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CNN Live Sunday

Author and Market Analyst David Brancaccio Talks About the Stock Market

Aired October 14, 2001 - 16:40   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.
STEPHEN FRAZIER, CNN ANCHOR: Now, we're going to spend some time looking at the economy and how the September 11th attacks have effected our country's economic strength. Also, we're going to see what lies ahead. We'd like your telephone calls with questions, so call us now at 404-221-1855.

Our guest can offer a lot of insight on economic issues. He's David Brancaccio, host of National Public Radio's "Marketplace" program, and he's joining us from Los Angeles.

David, thank you so much for joining us today.

DAVID BRANCACCIO, HOST, "MARKETPLACE": Great to see you, Stephen.

FRAZIER: You know, that program is marvelous, but I remember you more actually for your book, "Squandering Aimlessly," in which you talked about the wealth effect that people enjoyed because their stocks were all flying high. Not so the case today.

BRANCACCIO: Not so the case today. A lot of folks' portfolios have really tanked, as the euphemism goes. In that book "Squandering Aimlessly," though, I do talk a lot about the need to save for a rainy day. That was unfashionable when the book first came out in the year 2000. More fashionable now. But often, it just makes sense to hold on to your assets just in case. We're clearly in a situation where the just in case has happened.

FRAZIER: Well, you were one of those New Englanders with a voice in the wilderness there. That is a very -- I know you spend a lot of time in Maine and in Connecticut, that's the kind of thinking they show there.

BRANCACCIO: Well, they show some prudence, and I think a lot of folks have been forced to learn some prudence in the last year and a half, and certainly since September 11th.

FRAZIER: Well, as we're seeing the events of recent weeks, would you say now, based on the numbers that you guys follow at "Marketplace," are we effectively, officially in a recession now?

BRANCACCIO: I'd have to say that my personal guess is that yes, the current quarter, the fourth quarter of the year 2001, there will not be growth. And if it is negative growth, as they say, and we get another quarter of that in the new year, that will be officially a recession by some folks measures.

I think for practical purposes, we might as well just think it's a recession. And a lot of folks accuse the media, they accuse folks like me, of talking then nation into recession. That was before the 11th of September. I think events have really clearly shown us that the world has changed, and a lot of folks, for really good reasons, facing the uncertainty that we all feel right now, we're reigning in our horns.

We're not going down to the malls and shopping quite as exuberantly as perhaps we were, and that is having a compounding economic effect.

FRAZIER: Right. Right. Although you do say that in a strange way you agree with Paul Krugeman (ph), who was writing last week in "The New York Times," that the events of September 11th, as catastrophic as they were, may spur government spending that could shorten the effects of the recession, which was on its way even before September 11th.

BRANCACCIO: Exactly. Actually, Stephen, you caught me there, because I actually had been talking to Paul Krugeman (ph), the economist from Princeton, who inspired my thinking in this direction; the idea being, things were not great going into September 11th, economically. In fact, we saw some consumer confidence figures, a survey done really in the days leading up to the terrible events of the 11th of September, and things really were already looking fairly dire.

Now, we've had this cataclysm happen, with the terrorism, and perhaps that will loosen up minds and make economic policy planners take a different view. Instead of incremental approach, they're taking a more radical approach. We're seeing that of course with the Federal Reserve lowering interest rates. And the thing is, and I want to caution everybody watching, about this: low interest rates alone do not economic recovery make. Economic recovery is about confidence and certainty. There's still a lot of uncertainty out there.

FRAZIER: I want to talk some more about the public ways to handle this kind of difficulty, the stepping beyond monetary policy to spending policy, actually; building roads and dams and things, but before we do that, let's take a call now.

Dave from Illinois is on the phone. Go ahead.

DAVE: Hi Steve, thanks for taking my call. David, I would like to know -- we've seen more increased communications between the U.S. and Afghanistan, obviously, in the last few days. And I'd like to know which companies are most effected by these increased communications?

BRANCACCIO: We do see the stock market essentially trying to interpret events moment by moment and factor them into share prices. There have been some obvious effects. Defense company shares have been on the rally. I am actually cautioning folks from this moment to moment trying to parse the latest headlines coming over the financial wires or from CNN or from public radio, and therefore tinkering with their portfolio.

Saw a lot of buying last week. We saw the Nasdaq composite up more than 6 percent last week. That was not individual investors like me or you, Dave, it was a lot of institutional buyers, primarily, who are forced by the rules of their mutual funds to have a certain percentage of stocks. And as stock prices have fallen, they've had to go out there and buy.

Folks like you and me have been sitting on the sidelines, because the conditions are, pretty much, remain uncertain. I think that even when you see the secretary of defense, Donald Rumsfeld, talking about the continued uncertainty; when you see other government leaders talking about the uncertainty, I think that that means for us as investors that we can't place bets either for the time being.

And I think that that's probably folly, to watch moment to moment developments with, for instance, the war effort, and trying to get on- line and tinker with our portfolios.

FRAZIER: Dave, thank you very much.

And David, let me ask you, there are some butterflies that seem worth chasing, though, these sort of biodefense stocks, like Cepheid or Visage (ph) and Visionics. These companies that make security systems such as facial recognition systems. That seems to be -- those are companies that make products, that some of them turn profits, that might be worth looking into, even for individuals.

BRANCACCIO: Yes, indeed. I mean, Visage (ph) does that does. It does facial recognition software and other kinds of software, and some folks are placing those kinds of bets. But what's more interesting to me is, stock market, in theory, looks out longer term. I know, sometimes we're accused of looking too short of a term, but you're supposed to look out about six months. And we saw some money going back into telecommunications networking companies late last week, when companies like Juniper Networks showed some better than expected profits.

And I think if you're taking a more bigger picture look at some of this, it may be that the fad of some of these, the immediate rally that we've been seeing in some of these security companies, may ebb ultimately, and longer term, do we have faith in capitalism? Do we have faith in our economy, longer term, more than just a couple of months? I think most people watching this will say of course we do. And therefore, perhaps it's not a bad time to buy.

FRAZIER: Here's a call from out near you, now. Randy calling from California. Please go ahead.

RANDY: Hi, David. I've got a question for you. In view of the events of September 11th, do you see any revival in the defense industry? If so, what parts of the defense industry? And do you see it as a short term or a long term effect? BRANCACCIO: We do see a revival in defense company stocks, because, of course, we're going to be using up some ordinance, we are using up ordinance as we speak. That will have to be replaced. There is also going to be more spending, of course, at the governmental level, on defense. And that means the companies will benefit.

I do caution folks to avoid what all of us do, what policy makers do, what investors do, is that we fight the last war. We look back to the Gulf War. A lot of us are even looking back to World War II for, for really a sense of what to expect. And we will see companies benefit in the defense sector from the current operations going on, but maybe not exactly the same ones as last time.

And so, when people rush to buy the big defense company stocks, Raytheon, General Dynamics, perhaps those will not be the long-term winners. So, we do have to be cautious.

FRAZIER: Randy, thank you very much for calling. We are just about running out of time. David Brancaccio, I want to thank you. One quick question, though, for you, about taxes. We're in the middle of an odd situation; we're ramping up to spend big time in the public sector, but we're cutting taxes. Doesn't government normally raise taxes in times of war?

BRANCACCIO: They normally do raise taxes in times of war, so if you don't raise taxes and you spend more, what happens? Well, of course, deficit spending; something that many folks forgot governments can still do. That is really the headline for all personal investment planning going forward. Is, take a look at what happens to your portfolio at a time that the government is spending more and in fact we have a deficit.

FRAZIER: David Brancaccio, we are so grateful to you for joining us this afternoon. Great time. Thanks so much.

BRANCACCIO: Thanks for having me here.

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