Eric Gillin and Chris Edmonds chatted on Yahoo!, Thursday, Dec. 20 at 5 p.m. EST. For an audio transcript of the event click here.
It's Thursday, 5 p.m. on the East Coast, 2 p.m. on the West, time once again for
Good afternoon, I'm your host Eric Gillin, coming to you live from the world headquarters of
on Wall Street, just across from the New York Stock Exchange. Joining me in
Atlanta bureau is contributing editor and
columnist Chris Edmonds.
So, Chris, have you finished your holiday shopping?
Right. No, I'm seriously waiting for today's show to get some ideas. Looks like we have great show and a very special announcement at the end of the hour.
Indeed. Today's special holiday edition of the Martini Chat will not only take care of all of your last-minute gift needs, it will also help you look back at what a year it has been.
We begin with a look at the year that has been, from an investment perspective -- the tumult, the anxiety, the winners and the losers. It's been quite a year, and we have assembled a crack panel of business and investing experts to look at the year that was. We'll also take a quick look at 2002, the year that will be.
Then, for you procrastinators, we'll talk with two gift-giving experts about last-minute gift ideas to please everyone from your boss to your spouse and those in between.
Finally, we'll wrap up the hour with an entertaining look at the biggest business news stories of 2001 with Chris and two of our colleagues.
Oh, and stay tuned, because we have some big, big, big news about the Martini Chat as we move into 2002. And, let's just say we'll bid the old adieu and raise a glass to the new. And as always, we'll have all the day's headlines and how they'll spin forward in the coming days.
But first, a toast.
2001 was quite a curtain jerker for the 21st century. As the year careens into 2002, the global economy and political balance will sit at the crossroads of better and worse. So, let's look back at 2001 and raise a glass to the hope that 2002 will be better.
At the beginning of this year, the economy, already popped like a birthday party balloon, was deflating. The hiss was audible as capital expenditures dramatically slowed. Inventory swelled, and demand fell off a cliff. So, on the first day of 2001, the Federal Reserve slashed the federal funds rate, shocking the world with an inter-meeting 50-basis point cut. After ten more cuts in ten months, the rate is now at 1.75%, nearly 500-basis points lower than the 6.5% rate at the beginning of the year.
The Fed had come to the rescue. Experts said a recovery would certainly come in the second half of 2001... uh... the first-half of 2002... err... make that the middle of 2002, maybe. Earnings visibility grew cloudy as corporate profits shrank like a wool sweater on high heat. It became clear that consumer spending carried the weight of the economy.
And so, heading into September, an eerily quiet and nervy Wall Street desperately searched for signs of a recovery, unwilling to say the R-word for fear of how consumers would react.
Then Hell, literally, broke loose on September 11 with two planes slamming into the Twin Towers. Wall Street became a war zone. Trading halted for days until the area was safe. Thousands were missing. Thousands were dead. And many brokerages were forced to sort through the rubble and pick up the pieces of their own businesses. Suddenly, America was at war and officially in a long-dreaded recession.
The Dow Jones Industrial Average fell below 8,000 -- a level not seen in more than three years. But gradually people began to return to their normal routines, both in downtown Manhattan and countrywide. The war effort in Afghanistan went better than expected. In two months, America ousted the Taliban with minimal casualties to U.S. soldiers. For the most part, the consumer didn't crumble, despite the less than merry shopping this Christmas season. A mini-bull market swept in as stocks rallied back from their lows, with the Dow eclipsing 10,000. Even the collapse of Enron and the deepening war between Israel and Palestine didn't cause widespread investor retreat.
So let's hear it for 2002. Pour a glass of something strong, hoist it in the air and toss it back with gusto. 2002 could be worse, but most on Wall Street think it will be better. Let's raise our half-full glasses to better.
Just like last year, most experts say that the economy will pick up in the second-half of 2002. Unlike last year, the economy has already been in a recession for nine months, with the average recession clocking in at 11 months. So, while this one may be longer than a regular recession, due to the war in Afghanistan and the tech party hangover, it will end, most likely, in 2002.
The United States will enter 2002 not knowing where the new front to the war on terrorism will be. At the very least, we know that the battle isn't over. Even though the struggle remains vague, the President's 85% approval rating, the success of the U.S. military and the country unified in a way unseen since the Second World War has laid a nice foundation for the better case.
Plus, this recession, while broad, hasn't been that deep. Overall, the housing market has held up. Consumer spending has held up. Unlike many recessions, this one began in the corporate world, and that mess is slowly being cleaned up. Layoffs have eliminated unnecessary employees. Sales have burned off old inventories. Better says that there's no reason why profits can't grow again once all the dead weight is cast aside.
More than anything else, Congress could provide the boost that takes the economy out of the recession as fast as it came in. Granted, our elected officials have been debating the $100 billion dollar economic stimulus package since the middle of September, but a package should pass soon. The Better scenario? The economy hits bottom by the end of winter, and it shows tentative signs of growth in early spring, thus planting the seeds for recovery. Congress' stimulus package provides rain and sunlight, and by the end of 2002, the case for new, sustainable growth has real roots.
Even if all this happens, a few changes could make next year even better. The government could continue to investigate and alter the relationship between sell-side analyst research and investment banking divisions at full service financial firms. Stronger energy companies could rise from Enron's ashes. Tech companies could learn from their mistakes and base their businesses on sustainable growth from stable customers.
As we enter 2002 after surviving a difficult and challenging 2001, let's take this moment to look on the bright side and raise a glass to 2002 and cheer the possibilities therein.
Sure, things could always be worse, but they do get better at some point.
Cheers to that.
Chris, good riddance to 2001. Any last thoughts on the year that is, thankfully, almost behind us.
Wow, hard to believe everything you talked about happened in just 350-plus days. I look back to 1986-87 and remember, early in my career, how I thought that October day was the end of the world, the end of investing, only to find that the world goes on. The economy is indeed a big cyclical party, and every time we struggle through periods of uncertainty and weakness, we learn. We are resilient, and we come back stronger.
I've covered Warren Buffett for a long, long time and his appearance with Jack Welch on
today really summed up my feelings. The Oracle said, "I'm a long-term bull on America. Always have been and always will be."
I'm definitely in Buffett's camp there.
Well said. Yet, to get stronger, let's not forget where we have been. Chris, I think we have assembled a top-notch group of pundits to talk about the year that has been and what could lie ahead. Take it away.
Thanks, Eric, and indeed we have. To look back at the year, we do have a crack group of analysts and investors. Joining us from Minneapolis is Vince Boberski, Chief Economist at RBC Dain Rauscher; from Princeton, New Jersey, is Howard Alter, President of Alter Asset Management; from San Francisco, we have Scott Preston, a senior analyst at Toronto-based Research Capital; and from Houston, Marshall Adkins, director of energy research at Raymond James and a member of the
Energy Roundtable. Welcome to you all.
Vince, let me begin with you. There has been a lot of talk about the "R" word. Was 2001 the beginning of a recession, and if so, how deep, how long and how painful will it be?
I think it was. The thing to think about is there are two definitions of recession. We define it as two quarters of the economy shrinking. We will be in that by the end of the year, negative growth quarters. When the official recession was called, it's not that the economy was going backwards, but that it was starting to slow. From our definition, it's just the second half of the year. If you take a look though, they're saying we have been in recession for the last 9 months.
Howard, clearly economic concerns have weighed on the market. If you could sum up the year in the stock market in a phrase or two, what would it be?
Money managers tend to be slightly schizophrenic. My cavemen response is that the year's been hot, but my money manager response is the return of your principles is more important than the return on your principle.
Scott, it's been a tough year for technology, at least until recently. Give me a quick guide to what worked and what didn't this year, and why.
We were in an inflated bubble. Coming down was painful. The companies that did better in tech failed to garner the limelight--companies that are exposed to the medical industry or have a large customer base. We're talking about companies that have exposure to the consumer such as gaming stocks like Electronic Arts and chip areas. Those produced infrastructure. Those were the best performing stocks this year.
Marshall, what started out to be a promising year in the oil patch turned out to be anything but. Was it the economy, the early high prices of oil and natural gas or other factors that caused so much grief for oil and gas investors in 2001?
This year we found out that energy prices do matter to the economy. A few years back economists didn't think they did. Prices exploded last year and, in part, triggered part of the investment. We saw a short-term cyclical downswing as demand has temporarily subsided. When economy picks back up, the group will go up, but the energy crisis still hasn't been solved.
Vince, it's Eric Gillin in New York. I want to focus on the Fed's action for a minute. Eleven rate cuts, and it still isn't clear that the "monetary gas pedal" has really been engaged. In your view, has the Fed done the right thing, and will it be enough to push this economy back into growth mode?
They have done the right thing. In broader context, we can lay the recession on the doorstep of the Feds building from the rate increases in 2000. We see the cuts have worked. The housing market has been a pillar, and the Fed has helped there by cutting rates. They've had things aligned against them such as a really strong dollar and the collapse in corporate earnings.
What about the failed stimulus package? Is it important that Congress come back from holiday recess and act, or is it too late or even unnecessary?
The danger now is the Federal government coming in too late with fiscal stimulus and overheating the economy at the end of 2002. If they can get something early in the pipeline and start spending it, it would be okay. If it's going to drag out much longer than that, the economy will climb out itself.
Howard, let's talk for a minute about what worked and didn't work for you in 2001. Give me your best ideas and worst ideas from the year, and your thinking on those same names now?
In the retail space, Ross Doors worked well for us. It's an off-price retailer. Toys R Us is under new management. Disney worked after September 11. We bought in there and that worked. Also, we had success with Viacom, Cablevision, and Microsoft.
On the negative side, we continue to believe in Amazon.com, but they got hit this year. In telecom, we're taking a hit in Nokia. In terms of 2002, I think there are still opportunities in retail, specifically the Gap and maybe at Banana Republic, but our expectations are higher. I'd buy a stock that traded for $54 in 2000, and I could now buy for $12. Earnings will be better 18 months out.
Eric Gillin :
Scott, a slightly different variation on that theme for you. There has been a lot of rotation into and out of tech this year. Yet, when we say tech we are talking about a huge range of companies. If you were to focus on subsets of the tech sector for investment today, where would you focus?
In software I'd continue to focus on security and business analytics. They were well above expectations, confirming that sector recovers. In storage, the channel is picking up. As far as security, I'd focus on the VPN Firewall guys. In chips, we'd continue with companies that have a consumer spin like EXS. I'd venture to look at some equipment stocks like Riverstone and Extreme Networks. In the large cap space, Check Point, Veritas and Materials look good.
Marshall, you have said you thought we were near the bottom in the energy space for over a month now, and that has seemed to be a pretty prescient call. Yet, commodity prices remain low, demand remains lukewarm and now we have the Enron and merchant energy names really struggling just for survival. What's the macro view from here for commodity prices, and how damaging has Enron been or can it be to the energy investor's psyche?
This is a great group to be an investor in. The psychology of people is negative, partially from Enron. In the long run, Enron's not going to have a major impact. It's more short term psychological. As far as the macro view, we think things are coming together for a very bullish 2002 in energy. Supply is screaming down. If we get economic recovery and demand picks up, and we're back in shortage. If that plays out, it will turn.
Vince, let's look ahead for a moment, and I know you focus on the economy and fixed-income markets, so I'll start with you and the macro outlook. In a nutshell, how does the recovery shape-up into 2002, let's say in terms of GDP growth, and where will interest rates head in 2002?
In terms of growth, the biggest loss will begin fourth quarter. As far as month-to-month, the economy is likely not to bottom out until February at the earliest and June at the latest. We have another quarter of the economy shrinking. Once we get past that, the Fed will be aggressive in taking back the rate cuts. Not all of them, but the cuts that were of emergency nature, they'll take back. We're starting the year from an oversold position with bonds. Going forward, we expect funds by the end of the second quarter to be at 2.5%, 3.5% by the third, and 4% by the end of the year. There will be pressure to flatten when the Fed is done cutting rates.
So, Vince, if you are a fixed-income investor, where do you want to focus now, both in terms of government versus corporate and regarding maturity? Where on the curve do I want to be?
If you look back, the basic environment is that the Fed is done or close to it with this rate cycle. 1.25% will mark bottom. Look out three to six months or even a year after the Fed is done, and you'll see what performs best. The three comparable time periods are the end of 1992, the beginning of 1997 and the end of 1998. Mortgage-backed securities outperform corporates by about 3% on an annualized basis. Once you go out longer and the economy picks up, you want to be in corporates. As far as the curve right now, the most attractive is the five-year spot. Another piece of advice for investors is to take advantage now of the steep yield curve. A two- year at 3.17%. Move as far out as possible. If I had to pick one spot, I'd pick the five-year now, and I'd pick corporates if you're buying and holding, but mortgage-backed if you're more of a trader.
Marshall, same question to you. What three names in the oil patch provide the best opportunities from here?
Marshall Adkins :
His outlook spells bullish for energy. If we do see that, I would be in energy that will give you most juice -- oil service. If you want less risk, try the EMP names like Pioneer and Alberta Energy. We think that's a fantastic name.
Howard, we'll give you the last word -- your three best ideas for the coming year.
Gap, which I mentioned earlier, Alberta Energy, which should be on the acquisition front as prices continue to be good, and I would add Charles Schwab to the mix. They're a dominant retail size that the U.S. trusts to meet the needs. The portfolio business has earnings power, and they'll trade higher and are a natural fit for a bank. The market will recognize the value or a large investment bank will find a marriage to be acceptable.
Gentleman, thank you. We'll check back with all of you in the coming weeks and months and keep track of your ideas. Our thanks to Vince Boberksi, Chief Economist at RBC Dain Rauscher, Howard Alter, President of Alter Asset Management, Scott Preston, Senior Analyst at Toronto-based Research Capital, and Marshall Adkins, director of energy research at Raymond James and a charter member of
Eric, lots of food for thought. And speaking of nourishment, it's time for the news headlines with that weekly dose of Gillin protein.
So on Wednesday, all seems right in the world. The long-awaited
Lord of the Rings
movie came out and thousands of strange, lonely people dressed up as elves and wizards and waited outside the local cinema-plex to see J.R.R. Tokien's classic brought to life onscreen. Oh yeah, and Motorola cut jobs while Alcoa warned.
And then today, that economic stimulus package will be headed to a stalemate after House Republicans pushed through a measure that the Senate won't like at all. In Argentina, a state of emergency was declared by President Fernando de la Rua amid rioting sparked by the country's fiscal collapse. Mass looting was reported in the country's three biggest cities.
Next week, Christmas happens, and Wall Street should be pretty quiet. Look for window dressing as fund managers try to make their portfolios look nicer at the end of the year. Other than the usual economic news, there are no major earnings releases. And besides, we're not having a show next week, so nothing important can happen.
And that's the news.
Chris, we're supposed to be shopping, huh? We're sweating and freaking out because there are only five days until Christmas, and one of them is Sunday, and we don't know...
Eric, that's right. All of you who still have shopping to do, raise your hands. I know mine just went up. We may have just the answer for you. Some awesome last-minute gift suggestions from two of the smartest gift-givers you will ever find. After all, these guys do this for a living.
Consider this our gift to you. With us from San Francisco is Dave Garr of
Surprise.com, and from Atlanta, Bob Zakrzewski, president of
FindGift.com. Both sites are gift consultants, offering their services in helping you find the best possible gift for that special someone, even your dog.
Welcome to you both. Dave, let me begin with you. There's less than a week left before the Christmas holiday season. A lot of people have been very distracted by current events and the economy and have found it hard to focus on the task at hand -- finding gifts. What advice do you have for people who haven't ventured to the mall and are feeling skads of pressure to come through in the clutch?
Never give up.
Surprise.com has a page with last-minute gifts. We list places like Ashford and Amazon. You can still order until Saturday at noon and get things by the 24th. We also have gift certificate sites where you can email one on December 24 or 25. You can come to the site, and we'll have gift suggestions. You can go to the mall and buy the gifts.
Bob, it's Eric Gillin in New York. At what point does buying online cease being an option? I know a lot of sites have overnight delivery and ship really quickly, but if Christmas is five days away and there's no mail on Sunday, can you even really shop online anymore?
Most definitely. There's a number you can get last minute. The longer you wait, the less options you have and the more you have to pay for shipping. With three to five days, you can still have confidence in things arriving in time. Christmas deadlines vary depending on the website, but a number of merchants can deliver on the 24th and 25th.
Bitesandgrins.com has a lot of humorous products for your favorite techy.
Dave, crucial last-minute shopping decision -- to mall or not to mall? Should people run to the local mall, despite the crowds, because of the diversity of goods out there? Or do you think it's better to hit a Wal-Mart or an all-in-one store?
I'd recommend coming to a site like www.surprise.com or www.finegift.com and seeing where the gifts are available. I would recommend Wal-Mart for savings, but if you need to go to a mall, then do that.
OK, quiz time -- let's say I'm a Dad with three kids. One is a teenager, one is a pre-pubescent, and the last is a toddler. Let's start with the youngest first. What are some solid last-minute gifts for toddlers? Are they really hard to shop for? Will any old stuffed animal do? Bob, you go first.
Bob Zakrzewski :
I think toddlers are easier. So many gifts that if you pick the age range, it's hard to go wrong. I have yet to meet a toddler who doesn't like videos,
or any Disney video. Also, the over-sized Lego blocks and train tracks -- a Lionel train set. Every Christmas, you can buy them a car. For girls, kitchen sets and fake food are always winners. It's hard to go wrong with a stuffed animal, though for a toddler the more unique and fun the better. Maybe Barney? It depends. Some people like him, but it hasn't found its way into our home yet.
My pre-pubescent 9-year-old is like any ordinary kid. He likes action figures and toys, sports and videogames, but I'm not sure which ones are the good ones and which are the bad ones. He's even tried his hand at creative stuff, like a model, which may have been too challenging, since he glued half the house to the newspaper. He does seem to like crayons, and he needs clothes. Is it better to buy a 9-year-old general stuff like clothing or books or crayons to be on the safe side? Or should I run the risk of buying him a toy that's inappropriate because it's either not cool or just patently not fun?
I'd recommend something like an AirGo pogo stick that uses compressed air or any kind of remote controlled thing. Sharper Image has a hovercraft. Roller sneakers are cool this year, or a video game system -- for a 9 year old, either a Game Cube or a Gameboy Advanced Handheld.
And, Toddlers and pre-teens are one thing, because on some level they're so happy to get a gift that anything you get works out well. But with my teenager, I can't detect any discernable likes or dislikes other than the fact she doesn't seem to like hanging out with Dad. Can you help out here? What sort of last-minute gifts can I get my teenagers that will make them happy? Bob, what are your thoughts?
If you have a normal hypothetical teen, then music, electronic stuff, or even cell phones.
Customphones.com can deliver for orders made as late as Christmas Eve. On the sophisticated side, you could get her the rose one. On the sentimental side, a nice watch, pendant, or bracelet would make a nice father to daughter gift.
Or gift certificates are good for teens. Even from your local mall.
Dave, I feel like I have continuously been on party patrol the last two weeks -- dinners, open houses, you name it. And, my wife thinks every time we need to sport a gift for the host. What sorts of things make nice last-minute gifts for the host of a party? Any quick fixes this year?
The Christmas favorites seem to be wreaths, pine-embedded candles, chocolate covered strawberries, or wine with a personalized label. Maybe a money candle where it burns into a tower and inside is a treasure? That's available at Surprise.com.
Dave, what are the hottest gifts this year? Here in New York, a lot of the stuff is FDNY, NYPD and USA related. Is that nationwide? What nationwide trends are you seeing?
We are seeing a lot of patriotic items. Many people know someone overseas, and they want to show support. Even in Atlanta we're seeing a lot of flags displayed. It's great to see. We set up a category on www.finegift.com that's become very popular. Others are humorous items and things for techies or computer junkies.
Finally, for both of you, and Dave, let's begin with you. What's your "go to" gift? When you're in a pinch, do you have a stand-by gift?
Dave Garr :
I keep a supply of "Jerry Seinfeld: Live on Broadway CDs."
Bob, your turn.
Gift baskets for me.
Dreammaker.com has a bunch for any occasion, even one with a holiday sleigh. At
Cheesecake.com, you can customize the label with your own personalized message. Their last shipment for Christmas is Saturday morning.
Dave Garr :
Or a gift certificate for a massage or a dinner delivered to the recipient.
Gentlemen, thank you. Hopefully our listeners will put your public service to good use. Once again, our guests are Dave Garr of Surprise.com and Bob Zakrzewski, president of FindGift.com.Chris, let's take one last look back at 2001 from our own eyes.
Eric, to wrap up the show and the year for
Martini Chat, we have invited two of our colleagues to discuss there thoughts on the biggest stories of 2002. With us are Lisa Meyer, Personal Finance Editor at
, and Aaron Task, senior writer at
Lisa, we'll begin with you. I understand analysts and their conflicting roles and the evolving role of the Internet made your list?
No doubt one of the biggest stories of 2001 was the light shined on the conflict of interest between sell-side analyst research and investment banking divisions at full service financial firms. We can thank the dot-com crash for at least that. The spotlight grew ever brighter as analysts such as Henry Blodget kept touting stocks like Pets.com with buy and strong buy ratings as they kept sinking without the life preservers of business models and revenue streams, let alone profits.
Basically, the conflict resides in compensating sell-side analysts for their work. Commissions in selling stock are trivial compared to the underwriting fees sell-side analysts make from the company whose stock they are selling, and that relationship damages the objectivity of company reports. They are more like sales pitches than honest takes on the financial viability of a company. Plus, many analysts, as well as their firms, actually own stakes in the companies they are trying to sell.
While most institutional investors have known about the conflict for some time, a good number of individual investors have been caught off guard. Watchdog and government agencies like the SIA and SEC continue to investigate the conflict and offer guidelines, but will the system ever change? Is the current attention only temporary? Will it disappear once the market rebounds? Some financial firms have set rules to increase disclosure of any conflicts, as well as changed the way sell-side analysts are compensated. But can sell-side analysts ever regain the trust of individual investors? Where can investors go to for sound equity research?
I try to go to the people who own the stock. They have their own biases and are putting their money where their mouth is. Sanford Bernstein and such are doing independents and don't have to worry about these conflicts.
That's a good point. I look to the smaller firms. They are independent thinkers.
Some entrepreneurs find success by taking advantage of others' mistakes. Indeed, the other side of the sell-side analyst research story is the increasing number of companies like Tradeworx and ValuEngine providing web-based stock analytical tools that offer retail investors easy ways to evaluate stocks. In fact, many of these programs are so sophisticated that they offer the same or close to the same information an investor would receive from an analyst.
Indeed, one of the bigger business and investing stories of 2001 is the growing number of web-based equity analytical tools and trading systems that allow retail investors to take more control over how and when they invest. Such tools have had a significant impact on the market, as well as on investors' taxes. The result was more frequent trading, causing greater volatility in the market, and higher capital gains taxes. With Reg FD and an ever greater amount of information about companies available free of charge on the Internet, individual investors feel more empowered to do the trades and research themselves.
But, even with all these tools, are individual investors still equipped to tackle the markets on their own? Is it smart for the average investor to make decisions about the market, which is influenced by so many other factors that they might not understand?
I don't think individual investors are smart enough to do this. People go to school for this for years. When you are getting into shorts and options you need to be a pro for it. Not to toot
horn, but I think that's why we've been so good. You can come to us.
For all the talk, have things changed that much?
What's changed is that analysts are now making disclosures. That's all you can ask. Before you had a banking relationship or something that was a nudge, nudge thing that the investor assumed or knew and the individual was unaware of. Now this kind of stuff is in the fine print, but it's there. Investors can find it if they're looking for it and can make a decision with that knowledge, which is all we're really looking for.
Aaron, do you think the reports are more vague because of Reg FD?
They were parroting what management was telling them. Managements have loosened up and aren't so afraid about making statements that will get them in trouble. The pendulum swung back a little bit. The fear that it would shut down the information flow hasn't really come to fruition.
It's formalized the information flow. The way the information is disseminated is fairer.
The other issue is what kind of information are they disseminating? The issue of creative accounting and "pro forma" earnings. Do the majority of individual investors really understand how companies manage their earnings to make them look better?
Also, what about the sophisticated analyst? You will see some action in that regard. You already see analysts getting together and discussing what they want to see.
Aaron, you have 2 stories coming up, right? One on the Fed, and the other on Gold and William Jennings Bryant?
I wasn't going to talk about gold, but since you brought it up, I think you should look at the performance of precious metal funds this year.
We'll go with the headlines first. My favorite columnist wrote this: "As 2001 approaches, many investors are putting their hopes and dreams (stone cold hard cash) into belief in ...companies." In that article, he wrote that Merrill Lynch had a survey where 28% saw the potential of a credit crunch and 23% saw the chance of a full blown recession. To me the biggest story is that heading into 2001, there was still a tremendous amount of faith in the Federal Reserve. Before today the Dow Jones national average was down. The NASDAQ composite was down nearly 20%
That's interesting. This recession is different from the past because this one was led by a decrease in corporate earnings. In the past, at least the '91 recession, a decrease in consumer spending led the recession. The current rate cuts that allow businesses to borrow more money really can't have much effect, because capital spending won't necessarily pick up until the inventory backlogs get worked through.
How much bandwidth was being laid out for something that no one had access to? The companies that are left have no capacity to borrow and add equipment. The Fed is the wrong medicine for the problem.
Sort of a morbid twist on the term dark fiber. Aaron, you have another thought on the lack of conviction of the retail investor?
This goes hand in hand with people losing faith in the Federal Reserve. Year to date, $17.9 million went into mutual funds. Last year, there were $309.6 billion dollars into them. We've had a tremendous drop off in the number of investors. This is another trend that bears watching because when you talk to anyone who is bullish on the market, they say there's a "mountain" of cash that's going to come back in. But retail investors are not buying the story. In part with Lisa's comments earlier, I think Wall St. has done itself a disservice. A big portion of its clientele is very wary of buying what they're peddling.
I agree. I'd like to see how much money went into mutual funds that are managed as opposed to index funds or ETFs. Is there a lack of faith in the ability of fund managers to beat the market?
Also, what you're seeing is parallel to that or perpendicular. People are going away from this idea of managing their own money. They're more willing to pay someone to manage their accounts if they have a good opinion of those people. Wealthier individuals have realized that they can't do it alone.
And, Chris, what are your top business news stories of the year?
Eric, my two stories may go down in the business news annals as two of the biggest stories of this century.
First, no one who lived through September 11, whether in Battery Park City or points far, far away, will ever forget the surreal pictures of the towering twin infernos that were the towers of the World Trade Center, and the effects, both sensual and cerebral, that linger today and forever. Like Pearl Harbor and the assassination of President John Fitzgerald Kennedy before, we will all remember where we were, who we talked to and what we did on that tragic and fateful day. It dwarfs any other news event in my nearly 40 years on earth.
Yet, it is also the most significant business story of the year for a number of obvious and maybe not so obvious reasons. The obvious is the enormous loss of life and the interruption of business on Wall Street and commerce around the world. The impact on travel and security is also present in our lives every day.
What is not so memorable over time, however, may be the lingering impact on America's commercial psyche. The impact the terror had on those on the fringes of the blast and all of those who lost relatives, friends and colleagues in the blast. The world we knew as Wall Street has changed forever as the hole in the Manhattan landscape forever silently reminds us.
However, for me, it is the resilience of Wall Street, from the New York Stock Exchange's ability to quickly restore confidence in the markets to the collegiality and fellowship of competitors and adversaries to reach out to one another to rebuild the greatest market and city in the world, that makes this story so remarkable. Indeed, as Warren Buffett so eloquently said this morning, it is challenges and tragedies like these that make is so easy to be so bullish on America's future.
In contrast, the second story doesn't appear to have a happy ending, and it is the failure of Enron, what will no doubt turn out to be the largest bankruptcy in our history. From a company that could do no wrong to a company that apparently was doing wrong all along, this story represents everything that can go wrong in corporate America.
From a company admired for its management and commitment to shareholder value to a company vilified for its alleged trickery and deceit that enriched executives while literally costing loyal company employees their life savings, investors lost a lot of cash, and it even stands to rock the foundation of the Houston economy.
Did they do anything illegal? Time will tell. Did they do something very, very wrong? There is little argument indeed.
We now ask what Enron asked in its advertising campaign: Why? That's a question that has to be answered.
Chris, thank you, and thanks to Lisa and Aaron as well. It was a tumultuous yet exhilarating year indeed
And now, just what you have been waiting for. What on earth, you ask, is this announcement about the Martini Chat? After all, how could it get any better than it already is?
Well, here goes, and honestly, I'm a little choked up.
We're done with this show. We'll never do another episode of Martini Chat ever again. We quit. We're mad as hell, and we're not going to take it anymore. So, rest in peace Martini Chat. It's been real, and it's been fun, but it hasn't been real fun. Everyone say goodbye to the Martini Chat...
...and say hello to Happy Hour! That's right. The whole Martini Chat crew has reinvented the Martini Chat for 2002. Starting on Jan. 10, the repackaged and rejuvenated Happy Hour will hit the air at 4 p.m. That's right, we're on an hour earlier. Catch us every Thursday at 4 p.m. instead of 5 p.m. Also, you won't have to wait around for a transcript. All of the text and audio parts will be out at the same time so you can get all the information you need in one place at the same time.
But that's not all! Next year, the Happy Hours will be rolling out the red carpet with special episodes and bigger guests from Wall Street's biggest firms. Plus, we'll be talking about golf and wine and booze and gambling, you know, all the fun stuff we did before, but now you can listen to the show anytime you want by simply going to
No muss. No fuss. Join us in 2002. It's going to be an even bigger blast.
So, Chris, what do you think.
Awesome. Simply, awesome. We've had one heck of a start and I look forward to growing our offerings and our analysis in the coming year of Happy Hour.
A quick note: Our good friend and frequent guest Ted Bridges, who had a surgical procedure last week, is recovering at home in Omaha. Surgery went well and his prognosis is good. We wish him the best.
A couple of quick holiday ho-ho-ho's. First to all of our guests, you have been great this year, especially people like Aaron Task and Tony Dwyer who join us often. To our personal finance editor Lisa Meyer, my editors Charlotte-Anne Lucas and Michelle Zangara, and our editor-in-chief David Morrow, we couldn't do this without you. To our producer, Laura Poynter who has been around
since almost day one, you're the best.
And, finally, to you, my friend and great colleague, Eric Gillin. I raise a glass to your energy, your creativity, your rigor and your professionalism. You make this a heck of a lot of fun, and I can't wait for 2002. Here's to you.
And, to all of you listening, thank you. A Merry Christmas to all and to all a good night.
Well put. Until next year and Happy Hour, cheers!