*** Abbreviated Summary of 9/27/98 Sunday Moneytalk ***
- We have a classic market drop-off 2 years after election. Mentioned historical results.
- February '78 decline of 26.9% followed by a rally of 22%.
- August '82 decline of 24% followed by a rally of 65%, in less than one year.
- September '86 decline of 8.5% followed by a rally of 50% in 11 months.
- Early 90s (I missed exact date) decline of 21.2% followed by a rally of 68% over 39 months.
- April '94 decline of 9.7% followed by a rally of 72% in 28 months.
- August 31, 1998 decline of 19.3% followed by a rally ???????
- All of the previous corrections were accompanied by bad news (Franklin Bank, Chase, etc.).
- Currently our correction was facilitated by Russia, SEA, Latin America (Brazil), LTC bailout.
- Bob mentioned that the current position of the Fed is critical. They must be prudent.
- Bob said the Fed needs "to involve itself in solution" and be watchful for the future.
- Mention of Greenspeak saying we are not "an oasis of prosperity" due to the global economic challenges.
- KO weak earnings and still room to decline. P/E = 50 at one point w/growth targeted for 17% range. Moneytalk trekkies will note Bob's review of KO awhile ago. Since then it has retreated 36% from high. 1999 earnings $1.58. Based on '99 earnings the stock is still has a P/E + 30.
- Dell leading rally in NASDAQ. P/E = 63 based on '98 earnings, highest in large cap universe. 300% increase in '97. #1 performing stock in S&P 500. $90 B market cap, nearly two times that of Gillette, Boeing, etc.
- Microsoft P/E = 58 based on '98 earnings. Watch out if there is an earnings disappointment.
- Several areas showing leadership potential, two in particular: drug stocks and tech stocks. Stocks that were mentioned (not as buys), just mentioned.
Drug Stocks: PFE, Eli Lilly, WLA, MRK
Tech Stocks: CSCO
- Caller had inherited stock due and was concerned about taxes. Owned T and had LU due to spin-off. Bob said to keep brokerage statement re: cost basis and that he wouldn't receive anything from Lucent. Adj gross income = $50,000. Some short term gains. Caller worried about being pushed up in tax bracket. $12,000 short term added to ord income will not move bracket. Bob said not to worry. Caller had 6 figure tax burden on older stocks. Subject to LT gains rate.
- Commented on the absurdity of LTC. E.G. LTC would buy junk bonds of company and sell stock short (rumored Globalstar Communications position). LTC rumored to have $80 B in positions due to leverage w/only $500 million in actual capital.
- Bob followed up with an excellent example of how much leverage LTC had. Picture a $160 portfolio and you only have equity of $1. Obviously, if the position moves against you there are major problems due to your leverage.
- UBS rumored to have lost $600 million due to loans to LTC managers.
- Bob mentioned how all of this is "not a pleasant thought". An owner in LTC may end up with a net worth of $0 or worse to the point of bankruptcy. Many wealthy individuals appear to be in bad shape with personal finances |
