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CNN Live Event/Special

America's New War: New Consumer Confidence Numbers out Today

Aired September 25, 2001 - 06:41   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL LIN, CNN ANCHOR: New consumer confidence numbers are out. For some insight into how this may affect the markets today, we are joined by Hugh Johnson. He's a market strategist at First Albany -- good morning, Hugh.

HUGH JOHNSON, FIRST ALBANY: Good morning, Carol.

LIN: So what did you make of yesterday's rally?

JOHNSON: Well, it was a relief to see it. It doesn't surprise me much, though. I think the stock market had reached levels that were pretty cheap. And secondly, a lot of what we saw last week in the market was very symptomatic of the last stage of a bear market, so that's a pretty good combination and made that rally, not only a relief, but predictable.

LIN: All right. So the last stage of a bear market. Does that mean you're seeing an uptrend for the next short term?

JOHNSON: Well, you know, you cross your fingers and you hope for the best. You never know for sure, but, you know, based on the fact that we have reached levels given certain assumptions about the economy and earnings that seem so cheap, you know, my guess is -- and it only can be a guess -- is that the next move up is going to be on the upside, or the next move is going to be on the upside in the market.

LIN: How do you reconcile so many different things that we're hearing about consumer confidence and consumer spending? We're expecting consumer confidence numbers to come out today, and they are expected to be down. At the same time, a USA Today-CNN poll shows that consumers expect a big comeback for the market, as well as our economy.

JOHNSON: Well, it's important to keep in mind the distinction between where we are now, which of course the consumer confidence numbers that you're going to look at are going to tell you where we are now, and certainly confidence is sliding, consumer spending is slowing. That's one part of the equation.

But what investors are looking at is not where we are, but where we're headed. And essentially, what they're saying or sending us a signal is, yes, things are pretty bad now. We may be in recession right now, but when we move into 2002, the economy and profits are going to get better. So that's why they're optimistic about buying stocks, even though things look pretty bleak right now.

LIN: Yes. You know, we got an email from a viewer I want to share with you. And he may very well reflect a lot of the worries of investors today. He says: "I don't know what to do. I've got stock in S&P." I think he's talking about an index fund, but I'm not sure.

JOHNSON: Right.

LIN: "I have stock in S&P. I live off of my stocks, so I am not a rich, long-term investor. I am losing money like mad, except for yesterday." And he asks: "Should I turn the value into cash? Should I withdraw everything?" And he says, "Hugh, please don't tell me to not touch it for six months, let's see what happens." He says, it's his income and he's scared.

JOHNSON: Well, I understand that fear factor. And if you have -- if you are afraid, first of all, you should probably have a professional manager, be it a mutual fund or an investment advisor. But if you're doing it yourself and you can't sleep at night, reduce your exposure to stocks to what I call a "sleep-at-night level." Take some money off the table or out of the stock market.

The second thing is: Make sure you're diversified in the stocks that you do own, and get some of those safe stocks, things like household products, foods, food retailers, health care companies like drug companies, utility stocks. That's a safe haven in a very volatile stock market.

LIN: Things always in demand -- always in demand.

JOHNSON: You bet.

LIN: Well, so he can take a little fear factor money off the table and still not -- as long as he can sleep at night is what you're saying.

JOHNSON: Yes, that's extraordinarily important. Sleeping at night is probably more important than making money, quite frankly, in this life of ours.

(CROSSTALK)

LIN: You bet. Health is everything.

We've got another email for you. I'm going to ask our producers to put it up on the screen. It's from Stephen Wightman, and he asks: "Do you agree it seems Americans are waiting to spend until the pending military action is engaged? Or are we still reacting to the financial chaos created by these despicable attacks?"

Everybody is looking for that catalyst. OK, what's going to turn the market? Stephen seems to be talking about what happened after the Gulf War.

JOHNSON: Yes, you know, after the Gulf War what we saw was a very sharp decline in confidence, and you're likely to see the same thing now. You're also likely to see the same thing we saw in the Gulf War, which was a slowdown in spending by consumers. And you know, we're obviously watching events unfold.

It's very hard to say when confidence is going to stabilize and start to recover, when spending is going to stabilize and start to recover, you can only guess. My guess is, or forecast would be, we're going to see that, but probably in the first or second quarters of next year. Then we'll start to see spending start to improve, both business and consumer spending, and the economy do a little bit better.

That's why you buy stocks now. You don't wait until next year.

LIN: All right. Then lastly here to help us with our asset allocations, stocks to bonds to cash. What percentage?

JOHNSON: Well, it depends on what you say to me. If you said to me, Carol, look, I want no less than 35 percent in stocks. I can't stand anymore than 65 percent -- that's my risk tolerance. Right now, I'd be at 50 percent. That's kind of a middle-of-the-road sort of half-defensive, half-offensive position, and I think reflects the kind of market environment that we're in.

So, you know, what I'm saying is don't bet the ranch. You know, make sure you've got, say, maybe half in stocks and the balance in bonds and about 10 percent in cash; so 40 percent bonds, 10 percent cash.

LIN: All right. Sounds good. Safe strategy and you're still in the game. Hugh Johnson, good to see you -- have a good and happy day on Wall Street. Let's keep our fingers crossed.

JOHNSON: Thank you, Carol.

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