09/07/01: Can A New Prime Minister & A New Budget Plan Ward Off Recession?

SUSIE GHARIB: A frenzied Friday on Wall Street. News of the nations unemployment rate soared to 4.9 % in August its highest level in four years sent stocks tumbling once again today. The Dow plummeted almost 235 points, and the NASDAQ fell about 18. Both are at their lowest levels since April 4. We have two reports looking at the details of today's jobs data and the market reaction. We begin with Suzanne Pratt.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For investors concerned about the resiliency of the US Economy, now there's even more reason to worry. Today, the labor department stunned Wall Street when it reported the unemployment rate soared to 4.9 percent in August. Not only was that much higher than forecast, but it was the worst level in four years. The increase came as businesses slashed payrolls by 113,000 positions, nearly three times what economists expected.

JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MGMT. When you put it all together, the economy is still weak, the labor market is still soft, there's no question about that, and it's softening. But I think it could still be the case that this is the worst.

PRATT: Losses were especially steep and widespread in the manufacturing sector, which has eliminated about a million jobs in the last year. And some economists fear that if the labor market continues to deteriorate, consumers will ultimately cut spending and tip the fragile economy into recession

JAMES GLASSMAN, SR. ECONOMIST, JP ORGAN CHASE: This report tells you, and it's going to tell the folks at the Fed, that there's still lots of Downside risk to the economy. That it wouldn't take much to push us lower if confidence unravels, and that's really the key issue right now.

PRATT: Economists say today's data all but guarantees that the Federal reserve will cut interest rates by a quarter of a point when it meets in early October, and perhaps again after that.

GLASSMAN: It means that the Fed's got a fair amount of work still ahead of it. Even with all the easing they've done, even with the rebates in place, it looks like we're going to need more stimulus to get the economy moving.

PRATT: Despite today's somewhat gloomy report, many experts still think the economy will gradually claw its way out of the current doldrums later this year, and they see a return to healthier economic growth by 2002. Suzanne Pratt, "NIGHTLY BUSINESS REPORT," New York.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Erika Miller. Today's economic data hit Wall Street with a thud. Stocks plunged from the start of trading and continued to fall as the day wore on. The fear is that continued weakness in the economy will further erode corporate profits.

RONALD HILL, INVESTMENT STRATEGIST, BROWN BROTHERS HARRIMAN: Weak economy equates with delay in the rebound in profits. One of the keys to getting stock prices going again would be a rebound in profits.

MILLER: It was a lousy end to a lousy week for many investors. In the past four days, the Dow has plunged 3.5 percent. The NASDAQ fell almost double that, and the Standard and Poor's 500 dipped more than 4 percent. The Dow and NASDAQ have so far managed to hold above their spring lows, but the S&P 500 is now at a level not seen since October 1998. Among the day's big losers were sectors that depend on discretionary spending. Areas like retail, home building, and entertainment. But technology stocks held up relatively well, aided by yesterday's mid-quarter update from Intel (INTC). Few on Wall Street are willing to say the worst is over for stocks. And many are warning that the next few weeks could be rocky, especially as companies release third-quarter earnings pre- announcements.

RICHARD CRIPPS, CHIEF MARKET STRATEGIST, LEGG MASON: We've had a lot of companies already indicate that this quarter, if not the next quarter, is going to be a very difficult quarter. What investors are most interested in are outlooks now for 2002.

MILLER: But others say things may not be so bad.

HILL: I think we're shaping up to have an earnings confession season which will be less negative than the one for the second quarter. That might be one of our first clues that in fact, you know, we've stopped deteriorating, and we're starting to improve.

MILLER: Today's decline in the S&P 500 means the Index is down almost 30 percent from it's all- time high hit in March 2000. According to one research firm, that's the longest bear market in almost 30 years. Erika miller, "NIGHTLY BUSINESS REPORT," new York

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

SUSIE GHARIB: The US Economy isn't the only one suffering. Japan is teetering on the edge of its fourth recession in a decade. New data show that the economy shrank .8 of a percent in the second quarter prompting Prime Minister Junichiro Koizumi to announce a new budget. As Lucy Craft reports despite Koizumi's popularity he faces big economic challenges.

LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Japan has never seen anything like it. Prime minister as pin up hero. After cementing his popular mandate in parliamentary elections over the summer, 59 year old Junichiro Koizumi still enjoys a remarkable 70 percent approval rating. But the equity markets have been considerably less supportive plunging to 17-year lows as deflation and the slowing world economy wreak havoc on corporate earnings. The numbers are dire. Unemployment, now at a record 5 percent is expected to surge as even stellar companies announce layoffs and cutbacks. Critics say that Koizumi plan doesn't do enough to address Japan's key role, weak demand.

RICHARD KOO, CHIEF ECONOMIST, NOMURA RESEARCH INSTITUTE: In Japan we have the lowest interest rate in the history of man kind, we have deflation not stat-flation. So, it's a totally different condition compared to the world that implies that economics makes sense. And so the market participants particularly the corporate leaders, they're all worried that we're heading in a totally wrong direction. And so we have a very high rating for the government, but we have a very low crisis for the equity market.

CRAFT: Other experts continue to endorse Koizumi's so-called no sacred cows reform plan, which the prime minister must sell to legislators. It's a combination of aggressive deregulation, fiscal belt tightening and a gradual clean up of bad debt in the banking sector.

ROBERT FELDMAN, CHIEF ECONOMIST, MORGAN STANLEY JAPAN LTD: I don't see any diminuation of his drive or his desire or his vision of reform without sacred cows. It's just getting them into the arbiter is a little bit difficult sometimes.

CRAFT: As the Japanese economy hovers near it's fourth recession in a decade economist are urging Koizumi to ease up on his proposed bank clean up and budget cuts and focus instead on structural reform.

KOO: The real pillar of structural reform I want to defend at all costs, but to do that we have to make sure that the economy itself doesn't collapse because if it collapses for lack of proper fiscal stimulus or over zealous attempt to clean up the banking problems then we will lose everything.

CRAFT: Other observers disagree saying a swift and sweeping bank clean up is essential.

FELDMAN: Doing nothing about the NPO problem, the non performance problem or going even at the current pace would cause a much more serious collapse of the economy. The choice is between something that's bad and something that's horrible. But to think that we can just sweep all of this bad loan stuff under the rug and wait until the economy recovers that's courting real disaster.

CRAFT: Analysts say that in the end Koizumi has no choices left for pulling Japan out of more than a decade of economic malaise. Any reform plan observers say will take years if not most of this decade to complete. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo..

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

PAUL KANGAS: My guest market monitor this week is David Elias, Chief Investment Officer of Elias Asset Management. Welcome back, David.

DAVID ELIAS, CHIEF INVESTMENT OFFICER, ELIAS ASSET MANAGEMENT: It's nice to be back, Paul.

KANGAS: You know, since the early 1980s when the big bull market of the last 20 years began, you have been one of the most outspoken bulls in the investment community. Now that the tide has turned extremely bearish, though, how had you handling this sea change and what are you advising your clients to do here?

ELIAS: Paul, we're staying the course. We've always been a large cap growth manager, buying American companies that have a tradition of doing business worldwide and we're going to stay the course because we think over the long haul that's the place to be. As we all know, the market goes up 75 percent of the time and down 25 percent. So the odds that the market is going to go higher three to five years from today are very high.

KANGAS: What do you see as the down side risk now?

ELIAS: I think on a long-term basis, I'm talking over the text 10 to 15 years, maybe 3,000 points, maybe down to the high 6,600 range. But the up side, we think, is still 40,000. So down side about 3,000, up side 30,000. So a 10 to 1 ratio on the up side. So for long-term investors, this is a great opportunity to buy some wonderful companies. As Russell Sage once said, the best time to buy straw hats is in February.

KANGAS: The last time you were with us on March 24 of 2000, all too long ago, you said it is time to buy financial stocks because interest rates are coming down. It wasn't but, I think, two months after that was the first of the seven cuts by the Fed. You were right on. The stocks you liked then, American Express (AXP), Fannie Mae (FNM), American International Group (AIG) and G.E. (GE), which has a big financial component, all those stocks did well starting for the next several, eight, nine, 10 months. Now, a few of them are starting to show weakness. Are you still with them all?

ELIAS: The only one that we have sold, Paul, is Fannie Mae, and we sold that for a profit in the low 80s. All the others we still like and on any weakness in here we've been aggressive buyers. As a matter of fact, if we had fresh money right now we'd be in there buying GE, AIG. We'd be buying Citigroup. We'd be buying Merrill Lynch. So we think that these financials are wonderful long-term buys. They've got great international exposure. They've got brand name recognition and they all have the potential of doubling over the next three to five years from these levels.

KANGAS: And if you still like this financial group, it sounds like you believe the Fed is going to cut rates some more, as well?

ELIAS: We do. We think they're going to at least do it one more time and possibly twice.

KANGAS: Do you not find any of the badly fallen angles in the tech sector attractive at these levels?

ELIAS: Probably one of the first ones that I would think of would be Corning Glass. There is a 150-year-old company down from about $100 a share. It traded at about $10 and a fraction today. We think that's an excellent long-term buy. We like EMC (EMC) on a long-term basis as well as Intel (INTC) and Microsoft (MSFT).

KANGAS: You know, it might seem a little ridiculous now what we've been going through in the last several months, David, but you wrote a book not too long ago entitled "Dow 40,000." Are you still selling?

ELIAS: I will tell you right now, we stand by that. And, as I've always said the real question is are we going to 50, 60 or 70,000? The Dow 40,000, to us, is a done deal. That was based on a nine percent rate of return. So we think that that's very doable considering the last 75 years. Blue chip stocks have averaged 11 1/2 percent and you know we've had depressions, recessions, world wars all during that time. So everything but the kitchen sink has been thrown at the market and we still did 11 percent. So we think that's a done deal.

KANGAS: But in a new addition to the book, which mentions the portfolio in the Dow, you say the Dow should be 40 stocks. What additions would you make?

ELIAS: AOL (AOL), AUD, Merrill Lynch, Corning Glass, Eli Lilly (LLY), Bristol-Myers (BMY), Texas Instruments (TXN), Clear Channel (CCU). Those are just some of the names that we would be adding to it.

KANGAS: And you would be adding to your portfolio also at this time?

ELIAS: Yes, we would be, because, again, we think this is a wonderful buying opportunity for the long-term Investors. That does not mean that we can't go lower from here, but the fact of the matter is in this type of market environment, you need to be thinking in terms of years, not months or weeks.

KANGAS: So it sounds like your buy word is clearly patience is the key?

ELIAS: It's a real virtue today.

KANGAS: All right. Well, and assuming we can grub up some cash to do some of this buying, I guess in the long run you are still very bullish.

ELIAS: Yes, I am.

KANGAS: OK, thanks very much for being with us once again, David, and the next time we'll not have such distance between your two appearances. Great.

ELIAS: That's great.

KANGAS: Thanks for being here. David Elias, Chief Investment Officer of Elias Asset Management.

Copyright (c) 2001 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

PAUL KANGAS: The combination of that bad employment report and carryover selling from yesterday's steep losses of 1.9 percent on the Dow Jones Industrial average and 3 percent on NASDAQ, pushed stocks sharply lower again early today, with the Dow falling another 155 points, or 1.5 percent at the outset of trading, while the NASDAQ had a 23-point, or 1.3 percent, loss. The tech-laden NASDAQ, which had already fallen 5.8 percent this week, led a mid-morning technical rebound which was helped along by Intel's rather good outlook after the market closed yesterday. At 10:30 this morning the Dow trimmed its loss to 96 points, while the NASDAQ Index posted a nine-point gain. That comeback attempt failed to impress traders as the specter of a sinking economy triggered a new round of persistent selling. At 1:00 P.M. the Dow was off 242 points; the NASDAQ Down 21. When the NASDAQ market showed impressive resistance to further losses in afternoon trading it helped to stabilize stocks along a broad front. So, the Dow Industrial average posted a closing loss of 234.99 points, or 2.4 percent, at 9605.85. In this four-day trading week, the Dow rose slightly twice and fell sharply twice for a net overall decline of 343.90 points, or 3.5 percent. The NASDAQ ended the day down 17.94 points that's just over one percent and now stands at 1687.70. The Composite Index spent the entire week on the downside posting four straight losses for a net overall decline of 117.73 points or 6.5 percent.

Big board volume moved up on the slightly on the sell-off, 1.4 billion shares and three times as much down volume as up volume.

The Dow Transports Index down 91 3/4 points.

Utility Index edged up .74.

And the Closing Tick practically neutral at -50.

Standard & Poor's 500 down 20.62.

S&P 100.11 2/3 point drop.

MidCap 400 fell nearly 8 points.

CRB Bridge Futures Price Index edged up .56.

A loss of 11.14 on the New York Stock Exchange Composite Index

Value Line off just over 6/12 almost

Russell2000 Small Cap almost an 8 ¼ point drop.

And the Wilshire 5000 dropping 185 2/3 points or 1.8 percent

Bonds were bolstered by the much weaker than expected August jobs report which virtually assured the Fed will cut rates further perhaps even more aggressively than it has. The market also got a solid boost from flight to quality buying set off by the stock market's nasty plunge. A firm dollar was another factor which lifted tax free and corporate issues about 1/8 of a point. Corporates about 5/8 of a point and the Treasury market moved moderately higher across the board.

A 15/32 gain in the 5-year notes

The 10-year notes up 22/32.

And the Bellwether 30-year bond up 21/32.

And the Lehman Brothers Long-Term Treasury Bond Index rose nearly 7 points.

As far as Wall Street is concerned, the best thing about this week is that it's over, the Dow losing 235 points or nearly so today. And for every 9 stocks higher about 21 lower; 100 more new yearly lows than new highs.

Qwest Communications (Q) topped the active list on 29.3 million shares, falling $1.12.

AOL Time Warner (AOL) down $2.81 after Lehman Brothers cut revenue estimates for 2002 from $44 billion to $42.2 billion.

Compaq Computer (CPQ) finally a gain, up $0.24 today.

GE (GE) lost $0.84 even though J.P. Morgan began coverage with a "long-term buy."

NorTel Networks (NT) edged up $0.17 despite the fact that the CEO gave a rather bleak outlook for the next year.

Home Depot (HD) down $2.60. Retailers were weak today.

EMC (TMC) lost $0.55.

Citigroup a $0.63 loss.

Pfizer (PFE) losing $1.49.

And then Hewlett-Packard (HWP), that's the merger partner with Compaq (CPQ), both stocks up today for a change, a $0.38 gain there.

AMR (AMR), parent of American Airlines, down $1. The company sees a third quarter loss significantly larger than the second quarter loss of $0.68 a share and they're also predicting a fourth quarter loss.

Boeing (BA) was down $3.66. Morgan Stanley downgraded it from "outperform" to just "neutral."

Community Health Systems (CYH) losing $2.25. The company has filed for an 11 million share offering of common stock. That represents about a 12 percent earnings dilution factor.

Dow Chemical (Dow) lost $0.24, even though UBS Warburg Brokerage upgraded it from "hold" to "strong buy."

Scientific Atlanta (SFA) down $1.50. ABN Amro downgraded this stock from "hold" to "reduce" and I guess to "reduce" you have to sell some.

And TRW (TRW) down $1.60. The company is cutting its $0.35 quarterly dividend in half to lower the company's cost structure and raise some cash.

Fresh Del Monte Produce (FOP) moved up $0.78. Analysts we talked to cited higher banana prices for the strength in the stock. Then EOTT Energy Partners Limited Partnership (EOT) up $1.09. The company announced plans to recapitalize and refinance its corporate structure and that met with a positive response.

Hartmarx (HMX), the men's clothing manufacturer, down $0.90. It traded as low as $2.30 on news the company's ended talks with

Lincoln Group about Lincoln's $125 million takeover offer. And now Hartmarx is going to turn around and sue Lincoln for alleged misleading statements.

Circuit City Stores (CC) off $3.56. Second quarter same store sales dropped nine percent and the company sees a first half loss of $0.11 to $0.16 more likely toward the $0.16 range. And Alex Brown down-rates it just as an "under performer."

Allen Telecom (ALN) down $2.57, the company cutting its third and fourth quarter earnings estimates. Needham Securities downgraded it from "hold" to just-from a "buy" to a "hold."

And then Quiksilver (ZQK) dropping $3.12. The sport