WSW: Louis Rukeyser's Wall Street Summary &amp; Discussion $treet

Top 500. Jun 1, 2002 6:39 AM

» SteveT - 5-31-02

Time was this week's theme. Many observers say all the market needs is time. Time to settle down from threats of International violence and improving economic news. Time rid ourselves of the excesses of the great bull market. Lou said those of us that have been through a few bulls and bears know it really is just a matter of time. Being patient is all that is required.

Laszlo Birinyi closely tracks money flow into the market as well as individual stocks. That data is telling him investors want to be invested but are changing sectors frequently. They are being inconsistent on what they want to own on an almost daily basis. Laszlo says we need to see more days the market goes up for no reason or on bad news. He thinks the bad news is priced in and sees little downside risk in the next 6-12 months. Adding it may not go up much either. He would buy Verizon (VZ) and S&P Depository Receipts (SPY).

Elizabeth Dater says the major problem is lack of visibility, and the market hates any uncertainty. In some ways this market reminds her of the early 1960s. Back then as well as today the market seems to ignore good news due to Geopolitical uncertainty. Dater is a long term believer in equities. She likes Companies that pay dividends and have plenty of cash. Debt is not bad as long as it is off set by real assets, earnings growth and plenty of cash. A stock that Beth currently would buy is Lennar (LEN)

Frank Gannon agrees there is a disconnect between the stock market and the macro economic news. He attributes this to making the transition from a liquidity driven market after 9-11 to an earnings driven market. For now we are waiting for the earnings to improve. He thinks it wise to turn to dividend paying stocks that yield more than Money Market Funds. One he likes is Bank of America (BAC).

Lou then introduced Douglas Cliggott President Brummer & Partners. Doug is one of Lou's favorite bears. He freely admits his miscalculations and greets his successes with humor and humility. Doug does think there is light at the end of the tunnel but it is going to take time, quite some time. Earnings are going up but slowly after plummeting a great deal. At this pace it is going to take 2-4 years for valuations to be attractive. Cliggott sees one of two scenarios. 1. The market in the range we are in now for 2-3 years. 2. Down significantly. We have many risks including Political and Currency. If the Dollar goes down much interest rates will rise and put more pressure on equities. When he left J.P. Morgan Chase his allocation was 50% stocks 25% bonds and 25% cash. He would now decrease bonds and increase cash all though he no longer does that work professionally. Lou asked if you are so bearish why 50% stocks. Doug admitted he could be wrong, saying no one can look around corners. A zero weighting makes no sense, as there are some interesting opportunities. Going on he said at some point investors will be rewarded for taking stock market risk. Last year Cliggott predicted by mid year 2002 the DOW at 8,000. While the timing of that may not hold up he says the trend is down and he is more cautious now than when he made that prediction. Mainly because foreign investors are starting to pull money out as the Dollar weakens. Lou asked what it would take for him to become bullish. A combination of two events he does not think will happen. 1. Declining bond yield. 2. Stronger Dollar. The Dollar being key, saying for every 1% decline in the Dollar inflation will rise about 1%. Doug recommends being diversified among asset classes. For Bonds he does like Treasury Inflation Protected Securities (TIPS). In equities be diversified with both value and growth. Lou interjected where is growth? The answer, it is not where it was in the past. Look to smaller companies, Bio Tech, and new companies, all are risky. Cliggott would be a seller of Tech (I think he meant Large Cap Tech) and Financials. He expects the NASDAQ to continue to under perform Blue Chips in general. Some of the best performers may be Consumer Staples as they benefit from a weaker Dollar.

Laszlo asked about allocation to foreign stocks. Doug said he was not well enough informed to give an opinion, but thought the exciting returns could be from emerging markets. Russia and China may lead the pack, but warned it is not appropriate for more than 5% of a portfolio. Beth asked where the money would go that foreign investors pull out of the U.S. market. Most will go "home" to safer investments like bonds and bank deposits. Frank noted earnings are starting to pick up and asked for an earnings prediction for the second half of this year. Not very exciting news, about the same as the first half. Cliggott predicts slower consumer spending due to a slowing labor market. Earnings maybe slightly ahead of the first half but not the 15-20% gains many are calling for.

Lou asked if TIPS are the only bonds he recommends. You could also go with short term bonds of no more than two years. Doug thinks in 18 months many will be surprised at how high inflation is. He predicts in a couple years Long term Treasuries will yield between 6 and 6.5%. He went on to say the FED will be hesitant to raise rates so they will follow up with the long term rates. He expects inflation to be in the 4 to 5% range in the next 2-3 years. Mainly due to a weak Dollar. Cliggott concluded saying European Government bonds would be a buy. He also likes Energy in the U.S. as well as Europe.

Next week someone at the center of the crisis in confidence. David Komansky, CEO Merrill Lynch.

-- posted by SteveT

Top 501. Jun 1, 2002 8:35 AM

» Kirk - Re: 5-31-02

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In response to message posted by SteveT:

Cliggott would be a seller of Tech (I think he meant Large Cap Tech) and Financials.

Yes, I remember he said he liked small cap technology.

The reason people like small cap technology is they can react quickly to changing markets and it doesn't take many orders for a new product to have a significant effect on their bottom line.

For example, look at CACS (my pick for several of our stock picking contests) vs Cisco. Both serve the falling like a rock telecom market and have seen their stock prices react accordingly. CACS has small revenue so they come out with two new products for market niches that are still hot and they can turn around their decent once they get some orders on these. Cisco is so large and dominant, that they have hard time doing any better than the overall market as they ARE THE MARKET. Also, new products are a tiny percentage of revenue until perhaps 18 months down the road...

-- posted by Kirk

Top 502. Jun 10, 2002 5:42 PM

» Sinewave - Wall St. Figure Bond Convicted of Fraud

Wasn't sure where to put this article....

SLAY THOSE VAMPIRES! smile

Wall St. Figure Bond Convicted of Fraud
Mon Jun 10, 2:21 PM ET
By Gail Appleson

NEW YORK (Reuters) - Prominent money manager Alan Bond, who appeared regularly on the television show "Wall Street Week with Louis Rukeyser," was convicted on Monday of fraud for cheating pension funds out of millions of dollars.

The Manhattan federal jury took less than an hour to return a guilty verdict on all six counts against Bond, 40, of Upper Montclair, New Jersey, who was president and chief investment officer of Albriond Capital Management.

U.S. District Judge Leonard Sand ordered that Bond be jailed immediately due to concerns he might try to flee. Sentencing was set for Sept. 9.

Bond, a Dartmouth College and Harvard Business School graduate, was one of a small number of African-Americans to rise to a top position in the lucrative world of money management. Bond is now indigent and was represented by a public defender. During the trial, he was free on bail secured by his parents' modest home in the New York City borough of Queens.

Bond's family broke into sobs after the verdict was read. U.S. marshals allowed Bond to hold his father in a lengthy embrace before he was led away.

Bond was convicted of three counts of investment advisory fraud, which carry a possible maximum prison term of 10 years each, and three counts of wire fraud, which carry a possible maximum term of five years each.

Mark Gombiner, Bond's defense lawyer, said he would appeal.

Bond was arrested last year and accused of defrauding clients by sending unprofitable securities trades to their accounts while directing most of the profitable ones to himself.

Prosecutors charged that Bond's "cherry-picking" scheme ran between March 2000 and July 2001 while Bond was out on bail awaiting trial on 1999 charges of taking more than $6 million in kickbacks from brokerage firms. He is scheduled to go to trial in November on the kickback charges.

They said Bond made $6.3 million from the cherry-picking scheme while his clients lost more than $56 million.

The victims of the cherry-picking scheme were Birmingham Amalgamated Transit Authority Local 725, a union pension fund; Chapman Capital Management, an investment adviser; and the Old Dominion Disability & Retirement Allowance Plan.

The government argued that the pension funds lost two-thirds of their value, while Bond received a 5,000 percent return on his own investments in a little over a year.

"The defense didn't really offer anything in Mr. Bond's defense," Tony Impieri, the jury foreman, told reporters after the verdict. "It was pretty clear cut."

He said that Bond only hurt himself by testifying during the trial.

"Prior to him taking the stand, I had reasonable doubt. The downfall was when he took the stand.... On cross-examination, he dodged every question, he could not give a straight answer." Impieri said.

Bond rose to prominence managing more than $600 million of pension and investment funds for about 25 clients, including the National Basketball Association, City University of New York and the Washington Metropolitan Transit Authority.

-- posted by Sinewave

Top 503. Jun 10, 2002 7:51 PM

» Kirk - Re: Wall St. Figure Bond Convicted of Fraud

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In response to message posted by Sinewave2001:

Thanks Sine... sad to see someone who did so well against many obstacles give it all back due to greed.

Lou was very gracious when Alan Bond was first accused saying people are innocent until proven guilty. I agreed with Lou and thought he handled it like the consummate gentleman.

Now that Bond has been proven guilty of a terrible crime of stealing from people's life savings and retirement plans, I hope he rots in jail. Only when we give serious punishment do we get people thinking twice about committing investment fraud.

-- posted by Kirk

http://home.netcom.com/~kirk_69/MyBookLi...

Top 504. Jun 10, 2002 8:26 PM

» Sinewave - Re: Re: Wall St. Figure Bond Convicted of Fraud

In response to message posted by Kirk:

Hi Kirk,

I agree with you on the serious punishment part... Seems like that kind of crime goes without notice.

Ya got any ideas for any Father's Day gifts from your "Kirk's Store" site? http://home.netcom.com/~kirk_69/Gifts.ht...

How about updating that reading list of yours....

I believe I've read three of those bear type books.. I hear Prechter has a new one out.

-- posted by Sinewave

Top 505. Jun 10, 2002 8:54 PM

» Kirk - Re: Books by Louis Rukeyser

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Hi Sine.
I love tools...

In response to message posted by Sinewave2001:

This looks intersting.

The Morningstar Approach to Investing : Wiring into the Mutual Fund Revolution
by Andrew Leckey, Louis Rukeyser

Editorial Reviews
Ingram
A nationally syndicated financial columnist goes behind the scenes of a leading investment research firm to show the process behind predicting the success of a mutual fund and how individual investors can perform the same analysis.

and

The Common Sense of Money and Investments (Wiley Investment Classics (Paper))
by Merryle Stanley Rukeyser, Louis Rukeyser
$13.97

Book Description
A timeless classic on all things financial. Books of investment advice have been around forever, but few have stood the test of time as well as The Common Sense of Money and Investments. Written by Merryle Stanley Rukeyser in 1924, it offers commonsense insight on everything from how to detect a charlatan to how to select an honest broker. With a charming, straightforward style, this timeless book proves that the best investment advice is eternal. *Foreword by Louis Rukeyser *Covers the period after the dawn of the Liberty Bond and before the Crash

About the Author
MERRYLE STANLEY RUKEYSER was the Financial Editor of The New York Evening Journal. Prior to that, he was the Financial and Business Editor of the New York Tribune and Vanity Fair.

-- posted by Kirk

Top 506. Jun 10, 2002 9:17 PM

» Sinewave - Re: Re: Books by Louis Rukeyser

In response to message posted by Kirk:

Hi Sine. I love tools...

LOL..... good one Kirk!

I love tools too...

How about adding Louis Rukeyser to that reading list???
Perhaps a few GOP type books since this is 2002?

-- posted by Sinewave

Top 507. Jun 10, 2002 9:28 PM

» Kirk - Re: Re: Re: Books by Louis Rukeyser

In response to message posted by Sinewave2001:

We have Books on Investing: Discussions, Reports & Suggestions to suggest books.

If you have one that you want me to get a URL for.. post it there.

I'm trying to keep the "recommended reading list" managable... but I'll put up all the links you want in that thread.

What is nice is people suggest books there and give their own reviews.

-- posted by Kirk

Top 508. Jun 15, 2002 5:41 AM

» SteveT - 6-14-02

Lou opened with if it is really darkest just before dawn it might be wise to invest in sunscreen. Hopefully in the next few weeks we will be looking at "one heck of a sunrise." Have we seen capitulation? One thing is for sure, analysts will be able to tell us, six months after it occurs. In fact many analysts are now downgrading stocks well below prices they previously recommended the same stocks. Right now there is no denying it is pretty dark out there.

Mary Farrell said now is a good time to put things in perspective. Fundamentals are improving and earnings are going to improve. The economic recovery is underway albeit slow. History suggests business capital spending starts in increase during the third quarter of a recovery. The next few months should see gains in capital spending. For now Mary recommends playing it conservative. Stocks she likes are Coke (KO), Countrywide Credit (CCR), and Liberty Media (L). Farrell would sell companies without visibility of earnings.

Alison Deans says we today we are seeing the inverse of the late 90s. It seems investors can only see the bad news and ignoring the strengthening fundamentals. It is hard to identify psychological bottoms but when all you see is bad news it is usually a good sign. Deans expects the bottom to be in the next 3-6 months, but it feels like it could be sooner. Lou said she was somewhat contrarian during the bull market and asked if she was also in the bear market. The answer was yes, saying it tends to be her style. Stocks Alison likes now are Kraft (KFT), American Express (AXP), Viacom (VIAb), and Deere and Company (DE). Deans would sell retailers thinking they have had a good run and it is time to take profits.

Tom Gallagher thinks we are not done with the terrorist warnings. He went on to say it is no coincidence that the major market averages started falling when the terrorist threats started. His worry is this will affect consumer confidence and business capital spending. Gallagher thinks the geopolitical risks to the market will ebb & flow and in 6 months we will more than likely be about where we are now. Tom said we have a way to go before restoring confidence in corporate accounting and brokerage houses. Stock themes Gallagher would explore are homeland security.

Lou introduced special guest Whitney George Portfolio manager Royce low priced stock fund. The fund focuses on buying stocks under $20 a share and has a three year annualized return of 26%! Whitney thinks smaller sized companies still have a ways to go as market leaders. He defines small cap as under $2 Billion market cap. George is a bottom up investor not limiting himself to sectors but looks for among other things a strong balance sheet, both in terms of debt and working capital. He also looks for a history of high return on capital. Finally trying to buy them when temporarily out of favor. This week he bought Biotech and Telecom stocks. Some Biotechs are Lexicon Genetics (LEXG), Antigenics (AGEN), and Gene Logic (GLGC). A Telecom favorite is REMEC (REMC). Low P/E is a byproduct of what he looks for. Really Whitney is looking for stocks out of favor. It could be a bad quarter from a company with good long term prospects but is not attractive in the short term. Lou got several e-mails concerning a stock the fund bought and then doubled up on just before it blew up. George said that one was a disappointment but it happens to everyone. By limiting stocks to 1 or 1.5% it helps to survive the ones that do blow up. The fund family has a large staff to ferret out these opportunities employing nine analysts and 4 senior portfolio managers. It also involves a great deal of travel. (E.C. hence the more than 2% expense ratio, in this case you may actually get what you pay for) The fund trades actively everyday incrementally over many issues, with a turnover rate of about 30%. With an average holding period of around 3 years the hope is to double or triple an original investment in that time horizon. As painful as the past four weeks have been it is this type environment that sets up nice returns later. Whitney has been selling very little of late.

Mary asked if any former large cap techs that are now small caps are interesting. The Semiconductors and Semiconductor Capital equipment look good. Alison asked about Gold as an investment and if he expects inflation. It has been a good investment recently but not as an inflation hedge. More so because a few years back the management started running the companies as a business instead of seeing how many new mines they could open. Consolidation too has helped. Tom asked about Biotech firms and what common elements the good ones have. Lots of cash, some are trading below cash value. They need some revenue, Products that have a chance of hitting the market in the next couple years or less, if they have multiple products even better. The final thing to trigger a buy is valuation and sentiment coming into line. Be patient.

Lou wanted to know why technology, which has traditionally been a growth sector, could now be considered a value sector. Technology is to big of a part of our economy to ignore, and now it is selling in some cases in the traditional Graham & Dodd range to qualify as value. Many technology sectors are cyclical and as easy to understand as retail. Lou wanted to know if he was negative on retail and if so was it due to an expected lack of consumer confidence. Whitney is not negative on retail but he is not adding to it nor has he for awhile. He has done some modest selling in the retail sector. The fund is now buying as aggressively as it ever has on George's shift. His fundamental rules to invest are a strong balance sheet, out of favor stock, high return on capital or assets, and some franchise value. Lou wanted to know what was so magical about the under $20 stock price. George said some inefficiency occurs starting there but is more pronounced at $10 and $5 as many institutions will not buy them and this puts more downward pressure on them. By focusing on strong balance sheets you often get the babies thrown out with the bath water. He sells usually for one of three reasons, they are about equally split between reaching what he figure they are worth, made a big mistake, or takeovers.

Next week a mid cap manager Thyra Zerhusen of the ABN AMRO/Talon Mid Cap Fund.

-- posted by SteveT