Return to Transcripts main page

American Morning

America's New War: Things Getting as Back to Normal as Possible on Wall Street

Aired September 19, 2001 - 09:30   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.
(JOINED IN PROGRESS)

ANDY SERWER, "FORTUNE" MAGAZINE: But the feeling I'm getting from talking to traders is things getting are back to normal so much as they can at this particular point in time. But, you know, we're still sorting through so much right now. and it's still very much unknown where things are headed today.

PAULA ZAHN, CNN ANCHOR: We'd love to bring Vince Farrell into the discussion right now.

Vince, you are with which firm?

VINCE FARRELL, VICTORY CAPITAL: Victory Capital.

ZAHN: And what do you guys do?

FARRELL: Equity managers, we have $75 billion in assets under management.

ZAHN: So how concerned are you about turbulence?

FARRELL: Of course, super concerned. The only thing you can do at a time like this is let the lessons of history be your guide. And if you take the disasters from 1940 on, with the fall of France, there are about 26 of them as we chart them. The initial market reaction is a down 8 percent decline, which is about where we are. But 23 out of those 26 incidents, four months, the market was up. And part of the reason the market is up the is the Fed floods the system with liquidity, interest rates go down, and the corresponding multiple you're willing to pay on stock goes up.

So I believe that we are in the process of bottoming anyway. I think this will accelerate the bottom. I think we a little bit more on downside. but I believe the market is going to be up 4-6 months from now.

ZAHN: But when you talk about a four-month period, Andy, you know, because you write about investors all the time, you've got to have real patience here, we're not talking about folks that can invest Mr. Farrell on the level that you can, a lot of folks that have their retirement wholly dependent upon funds that they have invested now in the stock market. SERWER: I think that's right, Paula. And this has been a very trying time for investors anyway, as I am sure Vince can tell you, because investors have seen their 401(k) and portfolios shrink since March of 2000.

I want to ask you a little bit, Vince. This effort going forward in terms of a military response could drag on for months and months and months. Doesn't that change the scenario that you talked about possibly?

FARRELL: Of course possibly. But anytime we've had a crisis in the past, Andy, the forward scenario is unknown. After the Cuban Missile Crisis, we thought the world was going to end. When Kennedy was assassinated, the long was going to end. And certainly with Long Term Capital Management being a financial crisis, not a political crisis, we didn't know if the markets would freeze and meltdown.

Yet, in the 20th century, stocks returned, on average, 11 percent. Now that's a 100-year record. Those gains are permanent and the losses are temporary. Now the next few months are a period of uncertainty. People that might be retiring shortly. You worry about the fallout. This isn't my money that I invested. This is the 401(k). This is the retirement funds, and I believe that because of the Fed's response and what the federal government will do and try to introduce fiscal stimulus. I believe the economy will have a significant rebound next year, not in fourth quarter of this year, but next year, and when that occurs stocks will discount those possibilities that I think will be on even keel.

ZAHN: So you obviously were heartened when the president yesterday, or -- I think it was two days ago, for the first time, said the federal government must help stimulate the economy.

FARRELL: Absolutely. Yes, that's the correct response. Whether the stimulus in the form of an injection in the airline industry or whatever really doesn't matter. It does matter to airline industry of course. What you have to do is get funds into the economy, and that's what crisis like this brings.

ZAHN: I've got a question for both of you. You have economist out there saying we are already in a recession, not by the standard definition, but they say we are in one. Given you're understanding about what you have just said about your hope that the market will follow, what the market has done traditionally in this four-month period, is there any way to stave off recession?

FARRELL: Absolutely not.

ZAHN: You think we're in recession?

FARRELL: I thought we were one anyway. And I think the debate is academic. I don't think it's really worth our time. We are in a recession. I believe second quarter will be revised downwards to the traditional definition will be met. I think third quarter is going to be down sharply, and fourth quarter down sharply. Deal with it. We're there. We're in a recession. ZAHN: Deal with it. That means spend your way out of it??

FARRELL: That means the government has to introduce massive fiscal stimulus and the Fed has to cut interest rates, yes.

SERWER: What I want to know, Vince, is you know, there is this saying on Wall Street or investing, that you should never really sell stocks unless you have an important thing like college, retirement, something like that. Is there anything investors should be doing right now with their portfolios in response to this situation?

FARRELL: There's a fellow named Barton Biggs that I admire enormously at Morgan Stanley. You guys know Barton. And he's one of the deans. And I've always looked up to him. He always said in times of crisis, sell enough to convince yourself you're wrong, because you have to get on an emotional keel to make sure that you can live with this. I believe selling during panic times -- and this is not a panic. I think the markets have acted wonderfully during this. I think the New York Stock Exchange rose to the occasion.

But if you feel you're over exposed to equities, sell a little bit. You'll feel better, and I'm pretty sure a few months from now you will regret having done it. But on balance, you will feel OK.

ZAHN: Interesting to see if the Americans have the confident to spend. We heard that message over and over again from the mayor of this city and the president.

FARRELL: That will be a wild card, because two thirds of the economy is the consumer. And will the consumer get back to spending money? I suspect not. I suspect to be cautious. That's why has to be massive fiscal and monetary stimulus, so on the capital corporate side, decisions can be made to spend money.

SERWER: And that's why I think what Vince is saying about us being in a recession, in everything but name perhaps is probably true, because of the slowdown in consumer spending that I think we will see in terms of airlines, travel, gaming, hotels. That's going to put a big dent in the economy.

ZAHN: Andy, thanks again. Vince Farrell, nice to meet you.

Vince Farrell, the chairman of FSB Capital Management. Appreciate your time.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com