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American Morning

Interview with Arthur Cashin

Aired July 22, 2002 - 07:35   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.
PAULA ZAHN, CNN ANCHOR: So, how can you tell when a bear is down at rock bottom? On Wall Street right now, there's no clear answer to that question. Investors are bracing for the week ahead. What's it going to take to stop the stock market slide and how does this compare to bear markets of the past?

Arthur Cashin, managing director of the UBS Paine Webber, is at the New York Stock Exchange this morning.

Good morning. Good to have you with us this morning, sir.

ARTHUR CASHIN, UBS PAINE WEBBER: Thank you for having me.

ZAHN: Even the head of the New York Stock Exchange is predicting today will be, in his words, "a difficult day." What can we expect?

CASHIN: Well, we've gone from infectious greed to infectious fear and today would be, let's go backward. If you look at this over a period of history, days like today usually result in several hundred points down. That's when the fever runs its course.

Now, already there are some signs of bottom fishing, so that may complicate things. But in, this started to look a little bit like 1973. It was erosionary. It was discipline. The discipline is gone now. Disappointment turned to disillusion and now it's turning to desperation and that usually tells you you're getting pretty close to at least an interim bottom.

ZAHN: Let's, Arthur, talk about some of the other factors that might be at play today. Some earnings reports coming out from 3M and American Express. And there are folks out there that say even if those reports come out better than expected, there are cynical investors out there that aren't going to believe them.

CASHIN: Oh, I think they're absolutely right. I think the earnings are for, at least for today, up. This market is hypochondriacal. It's worried about its own health. It's going to take its own pulse. It's going to take its own temperature. And if it doesn't feel well, it's going to lie down again.

ZAHN: Well, let's take the pulse for a second. Is there anything there that would indicate to you a positive trend?

CASHIN: Well, I think what you've got to do is let the fever run its course. What's happened, Paula, is people have anticipated a turn time and time again. That's kept the sell-off disciplined. And we haven't been able to get to the a resolution. I'd really like to see it run its course. As I say, if you look back at 1962, you would have a day like today, down 500 points, and then you can turn in maybe three billion shares of high volume. We've got to get it out of our system.

ZAHN: You just mentioned 1962. Is there any other precedent that we should look at in terms of a bear market that might help us better understand what could happen today?

CASHIN: Well, there are many others. A classic, believe it or not, is usually for a big sell-off on a Monday and in the old days when it was margin call time, the margin calls on Tuesday morning would give you a dip and then they would turn in stunning volume. It happened in '29. It happened in '62. I could give you a litany of years that it happened in.

This time it may be a little different because instead of margin calls, the concern is the index funds. You talk about redemption of funds, index funds don't keep extra cash. So if they get called on, they have to sell. So that's the wild card. But we're hoping we're very near at least an interim turn.

ZAHN: You've also got to wonder about what this announcement by WorldCom and the, we all knew this was coming, but the official filing of bankruptcy last night might have on the markets today.

CASHIN: Well, it's certainly not going to be reassuring. I mean, you know, bankruptcy may look fine for WorldCom. That's over with. But what about all the people they owed the money to? Now they've got to make adjustments. They've got to worry about those write-offs.

So it does trickle all the way through the system. It's not just whether your phone gets turned off or not. There are $32 billion in debt that are now in suspension.

ZAHN: Johnson & Johnson also took a big hit on Friday when it announced the FDA might be looking at some of its practices. How big of a factor might that be today?

CASHIN: Well, it was a factor on Friday. I mean it all gets into the idea of trust. Trust is what makes the economy run. When somebody from San Francisco gives you a check, you expect his bank will live up to it. So there's a lot of trust that makes the economy move and now there's an aura of distrust around and that's one of the things really hurting markets.

ZAHN: I know people come to you to try to figure out when the best time to buy is. What kind of general advice do you have for the average investor out there?

CASHIN: Well...

ZAHN: Many of whom have seen their retirement nest egg just simply go away.

CASHIN: Well, I'm not in the business of advising the average customer. But I will tell you this, it's at times like this, it's at times like this you, if you're thinking of trading the market or averaging down, you put in what I call silly bids, something that you ordinarily would think it'll never get there. And sometimes it does and sometimes that works well.

The other thing I would say is rearrange your thinking. We're in a war on terror. It's going to last 10 years. It's going to have a major impact on the economy in a lot of ways. If it makes for long lines at airlines, then maybe teleconferencing will be a big deal. There are probably a hundred different ways that this thing will offer some opportunities in the market as the whole complexion changes.

ZAHN: A final thought about interest rates. A bunch of analysts out there suggesting we're not going to see them go up any time soon. What will that mean to the average investor?

CASHIN: Well, I think that will be very good, not so much just for the market, but as you know we've had a lot of people refinancing mortgages and I'd like to see them get their house in order, no pun intended, before rates go up because that would be a double dip for sure. They would be pressed with their equity loans and we don't want to see that happen.

ZAHN: You essentially have had to develop a steel lined stomach over the years. How do you personally approach what lies ahead today?

CASHIN: Well, as I say, I'm in the business of putting in silly bids. I have luckily avoided -- as I said to someone there's a benefit in being an old fogey. The negative is being old and the benefit is having watched a lot of these things. I think we're getting near an interim turn, at least. There are still high valuations out there, but this market has now become undisciplined and that usually leads to a bottom, maybe this week.

ZAHN: Arthur Cashin, great to have you on the air this morning. We very much appreciate your perspective and good luck later today.

CASHIN: Thank you very much.

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