds the promise for a cleaner world and a more energy independent America and won of course and the Enron Foundation and by Prudential Securities rock solid market wise.

Boost for our panelists Harvey Eisen Liam gross and Michael Holland. Tonight's special guest is Karen P. vice president and senior futures analyst Dean Witter Reynolds. Good evening I'm Louis Rukeyser This is last week. Welcome back. First of all let me say a quick thank you to all those nice folks who took seriously my suggestion last week that you rush out and send your 1991 Christmas cards before the postage rates went up again. Not only that a surprising number of people promptly follow that suggestion. We just don't know our own sprint around here even after all these years. But quite a few were nice enough to include us on their Christmas list which certainly gave us some much appreciated sings you know want. The time when less and lighten folks were celebrating such more conventional

February holidays as round hog day so I thank you and so as soon as the postal service which can always use the out of season business at a time when Federal Express and backs are taking so much of the Old Post Office trade. Ask not what your country can do for you ask what you can do for your country I always say. And with that Ted Sorensen. In any event doing things out of season was an appropriate theme for the world of money this week. That was for example the extraordinary party on Wall Street at a time when most Americans were feeling pretty grim about the state of the economy and the continuing bloody uncertainties in the Persian Gulf. And there was of course the expectable outpouring of would be gurus. Most of whom are totally confused by their weight in cycles and some of their tools of ignorance had been so bearish just before the market resumed its dramatic historic move upward. Those fellows of

course know how to disguise one more grotesque misreading of the financial calendar. They learn and suddenly what do you know. They knew it all the time. You betcha. In the out of season but welcome category was continuing evidence this week that the Federal Reserve is anxious to make up for its failure to ease monetary policy. A few months ago interest rates responded pleasantly the rates on both home mortgages and treasury bonds dropped to their lowest levels in four years. And then later on Friday a new Fed report confirming what our eyes have been telling us that banks have become even tighter with loans this past quarter was taken as further confirmation that still more Fed pumping of the money supply lies ahead. The financial markets to whom money is the most wonderful transfusion in any alien system could help or at least until the inflation numbers come in. Surged again on both the stock and bond funds. As with all commodities though more dollars

can lead to a lower price for each of them and the greenback this week hit a record low against the German mark. Nor were there yet signs that consumers fully believe the impending good news perceived by Wall Street as worries cause consumer debt to decline in December for the first time in almost two years a little bit of real peace might help there. And let's hope that season comes soon. We tonight will look not just to the future but to the future in the company of a woman who actually understands all that phonetic writing in Chicago. But first let's check out the seasoning in Wall Street. And as the Dow Jones Industrial Average indicates only the briefest bowed of profit taking on Thursday could interrupt the massive upward move in stocks which this week reached the highest volume of trade in since October 1987 in a statistical oddity. The Dow rose precisely 100 points to twenty eight thirty point sixty nine this week reaching levels not seen since

the day Saddam Hussein attacked Kuwait. And once again all the broader market indexes rose even faster than the Dow as volume and Brett continued to confirm the blue chip move so quickly was the mood improving in that one of our bullish Bell was Michael Matz grew cautious and changed his vote on the next six months to neutral. Bringing our ALS index down a notch to a still bullish plus three. Precious metals were again a mighty your own gold up a notch. So over and platinum down an ounce. Hard money indeed. And for all you smart alecs who think George Bush is a bit like Mr. Rogers. No that's not all bad. A survey of 150 preschoolers found that if little kids around the country. Mr. Rogers would be president but don't worry folks will get them next year when their allowance goes up. Harvey Eisen is all this action making you more bullish.

It has to. You were predicted as I recall it years that we would go down to about 2050 and that I would you like to revise that. Of course like every other. What has changed. War is not over. The economy is not booming. I keep trying to figure out a month ago everybody was bearish the civilized world as we know it was under all the banks went under and lo and behold things have changed. But what really is change of course is the war has gone much better than people had anticipated. And the single most important thing has been just an incredible change in Federal Reserve policy. The Fed has put the accelerator all the way through the floor and it's trying to really just keep it there. Is there any case on record where Fed pumping like this did not lead to a better financial market. No never. What should people do with this that moves offshore. Well outside of crying for help I think that what they have to do is recognize that the bear market in all probability is over that they should look at investment areas that make

sense and begin to commit some money I mean they're going to be inevitable pullbacks in your pockets in the markets because the volatility just keeps getting greater and greater. I know a couple of areas that well I think today it's really about is straightforward as it's been and I think that certainly equities continue to be very attractive and I guess Louis from my point of view the single most attractive area and I know we've set up before secondary stocks as cheap as they have ever been relative to the big caps and I think that's the area for the greatest gains in the equity market and the final being that what they really own Bill Gross you watch the bond market with particular care it's been up another point that as we go along that's probably less. Oh I think you can continue for some tongue alone. This is really a bond investors dream we have falling commodity prices. We have an economy both in the US and almost worldwide now that it is mired in recession and we have the potential for sharply lower rates of inflation on investors love. All of those

symptoms and that's in just a minute that interest rates can can can turn you down or from this point. Long term treasury bond. Percent yield. We are and when we do that. I think seven and a half is a reasonable target over the next three months. You have to expect it short term Treasury bills. Now down below 6 percent will probably fall faster than the long term read simply because of the nervousness of long term investors relative to Kuwait and potential inflation a few years out. So long bonds are coming down the 7-Up percent insurance even more than Butter-Bar markets would mean a better stock market. If you think Oh I think so. I think stocks certainly mewling offer bonds to some extent. Ultimately though they have to look towards higher corporate profits and unless the economy recovers significantly over the next six to 12 months when the stock market may stall and saw the corporate profit picture as the key and the economy of course is the key to profit.

So you live in California an area that recently discovered along with other areas that real estate prices could go down as well as up. Will lower interest rates help. I will there are many mortgages that are attached to variable interest rates that drop along with short term rates and if they decline it's much easier to finance much easier to buy a home. But there's been a scare induced in most home and the officers used and it may take a long time before we get back to the heyday in the gold rush of the 1980s. All right we have the pleasure of welcoming my column to our regular group and it was my it was a splendid guest on was what do you make what's going on. We also believe that the writing the marker letter is you and your tape worm that's correct that's correct. And we we've never seen to discount rates as we've not be followed by an extremely strong market lens for an extended period of time we can see this market going back to the old highs certainly up to 30

100. Many of the top Muslims who follow the old rule if you want to predict predict or not so we might go back to the old cars but we can't convincingly go through would you agree with that. No because we truly got a turnaround in the economy and there's no evidence yet this market could have upside that none of us could dream about at this point if it continues in the method it's going right now that is the economy. We could have a certainly an aborted recovery in the stock market. Would you buy bonds. Yes we would buy them wearily right now they've had a very big. We think that longer term the bond market will be below 6 percent and low yields but we think it's come a long way very quickly. Would you take some stock crumpets. Yes yes and take more as you go right in any event policy it's time now to keep on setting records for our viewers. Raymond president of Columbia Michigan thinks we Americans are too trusting of government economic reports which he notes are frequently rude. How do we know what was really good at the weekly T-bill auction

house. How do we know how the balance of trade really stacks up and whether the inflation figures are accurate. Does anyone have any knowledgeable group to challenge these figures and if not why not. The old saw goes I'm from the government and I'm here to help you. The Treasury numbers are actually the most accurate of the three he asked about. Those are rarely revised and come along with great consistency. The other two areas are constantly revised the numbers are always wrong and you have to wait to find out about the one group of people that really question this on a regular basis or Wall Street economists that's probably the greatest service that they give us. Nice to know they have a function in our society. I always try to figure that Bill Gross as an active bond trader used to be just the one to help me remember that Northridge California was surprised to find on we do miscible bond prospectus that the rating service obtained fees for rating such securities. She says she realizes that the services have to have a source of income but she wonders whether taking fees from the company doesn't compromise the validity and

integrity of those rates and this is lack of trust. I think there's a lot of what I think there's the potential there a little bit I think what prevents that from occurring is simply the competitiveness of the industry. There are three four five major radio services and they sell credible information. It's already unjust but credible information is the key and if any one of them should become suspect in the public's eye that would and I quickly spell the monies of the company so I don't think that's a probability it's a possibility but in a competition I did see that lack of trust but you insiders are more trusting that our well we trust in the ratings but most of us have our own analysts doing the job themselves as well. Michod How would you respond to Roger and Michel new monster hunters and Beach California followers. Being a young couple both 28 years old newly married with investments in real estate our primary residence and two adults and developing careers

Roger in law enforcement with management. We were aware of the seedier side of wife and Roger if you know we have a little humor war on crime. However we feel that maybe some investment potential. How do you and your experts. Talk about lack of trust. Lou the question is an obviously good one because we do have a true growth industry. Today there are more than two dozen companies which Roger Michel can and can invest three of the companies that are leaders since are Mannix which does indeed have devices largest in the field. Pinkerton's in 1850 a phone company is it is today the largest provider of security guards. And finally there's something called the Corrections Corporation of America which is the largest manager of sales. None of these by the way would we consider to be a steal and that it's a hold up the way to make a mite of a holiday event if you're tired of being under the gun for the NSEL it would like to arrest your money problems. It would be a crime not to write us and ask us to help in your defense so don't cop out. Just subpoena

our assistance who it was from Owings Mills Maryland 2 1 1 1 7 that's Wall Street Week. Owings Mills Maryland 2 1 1 1 7 and don't forget to be polite and say police. Now before we meet tonight's special guest let's take a look at what those fast moving commodities markets are Whitley all about as we take our own exciting ride back to the future. Trading in commodities goes back across many centuries and many countries but the current American version traces to the Chicago of 1840 when the fertile Prairie is produced a bountiful harvest of grains and the problems farmers found prices depressed at the moment when their huge supplies all reach the market at the same time. While that non harvest times prices often shot up and many businesses went bankrupt. The Chicago Board of Trade institutionalized a system called the county's forward contract. The prototype of modern futures trading in which a buyer and a seller agreed on a price

at which a specified quantity and quality of grain would be delivered. Agricultural commodities continued to dominate trading until as recently as 1985 when interest rate futures became the biggest game in town. Financial futures applying the old commodities techniques to the risks involved in paper asset transaction had not even created before 1977. Today on exchanges like the Board of Trade and the Chicago Mercantile Exchange financial contracts take the lion's share of the actual interest rate futures accounted for forty four point six percent of all futures contracts in 1990. Foreign currency contracts for ten point four percent and stock index futures for five point three percent. Agricultural commodities now account for less than 21 percent of the action while other major areas include energy products. Twelve point eight percent and precious metals five point four percent. Whatever the contract the principle is the same. Someone is trying to hedge one of the

risks of doing business and someone else often that notorious fellow the speculator assumes that risk in the hope of making a profit. The futures option is always fast and often furiously devastating to speculators bank accounts. Is it something you should know more about. For some thoughts on that let's go over now and meet tonight's special guest Karen P. Gibbs. Karen welcome we're just delighted to have you at night. Karen Gibbs was a college dropout when she answered a newspaper ad for clerks at the Chicago Board of Trade. She took to it like corn to Iowa and before long had the distinction of being the first woman to work on the trading floor there has been a trading specialist for three leading from since 1983 for Dean Witter Reynolds. She is now the senior financial futures analyst. Karen let's cut to the bottom line. Who should be trading financial futures and who shouldn't.

Institutions and companies that have some sort of risk that should be hedged should definitely be involved in the market as well as individuals that are financially and emotionally suitable to take on that risk in the hopes of profit opportunity financially means that they can afford to lose all that money that they're putting in which are altering their current lifestyle. Yeah and and without crying too much in the emotional What are you telling those people who are financially and emotionally able to create financial futures today. We watch the market. I think you're going to see the Fed continue to be very aggressive in stimulating the economy. You're going to see rates come down and you'll be able to see the euro dollar futures particularly continue their ascent and bonds should also get a good run today possibly par and maybe catch the 1983 one of the week. Bonds are now what about 98. Yeah and so and so poor. It would only be another point where they're moving now that wouldn't you wouldn't you have to mount it. But what does that imply in terms of interest rates.

I'm still looking at a fem. a half percent yield on the cash bond by the middle of the year. I do believe that we're going to see some stimulation of the economy again by the fact and with the recession you're going to see lower rates some contrarian's with the bond market today that everybody knows it's a good deal for maybe it's going to get out of it. What would you say to them you could see from corrections but I think the fundamentals right now are really overshadowing the technical side and we should I think see any dips purchased by investors. Another kind of financial future a stock index futures you those you'll have a bond through I think the stock market has a little bit more to be applied a lot of work a little bit more whether it's a bear market rally or a bull market rally but the rally around the law and you'll probably see investors buying right now through the second tier industrial stocks and possibly on a pullback of 5 to 15 percent some of the primers stocks which will help that a NPR stock index futures I mentioned earlier that one of the casualties of the other was good

financial news has been the U.S. dollar. What's your forecast for it it's going to continue to grow up I believe as we are seeing interest rates worldwide coming down but still some of the High Yield is much more attractive. We saw the Bundesbank raise their rate recently and possibly going to maintain that monetary policy that is also holding the U.K. thought hands pretty tight. They're not going to be able to lower their rates be the full strong flow of capital out of the dollar into some high you'll do so as you know the enemy of financial future specifically broad futures is inflation. Are you not at all concerned about it. I'm not concerned neither does the Fed appear to be concerned with looking at about a 6.1 percent CPI annualized rate will get a producer price index next Friday and I think that's all we're going to show with lower energy prices. No real fear on the inflation front. Re impossible to inflate the evidence to the point it was somebody who wanted my people to start with what we had here in a couple years ago I was told by the experts that if the

Japanese didn't show up in the bond market interest rates in the U.S. would go through the roof. The Japanese not only didn't show up enough selling bonds when the dollar is collapse it's at a new low. What's going on. I think you're still seeing people anticipate lower rates and the attractiveness of the coupon that we just saw auction Thursday. Well and ties people to continue to invest knowing that they may be in the May refund it will be a seven and a half. You want to pick up a higher income stream now as well. The price appreciation as rates fall. Karen viewers are going to be rushing to the paper and looking at the Euro financial futures contracts or bonds and some bills are also municipal bond contracts that may be interesting to individuals do they have a close in the portfolio from that and I think they do the municipal bond futures contract is a very liquid contract you can also see the price appreciation there as rates fall. And still with the broad tax treatment that you're seeing right now they're off for a very good investment opportunity for your portfolio.

Karen you mentioned currencies before foreign currencies and something you find very interesting. Are events in Eastern Europe having any influence on your thoughts. Ah yes I think Eastern Europe European situation is going to open up all sorts of investment opportunities for a lot of funds that you're going to see you. You're also going to look at the strength of the D-mark which is very much tied to what's going on in the Soviet Union. If the undergrowth continues I think the D-mark may be stifled a bit. And the problem with sutures is that too many people lose money that according to some surveys 80 90 percent of those participating in the mortgage lose money. Why. Well look that statistic you're going to look at also the headers that are involved in that market and they don't mind if they're losing in the futures as their cash position is appreciated. Also that includes the one time flier the one that maybe got a tip from

his brother in law and loses money and never wants to touch it again. If you change the population and look at traders that have been involved in the market for six months or more that number drops dramatically. I do think both are present. Yeah I do think our industry though has been very sensitive to the investors concerns and have come up with products to address that. For instance we have now options on futures where your risk is the winner. Clearly by the purchase price of that quarter call We've also gone into the Manage futures area which has been I think starting to be accepted now by the financial community as a separate and viable act that class along with your cash bonds and stocks in the portfolio. What's the most common mistake people make in future. They don't have a plan and if they do have a plan they don't stick with the discipline. What sort of does when we're talking about it. I think you need to have an idea of where you're going to go what what is the reason that you're investing Why what are you trying to do with this portfolio.

Do you approve of mechanical techniques like stop loss orders. I would definitely I do I think that is a very good way of trying to stop being a. Some of the risk that involved also it takes the emotionalism out of it. This is a very odd and exciting market and you might want to just stick with it. Thanks I know it's going to go my way I know it's going to be right. We have less than a minute left with your device that we cut our losses and let our profits run let's hop around some of these other commodities we haven't gotten to what's your outlook on gold now. Gold is still going to be depressed. There's very little investment demand right now and producers particularly the Soviet Union are selling and the different vestment in the Middle East for obvious reasons. Is there any prize which you bought on probably repairman on the silver maybe or if it gets below the $4 and certainly gold as it approaches the 350 Euro about oil crude oil is probably the wildcard. What's going to happen with the Middle East. We see stoppages in the supply of oil. You could see if Iraq but

right now it looks like world supplies are very good and you could maybe see it trace back down to $1000 fine Lou for those farmers were feeding us about the rooms hot thing but the weather we are looking at weather patterns which is the major movement behind the grain market. We do see patterns that are going to establish volatility and volatility create opportunities up or down. Haha I think down first and then up. Thanks very much Karen GIBBS Thanks to our panelists. Hope you'll be back with us again next week then I'll be talking with a man who has a taste for profits for him and a leading analyst of the food industry and he'll be telling us which food companies have the spicy new products that might enable you to salt away a few bucks in your financial advisor should be something to chew on. Meanwhile has been Wall Street Week. I'm Louis Rukeyser. Good night. Wall Street Week With Louis Rukeyser has been made possible by the financial support of viewers like you by the

travelers providing American business with insurance investment services and managed health care. The travelers by Enron providing natural gas which holds the promise for a cleaner world and a more energy independent America Enron court and the Enron Foundation and by Prudential Securities rock solid market wise. For a printed transcript of this program send $5 to transcripts of Street Week With Louis Rukeyser always Mills Maryland 2 1 1 1 7. That's why dollars to transcripts Street Week With Louis Rukeyser Owings Mills Maryland 2 1 1 1 7 Street Week With Louis Rukeyser transcripts are also available to subscribers of the Dow Jones news retrieval service. Slow Street Week With Louis Rukeyser is produced by Maryland Public Television which is

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