(00:00:10) Good morning. Welcome to midday on Minnesota Public Radio. I'm Gary eichten. Glad you could join us to begin today. Let's go back back to last December December 30th, 1998 9300 approximately it was where the Dow sits today in 1999 December. It will be at it will be higher. And so you're going to say what is the number? Huh? All right. Well, I wasn't. Oh, why not? Why not indeed just as Chris Farrell predicted 11 weeks ago the Dow Jones Industrial Average the most closely watched stock market index in the world Hit five figures this morning breaking through 10,000 for the very first time now, we should note the course of the Dow quickly retreated into more familiar territory. But this morning's heady high is indeed historic and Chris Farrell Minnesota Public Radio senior business and economics editor is back today to talk about the Dow and what this booming stock market tells us about our broader economic future. And of course, we invite you to join our conversation as well. We're talking about the 10,000 Point Dow the stock market the economy. Give us a call six five. One two, two seven six thousand 6512276 thousand outside the Twin Cities 1-800 to for 228286512276 thousand or one eight hundred two, four two two eight two eight great pregnant, pause their disease extended there for a long time. Did you get your kazoo out this morning? It's one just kind of a nice feeling that it finally crossed 10,000 a little bit of relief, huh? We finally made it because we were so close. We had within forty one points. We got within 20 points. And so the fact that we cross it. It's a nice thing now as we just heard you predicted this was going to happen. Did you expect though that it was going to happen? So soon so early in the year? No did not expect that and I think taking a look at the Dow 10,000. Yeah. So what I mean when we were talking in December, what did that was at 9300 now is that 10,000 you no big deal. You know, what does it really mean? I mean, we had these benchmarks and it's sort of fun and it gives us all a moment to talk about it, but doesn't mean that much so that thou cross 10,000 but what does mean a lot it's let's go back to 1987 when the Dow is that mm. Hmm, and now we're sitting at 10,000 and it's been a remark the 1990s 12 years. It's gone from what did you just say about to It was in April 17th 1991. It was at 2000 January 8th 1987. It was a 2000 also, I'm sorry 3091 2087 12 years. It's gone up 8000 points. That's right. And that's the real story not the fact that it went from 9,000 to 10,000. Well, don't take away my lead here Crow. Well, I'm sorry. I'm sorry girl had to the real story. I was in the 1990s is economy. The 1990s are go back to 1982 when finally finally after nine Decades of trying it's essentially the Dow Jones Industrial Average crossed the 1000 barrier. And we are seeing it economy there of low inflation of a long economic expansion of high productivity and we'll be discussing today. You know, how much of this is irrational exuberance how much of this is, you know Madness.com and all the things that we can worry about but with the benefit of hindsight as we look back at the stock market and let's just pick 91 when I was at 3000 we go from 3,000 to 10,000. It's really a story of a remark of resurgence of an economy that many people we go back to 1991 had written off it was the US was a declining economy. Paul. Kennedy's book The Decline and fall a great Empires. I mean that was what we were discussing at that time and the US economy. There's no productivity and we were all kind of complaints about the labor force and our companies were bureaucratic and our stock market was too short term orientem. You can go back and listen to the whole Litany of ills and it's remarkable that we are where we are today and it is the economic fundamentals that have driven the stock market to Now what's happened in the interim did in fact all the problems that existed then were they all corrected or were the experts simply wrong about the existing conditions at that time? Well, I think a couple of combination of a couple things one of the experts were wrong and a lot of people were wrong when we look at Japan and parts of Europe and we said that was the future and we were the past and we misunderstood certain trends that were going on and there was this, you know forecasting remember when oil prices were rows and you know, people are starting to forecast $100 a barrel oil you knew take a trend and then you just forecast it out for 50 years and you can end up having a disastrous scenario. And so people were taking certain trends that had only been going on for a couple years for casting about for a long period of time but there was a lot of turmoil there were a lot of problems. It wasn't clear that we are going to be trapped break the back of inflation now inflation really worried now, we're to at an error price stability. So it the fears were genuine they were true true genuine fears and what basically Happened is because of unprecedented competition deregulation the US economy and we deregulated Financial Services telecommunications. I mean now we're deregulating electric utility. So we've introduced competition into the commanding Heights of the industry and then as we've all talked about this global economy, you know, there's more trade there's more competition. So there was just a lot of competition and then companies face this this this horrible Prospect, you know, you either grow or you perish you either innovate or you're a has-been and more and more companies decided they were going to innovate and so they adopted new technologies use computers in the workplace, but more importantly they reorganize the workplace. They reorganize the way the their Workforce interacted they broke down a lot of bureaucratic walls. And what did that show up as higher corporate profits higher corporate profits means a higher stock market the Dow Jones 30 Industrials hit 10,000 this morning 10001 to be more exact and Chris. Has come by today to talk about the dowel about the markets about the economy. And if you'd looked like to join us give us a call here at love to hear from you, six, five. One two, two seven six thousand. That's our Twin City area number six, five. One two, two seven six thousand outside the Twin Cities one eight hundred two, four two two eight 286512276 thousand or one eight hundred two four two. Two eight two eight when we get to some callers. I have lots of questions about the broader markets and all of that kind of thing but a couple of dummy questions here for you who is Dow Jones Dow Jones is a company and it owns the this point our Jones owns the The Wall Street Journal and it was created by Charles Barons and back in 1903. I believe that's when the Dow Jones in 1896 when the Dow Jones Industrial Average was created and it's been going on since then and it's a very good indicator. We know how he picked up a came up with the name Dow Jones this Charles Barron fellow there was a there was a mr. Dabao and there also was a mr. Dabao and there was a mr. Jones. So but one of the driving forces was mr. Behrens, uh-huh, and so they created this this indicator to give us an idea of what was happening to the economy. I remembered that time the economy was really traumatized by the railroads. So this was the Industrial Average that was created and it's a very important average and it really is both misleading and not misleading. It's only 30 stocks. I mean, it's 30 stocks, you know, what can three stocks tell you they're 30 multinational corporations. They're big companies, but it's only 30 stocks, but it's become the shorthand way that all of us discussed the markets and it's not that misleading. I mean at the Dow is going well the rest, you know large part of the other part of the marketer. Well, I mean, we don't say to each other. How's the standard Poor's 500 doing today? And how's the Russell 2000 and how about the Russell 3000 or the Wilshire 5000 which are much better indicators that which actually really happening in the market because it's very broad, but the Dow has become our quick shorthand expression for how's the market doing and the market has been doing pretty well and in general over time has the Dow tract pretty well with these broader measures which you would Presumably be a little more accurate. Right? I mean the broader measures to be more accurate where we can get you know, big Divergence has is when you get into the downloads these big companies and smaller companies had not been doing very well for the past several years. So while the Dow has been doing well your smaller companies which would be reflected by the Russell 2000. They've been sort of you know, tottering along little bit of a gain a little bit of a decline while the Dow and the S&P have been surging to new highs. Hmm. Are there any and I are there any companies on the Dow Jones 30 Industrial Average that the average person has never heard of or are these all the real bear that they're the big names? You've just heard of them all and they're they're just, you know brand name Corporate America Union Carbide and you can sort of go down the list. So now these are these are big companies brand name companies and it's been an index that's been around for a long time. So it's the one that we tend to talk about 10 to follow. But when we're talking about the stock market we're Talking about what's happened to corporate profits and what's the future for corporate profits and when Harry and Sally and they have their money in the little mutual fund there that little when the Dow goes up will their will their little portfolio increase at the same time, you know. These basic questions are always the hardest. No may not take a look at 1998 standard Poor's 500 was up 28% think the Dow was up. What about 26% around that rear cameras out of range, but it was in the same level but the average mutual fund did not do that. Well really didn't do that. Well now turns out the average mutual fund was loaded up with the small capitalization companies. He sort of small companies that didn't do very well and they have to pay various management fees and management fees tend to take what so take two percent off your return. So, you know in the end the you know, the average mutual fund investors did not do that. Well in 1998 hasn't been doing that. Well in 1999 now they're up. I mean they had to they always have to take a little reality test if you had everything in cash or everything's in a savings account versus a mute in equity mutual funds you're doing better in the equity mutual fund, but just because the Dow is up remarkably high and of course of a year or the S&P 500. There's up a lot doesn't mean Europe that amount unless you happen to have bought what we call an equity index fund that matches one of those indexes. Chris Farrell is with us, Minnesota Public Radio senior business and economics editor and he's joined us today to talk about the stock market and the economy thought this would be a great day what with the Dow finally breaking the 10,000 barrier try to get an idea from Chris where we go from here. And if you'd like to call in with a question, here's the number six five one two, two seven six thousand or one eight hundred two, four two two eight two eight Paul. Go ahead, please (00:11:41) good morning gentlemen, thanks for taking my call. Yes. I've been waiting for this day for a long time. I invested the bulk of my money at the beginning of last year about tense between ten and fifteen thousand dollars over the course of the first three months of the year and I was very disappointed come fall, but I was intrigued by a statement. I think it was Michael price who said that burnings Drive the stock market. I wonder how you feel about this concept. And combined with the Aging Baby Boomers and what they might be doing with their Investments and that's about it. I guess I'm looking at about a 15-year 15-year idea on them. Thank you (00:12:19) earnings. Do Drive the stock market in other words when you own shares in a company, you're an owner in that company and what you care about is is it going to earn more money and it how much money will it turn relative to either the peers in his industry or some other places where you can be putting your money because there's a lot of competition for your money. So earnings is the fundamental driving force behind what happens to stock prices. However, there's me. There's Gary there's our caller. We're all in the market. We're not highly rational all the time. We don't know what those aren't where those earnings going to be 10 years from now. So we're very swayed by what's happening at this particular moment in time or what our guesstimate is or what we read in the newspaper. He mentioned Michael price, you know, we was one of the great money managers is what Great money manager what Michael price is saying? And what's this person saying and so the market can move up and down? In excess or under what maybe where it should be relative to the prospects for corporate earnings corporate earnings are holding up very well the prospect of corporate earnings look good because the economy strong and real wages wages after you adjust for inflation arising smartly. So I agree with the statement in with Michael prices at its earnings a drive the market, but all that is is a really long term perspective and in between that long-term perspective the market can be very overvalued. It can be very undervalued relative to the prospects for corporate earnings. There was an and it is today a lot of speculation as to what happens. Now that the Dow has broken this psychological barrier. It's called right there's a school of thought that says boy, it's full steam ahead now, and then there's another school of thought I was reading this morning that some people would liken this to the Millennium that this could be the end of the world. There's always a bloodbath after you cross one of these big barriers now a practical question for you Chris. Do these big-time money people do they are they affected by this at all? I mean at what how does this what net? Whatever number is on that screen. How in the world? Is that have any bearing on whether or not you want to buy Company stock and Company X versus stock and Company why me know what is I don't I don't get it. I think the there's the effect is several one is like you and I and there's a lot the old timers and Wall Street are taking a pause a moment and saying I never expected in my lifetime that the Dow would be a 10,000. I mean it is a stunning moment. This is something that was not on the radar screen. Even three years ago, even two years ago wasn't on the Raiders game. So there has to be the sort of pause in the sort of wow, maybe have a extra drink tonight or something like that. But then I think for many people it reinforces their worries about the market the market is on a historic basis, very Very expensive. Is it very high valuations? If I'm buying stock in Gary eichten ink? All right. I'm paying your record high price for those earnings. All right. So if I'm assuming you're going to keep earning good money going ahead, but I'm paying a record price for that and that makes people nervous. So the Dow being at 10,000 and it's his record level supports a lot of the nurses out there about just how high this Market is and you can look at various models, you know, because we try and figure out just as that earlier caller said about corporate earnings. Well, would you try and do is use various models and it's easier today because the computer program so you don't have to understand how the mathematics happens you just plug in those numbers and you're trying to put in a guess about okay. Here's the stock price of selling here. And this is what I think the prospect for corporate earnings is and here's what I think we're interest rates may be and you put it all in a mix and then you come out with where you think the stock market should be what's its fair value and that models models will show you that stock. Somewhere between 20 and 30 percent over value today. Mmm. So I think the 10,000 actually reinforces a little bit of nervousness about the level of the stock market and these models have been put together by the same people who told us eight years ago that America was going to hell in a handbasket. Yes, and actually this model that particular model them talking about was drawn on a testimony by fed chairman Alan Greenspan and in 1996. He complained about irrational exuberance in the in the stock market and 1996 you noted that was around 6,000 kale your question, please (00:16:47) yeah, I have a question isn't the fact that isn't the reason why the stock market is doing so good the because there's so many baby boomers like me shove and every cent we can get into our 401ks and that the amount of money going in has to go somewhere. So it inflates the prices (00:17:06) there is an effect but it's not a very big effect. This is the sort of thing Economist love to do. You know, how do you determine supply-demand? How much of an effect is the buying by the baby? Boom generation saving for their retirement having an influence on the stock market and it clearly is having an influence in the stock market because of the growth 401K plans for 3B plans many more middle-class and working-class people are putting money on a regular basis into the stock market nevertheless when they look, you know, this is a benefit of hindsight analysis when you do a benefit of hindsight analysis, most economists still come up with an analysis as it's been driven largely by the economic fundamentals demographics has played a role. The saving for retirement has played a role, but it's not the primary determinant. It is low inflation High corporate earnings longer than expected economic expansion and more debatable point but increase productivity, so we still lean toward. Yes. It says economic fundamentals, but then there is this sense among Baby Boomers saving for retirement. Plus it's not just saving for retirement, but there's a It's been out there that stocks are not as risky as our parents thought they were you know, our parents were seared by the Great Depression and a lot of our parents would never invest mind. What would never invest in the stock market? I mean they knew what had happened to it and there's been a lot of academic studies that have come out in years associated with people like Jeremy Siegel or won't look the experience of Warren Buffett. You know, Warren Buffett is a hero to a lot of people well, maybe the stock market if I'm regularly investing with a long-term time Horizon is not as risky as I think and what that translates into is, I'm willing to buy more stock at a higher price because I think it may be slightly less risky than before again. That's that baby boomer effect that sort of the knowledge that we have today Eileen for toward the camp the stocks or as risky as they've always been they're not less risky, but that is a factor there but I still lean toward its the economic fundamentals. It's the economy and corporate earnings that have driven the stock market to where it is. Chris Farrell is This Minnesota Public Radio senior business and economics editor. He's come by today to talk about the stock market triggered. Of course by the big news this morning in case you missed it after lots of waiting speculating the Dow Jones 30 Industrials past the 10,000 Mark today 10001 plus change dip back last report. It was about 99 55. So about where it was yesterday. Yeah, it kind of rose up stuck its toe in the water found a little chilly and went back down for a while, but we thought it'd be great day to talk about the markets in general the broader economy and who better to talk with and Chris Farrell if you'd like to join our conversation, six five one two, two seven six thousand 6512276 thousand outside the Twin Cities one eight hundred two, four two two eight two eight and 2206512276 thousand or one eight hundred two, four two two eight two eight Tom your question, please (00:20:11) Yeah, I was calling. I just like to have your opinion and how much you think that the robust economy is also attributed to the collapse of the Soviet Bloc (00:20:21) countries. He's I think that the collapses Soviet economies they de clap. So the Berlin wall and the collapse of Communism and the Turning Away from the sort of State authoritarian governments that were very popular in Latin America and elsewhere toward a more democratic system has been absolutely critical to the state that we are in today. It Unleashed increase International competition, but where we've mainly seen it as it helped bring down inflation and an increased markets. So the demand for the goods and services that we were producing increased so we could sell more overseas, but at the same time new supplies of oil opened up new supplies of grain opened up new supplies for various other Commodities opened up plus for a lot of manufacturing Goods like steel and you can really see it with steel right now. The domestics u.s. Steel industry is really being hammered by Imports of oversee steals particularly from the trouble nations of Asia, but a couple years ago, Was aluminum and steel coming from the former Soviet Bloc that was affecting prices a lot. So I think that that it has been an important factor toward. What is the one of the big changes in the world economy, which we live in a world where Supply exceeds demand fundamental we can produce if you take a look at the global economy and you look at all the factories that have been built and we remember the Japanese built a lot of factories before they ended up in economic trouble. We've been building a lot of factories all the developing nations have been building Factory. So we have an enormous capacity in the global economy to produce a lot of goods more than there actually is probably demand at this point in time. Well in a world where Supply fundamentally exceeds demand, you're not going to get with inflation you moving closer towards something like price stability here in the US and overseas. There's a lot of concern actually about deflation or falling prices particularly in Japan as it's gone through an unprecedented five quarters of economic to five quarters of economic decline. So I think he's absolutely right and triggering the end of the War as an important Turning Point important transformation Point toward the economy that were in today, let's get at least one more caller on here before we break for news headlines linear question, please (00:22:36) yes. (00:22:42) I know that book that you're talking about. I apologize. I can't remember the title of it right now. (00:22:48) Well, I was running around my house trying to find it myself when I can't find it but is that a hedge fund investor and one of the best-known financial investors in the world and he is very concerned about a worldwide Global collapse of capitalism my understanding of what he's saying is that world are a global capitalism which is what capitalism is now is global is still governed by the old laws of laissez-faire with very little Like very little to no regulation and that the same thing will happen. Globally that happened in the Great Depression the United States because there is no regulation and I'm wondering what you what your perspective is on that and my second question is given that there are some of these people suffering in the world. Now for instance in Japan where people can't find jobs to support their families and their suicide bombs are breaking up. What is overall would you say that this surge in the marketplaces for Americans is a good thing globally or not. (00:24:00) Oh answer to your ladder question. It is the best news possible for the global economy of the US economy has been as strong as it is particularly. If you look at the catastrophe that happened in Asia last year and continues to happen all the Asia. It looks like it's bottomed out in terms of the economic numbers. If you look at things like bond yields and stuff. They're doing a little bit better if the US economy. Not strong. The rest of the world would really be a disaster the US economy to a large extent kept global economy afloat last year and we're looking at a global collapse. I do not see a global collapse George. Sorro's is a great hedge fund man money manager is a great investor as far as the global collapse. No, and I think there's a lot of self-interest that will prevent that kind of global collapse and there's some institutions that are being reinvigorated such as the international monetary fund which had been kind of moribund for a couple years, but now is being reinvigorated in the world bank and the US has a big commitment and so does a lot of other nations Chris Farrell is with us to talk about the stock market the economy today the Dow past 10,000 and we'll get to some more callers in just a couple of minutes if you'd like to join the callers on the line, six five one two, two seven six thousand outside the Twin Cities 1-800 to for 22828. This is Robert Siegel All Things Considered More than a news program. We bring you stories about ideas about the Arts about interesting people and developments in our lives that haven't made headlines. At least not yet. We bring you the stories of commentators the insights of Scholars and the experiences of all sorts of Americans and we start with the day's news tune in later today to NPR's All Things Considered. Over the noon hour today second hour amid Day program. We're going off to the National Press Club Bob Chase president of the National Education Association reported back to the Press Club two years after he outlined what he calls the new unionism the new teachers union approach to education reform in America and he's back with a progress report. You can hear that over the noon hour programming and Minnesota Public Radio is supported by Ecolab Global partner with leading Hospitality Healthcare and food processing customers improving cleaning and sanitation standards worldwide w-w-w dot equal AB.com news headlines. Now, here's Eric Janssen her good morning, Gary and grand jury testimony made public for the first time today Hillary Rodham Clinton says, she didn't monitor the records of her Whitewater Business Partnership. Mrs. Clinton said in videotaped testimony for independent counsel Kenneth Starr that she never spent any significant time looking at the books and records of Whitewater 40 minutes of the videotape was shown in court today during the contempt trial of Susan McDougal who has refused to testify I about her Whitewater dealings with the clintons. There's word of another death in the Amtrak derailment in Illinois. Amtrak says a local coroner reports that 13 people were killed when the train hit a tractor trailer last night south of Chicago rescue workers are still focusing in on a burned-out sleeper cars. They searched for several missing people former US attorney David little Hogg says, he's running for the US senate seat now held by Republican Rod grams little hog announced his candidacy today for the Democratic Senate nomination. He says grams of first term Senator doesn't represent the majority of minnesotans of minnesotans, but instead owes his allegiance to what little hog calls the far right wing of the Republican Party. Farmers concerned about agribusiness merges will have a chance next month to meet with the Justice Department's chief enforcer of antitrust laws. Joe Klein. Klein will come to Minnesota with Michael Dunn the usda's undersecretary for marketing and Regulatory programs and Senate minority leader. Tom daschle of South Dakota. The meeting will be April 18th. No location has been set yet Minnesota house Speaker Steve's Swig. Mm has some new ammunition in his bid to reconfigure. The I Triple R B Swig amounts to put citizens instead of lawmakers on the Iron Range resources and Rehabilitation board. He has the support of a report by William Mitchell college of law professor. Emil Hamilton that report says the current boards make up our the setup rather is unconstitutional partly sunny skies warmer today than yesterday with highs from about 40 degrees in northern Minnesota to the middle 50s in the South right now in Sioux Falls partly. Sunny skies, 45 degrees St. Cloud partly sunny 41 Rochester, mostly sunny and 46 degrees in the Twin Cities right now 43 degrees. I'm Eric Janssen now back to midday with Gary eichten. Thank you Eric. It is 25 minutes before noon. Chris Farrell is with us to talk about the stock market and the broader economy the dough past the 10,000 mark this morning then fell back a little bit and we're curious about how we got here and where we're headed. Chris is a good person to ask if you'd like to call in with a question six five. One two, two seven six thousand or one eight hundred two, four two two eight two eight before we get back to our callers Chris. The stock market has often been likened to a gambling casino is it? Yes, and no see you know on one hand on the other hand. It is on any given day. Just like a gambling casino. Okay on any given day you just might as well just be playing the slot machines, you know, these people who are doing the so-called day trading you sit in your computer front of your computer screen you buy and sell stocks hold it for 5 minutes pretend from your basement that you can be a Wall Street Trader to you're playing casino. You're playing the slots. The odds are probably worse than going to Las Vegas and you have a lot less fun over a lengthy period of time a year two years five years. It's not a casino. The stock market is actually reasonably accurate about what is happening to the economy what's happened to corporate profits what management strategies are working what management strategies aren't working is they're actually an Innovative product here, or is it just packaging, you know, putting it in an old old old wine in new bottles. I mean the market can be fairly accurate as one things. I love about the stock market you want to understand what's happening around the world or even in our economy if you look at the market any one day no one knows why it went up. Why it went down. I mean, there's so many millions of people buying and selling for any period of time and hedge funds and mutual funds and pension plans and individuals that it doesn't you don't have any clue, but over a longer period of time Trends do emerge and you can get a pretty good indication about what is happening to management and corporate strategies in our economy. And it's one of the more accurate gauges we have it's a vast information machine that old invisible hand at work. It is it's it's it's not invisible. Yes, it is an invisible hand but it's not a duck's ex. Machina. Is that how you pronounce it in a hail of I failed Latin sorry about that because we have to do is take information and turn information not just into knowledge but in the judgment and the stock market takes all this information and then we communicate with each other and we have our money on the line and that's one of the ways that we turn information into judgment and knowledge. And so yeah over any day it It's just like you're playing the slot machines and you are playing the slot machines. But when you go to the casino, there's no knowledge. There's no judgment. They'll kick you out. Anyway, if you finally figure out how did how did actually bring some knowledge to Bear? If you're if you're counting the cards are not going to let you play the game. But in the stock market, you can play the game. If you have good judgment George your question, please good morning. (00:31:18) How much of the recent economic growth would you attribute to relatively cheap are inexpensive energy and oil thank you. (00:31:27) Oh, I think cheap inexpensive oil has been very important to me and it works its way through the economy in a lot of different ways. It's one of the reasons why consumers feel as good as they do consumer spending has been really strong what consumers got a big tax cut? Now people are starting to complain because maybe you're going to get a tax increase if you look at the price of gasoline, but 1998 boy, there was a big tax cut on the price of gasoline at freed up. Some money went lower. So energy is very important. It works its way through our economy. There are a lot more users of energy than there are sellers of energy. So the users of energy benefited and that was good for our economy. Hmm. I don't want to plop you into the middle of a big political debate, but you did mention tax cuts in in the sense of the price of gasoline went down that's right now to serve one way of thinking about when an important commodity like that falls, it has kind of the equivalent effect of a tax cut on consumer spending. So what about proposals to actually cut taxes. Would that ensure that this booming Market would continue to bloom? Well, we don't need tax cuts to ensure that this boom continues and one of the things that's fascinating is least on the federal level. There's been almost no support for the Percent tax cut that for a while. There was one of the main Republican proposals out there just in generate any interest and I think that reflects a strong economy and the lower inflation where we're seeing the stronger task cut movement is on the state level and if you look at state government has actually been growing a lot and it just may reflect the growth in state government May reflect the growth of the coffret unexpected growth in the coffers of state government. So I think that the the tax cut movement is a state movement not a federal movement and on your local economy sure, it would have an implication hmm Bob your question, please (00:33:16) hi and the current issue of derringers nautical title almost there which deals with the dollar reaching 10,000 and in the article two of the country's most prominent stock market analysts are coated in a take diametrically opposite positions the interested in getting a response Edward yardeni, who was the chief Economist for Georges Bank Securities predicts that the market bubble will carry the doubt to I have summer but then he expects the Dow to Crash by some 30 percent to around 60 400 by the year end his reasons for predicting that dramatic fall is that the Y2K computer problem will cause severe economic dislocations in the US and the rest of the developed World in addition. He argues that the stock market is some 30% over value using the same model that the FED chairman Alan Greenspan employees taking the opposite position is a be Joseph cone of Goldman Sachs who says quote the economy is an absolutely terrific condition and notwithstanding the huge rise in stock prices since last September stock prices should continue to rise in the months ahead. What's your view (00:34:26) pick your expertise? I think this let's take the Y2K issue. This is the year 2000 issue and there's been a lot of Hysteria surrounding the year 2000. I lean toward the point of view now that the real danger the Danger of the year 2000 are all the financial scam sirs that are preying on people saying that the year 2000 which happens to coincide with the Millennium is a catastrophe waiting to happen. And there's a lot of scamsters out there that have decided that this this is the thing to ride and you can take people for a ride by preying on their fears now like like all good stories. There is a genuine problem there and there's a range of uncertainty. We don't know how big an influence this year 2000 thing because it affects the way computers work and how they read the data that they have. We don't know how big an influence it will have my own guess is that it's relatively small it will be unexpected where it pops up. They'll be a couple surprises. Maybe they'll be more of a year 2000 problem overseas, but here in terms of the banking industry the Securities Exchange Commission, you know you go through the most important sectors of the economy. No, I don't think it's a big problem there. So from that point of view, I I look at it as the impact of a Earthquake in a region Regional economy Los Angeles unfortunately is an area where we have a fair amount of experience looking at the impact of an earthquake on a regional economy. You get a dip in your gross domestic product your regional growth domestic product. And then at last that last for about two quarters of the equivalent to six months and then your gross domestic product starts growing as all the construction firms and all the money starts flowing in and you start rebuilding and so from a GDP point of view a gross domestic product point of view. It doesn't show up and I think it may be is very similar effect with the year 2000. Well, so up up and away then with the market here the next day. I had this middle-of-the-road position. All right in the middle the road Physicians are always middle of the road. It's just better to have some sort of extreme. But the Middle Road position is this what is important about this economy is that this economy is very different from the one in the 1970s and 1980s. We have made genuine productivity improvements and what a high productivity economy means is that business can sell. Goods and services without raising their prices and give the workers a pay raise. That's really what productivity is. So that means it's a Higher Living standard economy. Now in that Higher Living standard economy. I expect that the stock market will do fairly well, but I don't expect double-digit return such as we've had over the past 15 years. I would expect we have single digit returns because part of that scenario is low inflation not a movement to low inflation, but essentially price stability well in a world of price stability in you're not able to raise your prices the very competitive world. So a lot of people may lose their jobs. You may not get quite the corporate profits you expect so in that world, I expect single digit returns not double digit returns, but hey, it's not bad. Mmm. It's all once you allow for inflation. You're still making substantial amount of me. You're still making but that takes an adjustment it takes time because you're not you can't be expecting 28 percent returns ad infinitum, but there is a group of people out there that if you say well, you know, I think the stock He's going to have a real return around six seven percent going ahead. That would be my long-term forecasts and they'll you got to be kidding. You know, I'm expecting 20-30 percent of my money and now you're not going to get that the long-term return since 1802 is about seven percent. Now if you adjust for inflation, that's a reasonable forecast going head. That's a good return. It's a very good return but it's not like what we've seen over the past 15 years Steve your question, please (00:38:11) yeah, if the stock market is only going to return like he just said seven percent over the next you know over the long term. Is there a better spot to put money like bonds or treasury bills or something else my wife and I have an extra hundred bucks a month that we would be willing to put to you know an investment and we're just looking for the best thing to put it in and we're willing to take some risks. I'll take my answer off the air. Thanks. Okay, my (00:38:37) standard answer in the answer that I really believe in is that you want to Diversify you want to be in stocks? You want to be in bonds? You want to be cash. You want to own your own home? Because who knows which Market will do. Well, which Market will not do well going forward. If you're Diversified you both bought yourself a margin of safety. And at the same time you can participate in those markets that do unexpectedly. Well, if I'm right that we're moving toward an era of low inflation now, we'll have spikes, you know, they'll be spikes up and inflation will be spikes down but basically price stability with the history tells us and unfortunately this history is only about what a hundred fifty years old not that much but history tells us is that in periods of low inflation stocks outperform bonds, but not by much. So it bonds give you a real return after inflation of 3% stocks might give you a real return after inflation a 5% or if we live in a world because high technology the returns will be better. You might get you know, six percent on your bonds. 8% on your stocks. That's kind of the range. If you look at the post-world War II period 1946 in 1997 bonds returned one percent. Stocks returned around nine percent 8 percent in that range. So but that included that terrible terrible period was you all you know still worried about the 1970s when inflation was rising and that just killed bonds because and you know, if you're a lender and not you know, you're lending money and inflation is just tearing apart the value of that loan, you know, you're really going to suffer and so we really suffer with high inflation if we are in a period of low inflation and that's the Judgment people have to make you know, who knows but I think we're in a world where Supply exceeds demand if we are in that world bonds will do. Okay stock should still do better as we sit here on Olympus looking down now from 10,000. It was just two three months ago. Well, I suppose closer to five months ago when the market had collapsed back in September and October a lot of hand-wringing. Well, this was the end. Yep depression right around the corner. And I think the and we've gotten that call from the woman earlier about you know, whether prospects for a global collapse. And yeah that concern cannot be dismissed cavalierly. I don't see it happening. So just because black we came close there were so you know the Federal Reserve acted and cut short term interest rates the FED funds rate. That's the interest rate that the Federal Reserve controls three times and that third cut was an insurance policy to prevent a global economic collapse that gives some confidence to the global economy that the most powerful economy in the world was acting and the Federal Reserve being at this point the most powerful economic institution in the world sort of looking a little bit beyond our Shores, you know fed chairman, Alan Greenspan will always give this testimony. We cannot run monetary policy based on what's Happening overseas. We have to worry about here in the US theoretically he's right. He's right to say that but their eyes were overseas. And so I think that that third cut yes, it was definitely an insurance policy not for the us but insurance policy for the global economy and one way what was happening is that when everything was going bad overseas capital from Jakarta Mexico and boy know Sarah's it fled to the United States and it fled into safe us treasuries, which are default free and it drove our interest rates down a lot. That's not a healthy situation. You don't want that to be happening. So by cutting the interest rates and stabilizing the situation what we're seeing now is more money is pouring into Indonesia South Korea, Argentina and Mexico. So we're starting to see a better Global situation big question is Japan George your question, please (00:42:40) yes, sir. Good morning. Good morning. I have a question about my portfolio manager and how best to evaluate his performance when I have stocks being traded. Say on a monthly or frequent fashion. I have mutual funds and I invest in the mutual funds on a monthly basis. That would be one question how best to evaluate him. Also. What is a reasonable percentage for managing the (00:43:12) portfolio? Well, I think the way you have to evaluate any portfolio manager is to use fairly common technique, which is that you Benchmark that particular money manager. So if your money manager is investing in brand name companies, you know, the Walmarts of the world the IBM's the AT&T as you would Benchmark them against the Standard & Poor's 500 and how are they doing? You know after you take what you're paying this portfolio manager all the commission costs. Are you ahead of the and your taxes? So you're also add all your costs together. Are you ahead of the game relative to the standard Poor's 500? RIT or would you be doing better putting the money in the Standard & Poor's 500 Index Fund. Mmm. That's the way that I would approach it if your might but you have to be fair to your money manager of your money managers investing in smaller companies, you know one said a lot of people might not know of unless you happen to live in an area or region of the country. Are you exposed to that particular industry you might want to compare them to the Russell 2000, which is your basic index for small capitalization companies. Hmm. It wouldn't be reasonable to say. Hey the Dow hit 10,000 a day. How rich. Am I today exact did I make $10,000 today? Yeah. No, you can't do that and you have to look at it over a period of time who are the heroes are there any Heroes here? We were talking the beginning of the program about how dramatically the Dow and just in the last few years has gone up today again. If you're just tuning in a past 10,000 this morning currently a dipped a little bit. It's down to 99 41, but within hailing distance Of five figures again. Do we have Heroes people to credit for this or is this just that old invisible hand? I think we have four Heroes one here is fed. Chairman. Alan Greenspan. Not only because he ran has run a very good monetary policy, but that Greenspan made a gamble at a point in 1995-96 when he could have tightened monetary policy to slow the economy down. He was under a lot of pressure to tighten my money policy and he didn't because he believed that we were moving toward a higher productivity economy and a high productivity economy can grow faster than our economic models tell us conventional economic models without generating inflation. And that was a critical decision so fed chairman, Alan Greenspan is one think he's pretty common. The second one is President Clinton. Because President Clinton in his first term of office that the really critical thing that he did was he signed the North American Free Trade Agreement and he signed the second the the final round of Gat which led to the World Trade Organization and he committed the u.s. Recommitted the u.s. Toward a free trade policy and that it was a critical moment in the global trading system. So I would give him credit because it would have been the easier thing to have done not to assigned either those policies and to turn away from free trade and move more toward protectionism because he was a kind of was weak at that time. It's hard to remember right now, but if we were in, you know pretty disastrous traits, Warren Buffett has taught a lot of individuals the right way to invest so I would also say although he's ignored. Unfortunately a lot of people like to admire him. I don't think they necessarily do they're investing. But the final the final hero of this Market is a computer program and that is index funds because it is index funds that is opened up to investors who are busy and worried about their families and they want to volunteer with Community efforts. And yeah, they don't want to be like Warren Buffett or a George Soros. Yeah, they could care less but they wanted, you know be fairly smart with their money. You can buy a part of the market where you can buy a whole big chunk of the US economy and the global economy and you pay a very low cost and you just basically do as well as the market does and boy that's not a bad deal. Hmm. So for Heroes for Heroes looking forward know Chris Farrell, yeah, but see you're going to be okay. All right, so where we headed? Well, we're still headed up and I still expect that the market will be up at the end of the year. I still am in the camp that if the markets up that the market will will be up in the you know, single-digit very low double-digit. So I will give you a range that the market be up somewhere between 9 to 12 percent and in turn for those of us who are math and pair that would equate to would we be finishing over this ten thousand we will be finishing over this ten thousand, uh into swimming in the but we aren't going, you know, it wouldn't be a big increase. Mmm. Well, that's a little more firm than those of you who tuned in late we heard Chris's prediction in December. There was a long long before that's really what's a long time. Well, thanks a lot Chris. I appreciate thank you a lot of good information. As always. Thanks Chris Farrell who is Minnesota Public Radio senior business economics, editor. Of course, you hear them every week on our sound money broadcasts on Saturday. He's got a TV show now on public TV and once in a while he comes by here. Are to Enlighten us about how all of this Market stuff works.