On February 1, Worth assembled a panel of market experts to discuss investing in the second half of the decade. The seminar took place during the 18th Annual Investment Masters Symposium, January 31 to February 2 in Orlando, Fla., sponsored by Investment Seminars Incorporated and Worth magazine. Worth columnist and contributing editor Walter Mead served as moderator of the hour-long panel. Market experts Ralph Acampora, Frank Cappiello, Michael Murphy, William Nasgovitz, and Clark Winter served on the panel. A transcript from their discussion follows.
WALTER MEAD: contributing editor, Worth magazine.
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My name is Walter Russell Mead, and I'd like to welcome you to the coveted after-lunch position on the daily platform. We will try and keep you awake. I think we're going to have good luck with that because we've really got a remarkable panel. We've got a lot of the strength of Wall Street Week with us. Some of the leading analysts in the country are here. Our theme is investing in the second half of the decade. I've asked our panelists to start off with a fairly short five-to-10-minute overview of what they think are some of the issues you should be focusing on.
Just to briefly introduce our panelists, we have Ralph Acampora. He is one of the leading technical investors and analysts in the country today. He co-founded the Market Technicians Association in 1970; he's past president of that group. He founded and was then chairman of the International Federation of Technical Analysts, which has 4,000 members around the world. I think we're very lucky to have Ralph with us.
We've also got Frank Cappiello, an expert on the national economy and a recognized authority on financial investors. He's the author of four books, including Finding the Next Super Stock, something I think just about everyone in this room is interested in.
We have Michael Murphy, who many of you heard late this morning give a really brilliant presentation on high tech/bio tech stocks. And we'll get a chance to maybe get more in-depth on questions people had for him.
We have William Nasgovitz from Heartland Funds, president of Heartland Advisors and chairman of the Investment Policy Committee. He began his career in the securities industry at Dean Witter in 1968; joined the Milwaukee Company, a regional brokerage firm, as president in 1978; and founded Heartland Advisors in 1982. He characterizes his style as bargain hunting, not trend following. We've got someone who's really seen the market for a long time, and unlike a lot of the people who are maybe intoxicated by the short-term view of the market, here's somebody who really brings real depth and analysis to it.
Finally, we have Clark Winter, vice chairman of Global Asset Management, the industry leader in multimanager investment fund management. For 18 years he's worked at JP Morgan, for 6 years living in Madrid as vice president representative for the Iberian peninsula. Returning to New York he was managing director responsible for investment management clients in Latin America, Canada, and Europe. He'll be trying to give us more of a global perspective on things in the next five years. Without further ado, I'd like to turn this over to Ralph.
RALPH ACAMPORA: Director of Technical Analysis, Prudential Securities
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I don't think anyone can talk about the second half of the decade unless you talk about the first half of the decade. We just completed, as you know, 1995. I was making some little notes to myself on what happened when this decade started. Saddam Hussein made a left--instead of a right--with his tanks and the market tanked.
If you remember, it was July/August of 1990, a horrible period in time. No one knew exactly what was happening. Were we going to war? The market drops at least 20, 22, 23 percent -- at least the averages did. Made a low in October 1990. That was the bottom of the market. Just keep that date in mind, because for a technical analyst, four-year periods are very, very important. So we made a major bottom in the market in October of 1990.
Going into 1991, everybody was very, very nervous and bearish. We were going to war. I, fortunately, was very bullish then. I said to everyone then, "you have to be bullish because it's in the TV Guide." Someone said, "What do you mean, it's in the TV Guide?" I said, "Well, open the TV Guide, it says turn your television on to CNN either Tuesday or Wednesday night, January 12th or the 13th, and you will see Winds of War live." Ladies and gentlemen, when something is as obvious as it was, that we were going to war and that it was publicized in the TV Guide, you had to be bullish.
But none of us were bullish, because it was terrible. But what they failed to understand, was that for some crazy reason, the market likes wars. We had a spectacular run in the first three months of 1991. The market went up 500 points in three months. You and I have never seen that in our lifetime as investors. Except for this last run we just had in 1995. So we started the decade, and it was very, very exciting -- but there was lots of fear. Fear, and a bottom. Fear and a bottom. That combination makes for a secular move.
In fact, in 1994 we got another decline. This was a preemptive hike in interest rates, if you remember. Alan Greenspan was worried about a resurgence of inflation in this country, raised the rates, and the market went down very, very dramatically. We made a low in October/November 1994, ladies and gentlemen. Keep that date in mind. Remember the first date I told you to remember was the bottom of 1990. Four years later, the market makes another major bottom in October/November 1994. For a technical analyst, four year periods are very, very impressive. They give you major buying opportunities. We were very, very optimistic in the market in 1994, that was one of the reasons, because the market was washed out. We had seen a major decline in 1994.
Nineteen ninety five, the end of the first part of our decade, was the most exciting market you and I probably have ever witnessed. But you know what, if you look back in history, and again a technician looks at history, it was the third year of President Clinton's term in office. If you go back in history, historically or hysterically (laughter), the third year of the President's term in office is the strongest of the four years. And it happened again--1995 was a very strong year. And it was fitting into the four year cycle lows, and the Presidential cycle has worked perfectly for us.
Now that we start the second half of the decade, I find it awesome -- very, very exciting. Number one, 1996 is a Presidential election year. Again, if you go back in history, you'll see that the market usually works its way higher in this last year. Obviously, the president wants to get back in office. Obviously, everybody will do the right things to make it look good. For this reason, I suspect that we will have a rising market in 1996.
But that's really history. Let's talk about what's really happening in the market. Last year, that four year bottom in 1994, leading to that major move in 1995. The most impressive thing about it was the quality of the leadership. It's blue chips. The Dow Jones Industrial average is a multinational indicator. Those companies in there are enjoying the benefits of economies around the world improving,. I think that's just going to continue to improve, and those stocks will lead.
I think what you can expect in 1996 is a resumption of that leadership complimented by other stocks coming to the floor as more and more people get enthusiastic about the second half of the decade. Confidence comes in and they will buy other stocks, other than blue chip. And if you look at secondaries, especially mid-cap stocks, go through your universe of names and you know what you'll come out with? Utilities. I'm extremely, extremely bullish on utilities. So I love the blue chips, complimented with the utilities. Utilities are very impressive and of course they're intrasensitive. You take that notion of intrasensitive stocks doing well, and you have to be bullish on the bond market.
Now we have a market that's looking at low interest rates and low inflation. The way I look at history and the way I look at the market in the second half of this decade, I think the second half of this decade is going to mirror the first half of the decade in the early sixties. Then we had low inflation and low interest rates lead by blue chips, followed up by secondaries. There's absolutely no speculation in this market.
I suspect that you and I will see excessive public speculation at the end of this decade. Somewhere around 1999, and going into the year 2000 it will be euphoric. I'm not predicting 10,000 as other people are; my latest target is 7,000 by 1998. I'll take one bull market at a time. I think we have enough room here to get us up another 2,000 points in the next year and a half, two years.
Remember my four year cycle business? Theoretically, there should be a negative market in 1998. We'll make another four year low somewhere around October/November 1998. That sets the stage for a very exciting 1999, year 2000, going into the change of the millennium. I think the stock market will be close to 10,000. That's what we see for the second half of the decade.
FRANK CAPPIELLO: Chairman, Cappiello-Rushmore Mutual Funds
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I knew Ralph was bullish...that's a raging bull! While I was introduced as an author, and I have written a couple of books, I'm really a money manager. My partners and I manage $1.4 billion in assets, including the four Cappiello-Rushmore mutual funds; one of which is gold and the other is utilities, which are the two stock groups right now that seem to be running.
Let me start looking down towards the millennium by giving you a bit of perspective. A lot of people talk about an overvalued market. But again, if you look back into the sixties, from 1966 to 1982, the stock market literally went nowhere. 1966 to 1982 in real inflation adjusted terms, the stock market really fell 72 percent. So when you look at that perspective, what we're doing now after a transition in the latter part of the eighties, is really playing catch up.
Second, we are bullish on the market. I've got to admit I'm not as bullish as Ralph. I'm a chicken-bull, approaching the market warily, but we are basically fully invested. I think this is going to be a very tricky market this year, one in which you know you just can't go into sectors, you have to go into what I'm going to call, in a minute, themes.
Third, what makes me bullish to some extent, and, like Ralph, a raging bull in some areas. Well, first, the budget deficit is really declining. Many people talk about balancing the budget, but we've gone a long way towards reducing the amount of red ink that we're flowing out of Washington. The deficit in 1993 was $255 billion. 1994, $203 billion. 1996, this fiscal year we're now in, it will probably be $150 billion. So, without even cutting spending, which we're starting to do, we're reducing the deficit and that's very positive in terms of confidence and in terms of rising multiples.
Second, speaking of multiples, we have low inflation and low interest rates. And we have an economy that's still moving up, but very slowly. So you still have rising earnings; in many sectors, very good earnings. Combine that with low interest rates and low inflation, and you get a higher multiple. The estimates that I've seen on the Dow range from $400 a share in terms of earnings for 1996 to $410. If you just apply a 15 multiple on the Dow, at the lower end of the range, you're at 6,000. If you apply a 20 multiple, which Ralph and I have both seen, and historically is justifiable in a period of low inflation and low interest rates -- we had something like that in the sixties -- you apply 20 to $400, you get 8,000. That's this year. Now, I'm not saying we're going to get to 8,000 this year, but I'm saying we're going to move much higher, and probably move into the 6,000 range easily.
But speaking of 1960s, and Ralph has alluded correctly to that period looking very much like this period, I will submit that the one danger we see, the one thing that could knock this stock market off, is nothing financial. They're not going to be any surprises in interest rates, no surprises in inflation. But if you went back into history and saw 1962, in the midst of falling rates, in the midst of falling inflation, in the midst of good earnings: We had a market drop of 26 percent. A mini-bear market. And what caused that was not financial, but political. President Kennedy decided to take on businessmen, and he took on the steel companies. Wall Street suddenly lost confidence.
So if we get this oft-heralded correction, it will probably be out of nowhere -- it'll be political, and not economic. And that's something that none of us can guess at. But you ought to keep your eye open for the changing venues and the changing tones of the political scene. I said a moment ago, we think you should invest not in industry groups but across industry groups in terms of themes. Here are a couple of themes for a challenge.
First, we think health care efficiency is of increasing importance. Not necessarily drug stocks, but companies that compile information, and that information becomes very precious to hospitals and HMOs in becoming more efficient. One of our top stocks here is Shared Medical. Information systems is an $8.5 billion business. The more information you have, the more efficient and effective you can be in supplying health care. We also incidentally, think that companies like United Health and Foundation Health have a part in this health care efficiency.
A second area is power. I share Ralph's enthusiasm for electric utilities, because most of our utility income fund is in the electrics. What we're seeing there are falling rates, which help electric utilities, and that's this year. And two years out, since utilities have been a bummer and there hasn't been much investing in utility facilities, we see a growing shortage of electrical power. This is a concept that's also been pioneered by Jimmy Rogers. I think he's right. So, a couple of years from now, you can get an added bonus that will see rates going up rather than down. In the meantime, you get 7 to 8 percent on very attractive stocks.
Another area we like is called the global power area that relates to oil companies. One of the striking things that we see out there is that China, which was once the sixth largest oil exporter, is now becoming an oil importer. Indonesia, also an oil exporter, by the year 2000 will be importing oil. This means that oil will finally get its leg up. Maybe not this year, but in coming years, particularly in 1997 and 1998. Oil companies are good investments anyway, with very attractive yields. So that's another area to look at.
Finally, break ups. The break up classic, of course, is AT&T. We've seen Dunn & Bradstreet. We would recommend you take a look at companies like Baxter Electronic Data Systems, which is General Motors Class E Stock [NYSE: GME] and General Motors Class H Stock [NYSE: GMH], which is the General Motors Hughes Electronics subsidiary. These companies are in the process of breaking up, starting their own life, and therein will lie some profitability.
Finally, contrary bets. One of the things I like to do with parts of our funds and parts of the money that we manage is to bet against Wall Street. We're making bets on retailers, we're making bets on gold, and we're making bets on pollution control. In retailers, we're really out on the edge. We think that Kmart is a very risky stock, but has at this point a high risk/reward ratio. They've just announced a convertible diventure financing, which should do wonders in helping them make progress towards working out. We like Federated, which is a department store that's becoming very aggressive. There are other themes, but that gives you an idea on how to rethink the successful in the next few months. Thank you.
MICHAEL MURPHY: Editor, California Technology Stock Letter
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Well, I'm not nearly as bullish on the Dow as either of those two, but I also don't care as much, because I don't think the stocks that we follow are dependent on the Dow.
But I would just pick up on one thing that Frank said: I believe he's right about oil, for sure. Especially with the changes that have just happened in Saudi Arabia. Essentially, the man who is now running the country is the guy who ran the 1973 oil embargo against us. I would worry that everybody's bullishness is going to be upset by a political risk. Not a domestic political risk, but a political risk related to the price of oil. For those of us running money through the last one, it gets out pretty widely. It's amazing how many industries get hurt when that happens.
In that environment, still, I think the second half of this decade has got to belong to technology. We're in a once in a lifetime shift where technology has gone from being an industrial/military product to becoming a consumer product. And it's happening all around the world. It's not just computers, it drags along all the communications, both voice and data communications.
There's simply no way to run a Third World country and not put in the most advanced communications systems. These countries are not going to go out and lay a bunch of copper cables. It's too expensive. They're putting in wireless systems. You can put in a wireless telephone system today, with a central switch, and use voice mail, and you can get your whole citizenry a telephone voice mailbox for a dollar a month. Now, they don't have a phone sitting in their little cottage, but that doesn't matter. They can walk down to the local wireless pay phone and make a phone call; they can get a job; they can buy stuff; they can sell stuff; they can be tuned in.
Of course, we're also seeing what's happening with satellite receivers. There are people in China who specialize in going out to the backyard, scooping a hole in the dirt and lining it with tinfoil, because you can pick up the satellite signal from Star TV that way. This is spreading all around.
I wanted to focus on two areas that I think are really, really cheap right now. One is the PC and semi-conductor stocks which have come down very hard, because we're in a PC inventory liquidation right now. I think this was foreseeable. Microsoft Windows should have sold 30 million copies by the end of last year; it only sold about 19 million. People geared up for the bigger numbers. So we're going through this inventory liquidation. But it's going to be over in a couple of months. Most of the Wall Street guys are not going to be able to buy these stocks until they're sure it's over, the March earnings get reported, we're into the June quarter, and they see the pick up.
Some extremely good companies have been knocked down. I would mention two software companies which are Autodesk, Inc. [Nasdaq: ACAD] and Adobe Systems, Inc [Nasdaq: ADBE]. Adobe is down another two bucks today after dropping three and a half yesterday, and it has just fallen back into our buy range. Three semiconductor companies: Cirrus Logic [Nasdaq: CRUS], Intel [Nasdaq: INTL], Integrated Device Technology [Nasdaq: IDTI]. All five of these companies have high rates of growth in the twenty percent plus area; high pre-tax profit margins, again in the twenty percent plus area. They all tend to spend about ten to twelve percent of sales on R and D, and actually IDT spends a little more than that. They're going to keep building their franchises. Wall Street is giving them to you at very, very low prices.
Those are the ones I would focus on, the ones we call the great growth load companies. There are some others you can buy, certainly Sequent Computer Systems [Nasdaq: SQNT], Sonic Solutions [Nasdaq: SNIC], some of the newer companies like Plasma & Materials Technologies, Inc [Nasdaq: PMAT]. Those kinds of stocks can be bought, but they're either not as well known, or they're not quite as profitable. When they're giving you the gift of these great companies, I think that's what you do with your money on the electronic side.
The other side I really want to pound the table on is bio technology. It's a rare opportunity -- I can never really remember it happening -- that individuals get a chance to buy in at a venture stage. Of course, these stocks got way overheated back in 1991, and a lot of people got hurt. But they went in a three year bear market, they've made three years of progress in developing their drugs, and the valuations are still pretty low. They did bottom last year, they are off their bottoms, but a lot of people would argue that's good -- because you don't want to catch falling knives.
There are a number of companies here you can buy, but let me just give you two quick lists. The first list is the companies that have a fundamental, basic technology that can spin off a number of drugs because they're operating inside the cell, right down at the DNA level. Those are Human Genome Sciences, Inc. [Nasdaq: HGSI], and Sequana Therapeutics, Inc. [Nasdaq: SQNA]. Those two are sequencing the human gene to find out what's in there. Ligand Pharmaceuticals [Nasdaq: LGND] has about 29 different drugs in development, and is operating inside the cell; and Isis (ISIP) which is an anti-sense company which actually goes in and stops the DNA from producing certain proteins; for example the proteins that cause asthma or arthritis.
Beside those companies, I think you can look at the companies that are a little bit riskier because they're primarily one drug or one molecule with a narrow range of applications. But still, if they succeed... Remember, most of these have now gotten to the point where they are through the phase two trials. We know it works and they're into phase three to see what exactly the dose should be. Most of them have investments from the big drug companies, most of them have very high quality scientific advisory boards. In other words, their technology has been looked at by a lot of people and blessed by a lot of people, so you're not getting conned. Not that it's necessarily going to work, but at least it's honest stuff.
Amylin Pharmaceuticals, Inc. [Nasdaq: AMLN], in diabetes, is very close. Athena Neurosciences, Inc. [Nasdaq: ATHN] is in Alzheimer's; CoCensys, Inc. [Nasdaq: COCN] is a company that is working essentially on a replacement for Valium that goes right into the receptor that causes anxiety and locks it, without causing any of the side effects like drowsiness and that kind of thing. COR Therapeutics, Inc. [Nasdaq: CORR] is a good example of a good company that's down from roughly high twenties, low thirties, to ten. They'll be applying for approval for their drug probably within the next sixty days. It's a heart attack drug called Integrelin to stop blood clots and thrombosis. Corvas International, Inc. [Nasdaq: CVAS], another company working in the area of stroke and cardiovascular drugs. Cytel Corp. [Nasdaq: CYTL], which is an inflammation company. It's got about eight drugs in development, but they're all based fundamentally on one technology.
ProCyte Corp. [Nasdaq: PRCY] is a little three dollar stock that everybody has written off. It has some very interesting wound healing products. When their drug failed, because their lead drug did fail in clinical trials, they were smart: They went out and acquired a bunch of chemically based drugs which they're going to start selling in June. Builds up a sales force, throws off some cash and then they can continue to develop their new drugs as they come along.
I think the most important decision you're going to make coming out of this conference is an asset allocation decision: how much you want in cash versus how much you want in the market, and of the part you've got in the market, how much you want in the old economy, and how much you want in technology. Those are the big decisions, and that's what's really going to dominate your investment returns in the next five years. I'd put as much of it technology as you can stand.
WILLIAM NASGOVITZ: President and Portfolio Manager, Heartland Funds
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A quick background: We manage about $2 billion, primarily focused on the small-cap sector of the U.S. stock markets, small- and micro-cap. We are value investors, which means we use Graham and Dodd type valuation methods to select individual stocks. We are not market timers; but we do have a new small-cap contrarian fund, which has the ability to both go long on these small stocks, which we think are undervalued, and sell short on some of those which are overvalued. Our focus then is small stocks, and I thought I'd just talk a little bit about that market.
Today the U.S. stock market totals about $7.5 trillion. Huge market. 15,000 public companies. The top thousand, or perhaps two or three thousand, are followed by Wall Street -- either New York or regional brokerage firms. But the balance, 12,000 companies, are under followed or not followed at all. That's the market we've chosen to focus on. We think it presents tremendous opportunity.
Certainly in the past, small stocks have out-performed any other asset class in the U.S. outside of venture capital, and we expect they will out-perform in the years ahead. We're in the small micro-sector of the stock market. To us, small is less than $100 million in market capitalization. Both of our funds, the value fund and the small-cap contrarian fund, have $50 million median market caps, so that's real small. Half of our stocks are under $50 million. We have no downside limit in terms of market values that we look at. So I think this sector is ripe for opportunity.
If you look back into the eighties, the last period of out-performance in this sector ended with the technology blowout of June 1983, and small stocks under performed from 1983 to 1990. A seven year drought of under performance from this sector. They then came back to favor in 1991, 1992, 1993. Tremendous gains, if you look at the Russell 2000. I guess that's a good proxy for small; there really is no proxy for micro. But both that sector and small did extremely well for those three years. Since February of 1994, small stocks have under performed the S&P 500 and the Dow Jones Industrial Average.
So we've been in about a two year period of under performance. And I suspect that's going to change as the year unwinds. But it is somewhat disturbing, having small stocks under-perform. For example, this month, the month of January, I believe the Dow is up five percent. And the Russell 2000 Index is down one percent. Seasonally, this is the strongest month of the year for small stocks. So I'm worried about that divergence. I don't think it's healthy for the market, when you see the Dow up 76 points, or up a percent and a half, and small stocks just languishing. I think near term, we might be overbought, both in stocks and bonds. Everybody knows that interest rates are going down and stocks are going up. We're due for a correction on the short end.
Looking out further, for the rest of this decade, I think small stocks will out-perform because this is the fastest growing sector of the economy. This is where the entrepreneurial talent of the capital market resides. We have a history of out performance from this sector. Small stocks, if you look at the Ibitzen numbers, do about 20 percent better than their larger brethren. And also it's just the basic law of numbers. You can double $100 million quicker than you could double perhaps a billion dollars. There's also a correlation of small with the dollar. It's quite striking, in fact. As the dollar strengthens, small stocks out-perform. So I think in the years ahead we will see a stronger dollar, for a variety of reasons, that's my belief. And with that, we should see a resurgence in small company stocks.
So I think it's going to be a very profitable sector within the overall market. In fact, I'd be very cautious about larger stocks. For example, the S&P 500, over the past 10 years, has compounded at sixteen percent per year, well above it's historic trend line. We have not had a serious correction. Even 1987, if you look at the entire year, we were not down that much. We have not had a serious correction in 10, 15 years. It's been a 13 year bull market. Stocks have not corrected more than 12 percent at any time in the last five years. Now usually, one out of three years are down in the stock market, I believe. So I think we're due for perhaps substandard results from the S&P 500 going forward, because of their strong historical performance over the last ten to fifteen years.
But within that, there are plenty of bargains within our sector because they are not widely followed, they are not owned by institutions, they have no Wall Street coverage. You can find companies that you can buy as an investor for very reasonable prices in relations to their earnings, book values, cash flows and things like that. Thank you.
CLARK WINTER: Vice Chairman, Global Asset Management (USA) Inc.
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First of all, I want to say I agree with Ralph. We're going to see 7,000. What I don't know is when. But we're clearly going to see it. But what I want to emphasize is if that's true in the United States, it has tremendous implications in the rest of the world. The rest of the world is watching the U.S., probably with more admiration that at any time during the post-war era. There was a time when we were seen as the deficit spender, there was a time that we were seen without leadership, and wandering. But right now, politics aside, the economy is very strong. The world leaders understand that in the rest of the world. World leaders whether they be in politics, economics, finance, or most importantly, the investment business.
But let me pause for a minute and introduce myself and tell you what I do. I'm responsible for a company that manages portfolios for individual investors in the U.S. and overseas. We pick managers, and put them together in portfolios in a various series of funds. We run about $8 billion, most of that for non-residents of the Unites States. We find managers in mutual funds and hedge funds, and segregated accounts and put them together. I've never seen such an explosion of investment talent as I'm seeing now in the rest of the world.
But I want to share with you something. I've never been to a money show, and this has been a real eye opener for me. There are 8,000 people here, roughly, and we have the first-class section, I was told, right here in this room today. You people are making decisions about investing your own money. You've come here, you're taking control. Each of you is contributing in a remarkable way to the strength of the economy. Nobody's paying you to do this. That's a lot of free work.
But I want to ask a question. You don't have to answer this if you don't want to, but I'd like to know how many of you are not going to deduct the cost of this seminar on your tax return? There's motivation in this room ladies and gentlemen. The rest of the world doesn't have money shows. In the rest of the world, investors have three choices: they can either put their money in a bank, under the mattress, or, if they're affluent, they take it to Zurich. The rest of the world does not have indigenous securities markets so that people make choices.
Almost all the mutual fund talent in the world resides in the United States. It doesn't mean there aren't people in the rest of the world who select equities to mutual funds. I use the word talent on purpose. Those are people who just put things together on behalf of captive money. All of that is going to change. One of the things that's going to change it is the economic decision-making power. In the rest of the world, investment decisions were made for decades exclusively on the basis of political considerations. In the United States, politics matters. As you say, it could be the cause of the great surprise. But on balance, one guy or the other, the market keeps rolling along, because we have two people agreeing on deficit reduction.
I'll give you a few things I think each of you should think about, now and particularly overseas; one of which is brand names. I suggest there's going to be a barbelling in the value of brand names. There are brand names that will enjoy ever-increasing strength globally -- Coca Cola is the best example. But there are many other brand names that are not going to survive this process, because you've seen the unwinding of brand pricing power in drugs, generics, health care, computers, airlines and I suggest also mutual funds. The day of somebody giving all of their money to one mutual fund family and letting it stay in there forever is over. Can I ask a question just for my own education? How many of you have all of your money in one mutual fund family? That's not many. But a few years ago, it was difficult to shift between one mutual fund family and another. Schwab has created an enormous solution to this problem, Fidelity has responded with the same solution of their own. Watch that brand name superiority in the rest of the world in many other industries.
Second, when you go abroad and consider investing abroad, I would look for mutual funds right now that have very good stock picking capabilities. The skills set that these gentlemen talk about: the analytics, were irrelevant abroad: great foreign stock pickers were macro players. They understood the politics, they worked down. I think the next opportunity now will be for foreign stock funds who apply this same diligent analytics to their markets that were previously irrelevant. Repeat, that skills set was irrelevant overseas in the past.
I think also, we've been given a bottom-up opportunity here in foreign markets, similar to J&J and Tylenol, as somebody mentioned yesterday, or the Union Carbide in India. We have some really great names in the rest of the world, which despite their recent rebound, have been priced way down, as all the funds of flow have come to the United States.
Second, I'll go out on a limb. I am not excited about U.S. fixed-income opportunities right now, and I would encourage caution about foreign fixed-income if you see the chance of a rebounding dollar. I think the global bond markets which last year returned 17, 18, 19 percent from most managers will not afford the same opportunity next year.
Finally, if you want to watch one thing, I said it yesterday and repeat it: I think the one thing to watch in terms of global equity valuations in the rest of the world is the mandated funding of pension reform in other countries. It's incredibly important. In the rest of the world, there are obligations to pay pensions but there's no money to pay them. The leaders know that. It's not really widely reported in the press -- there are exceptions of course, Chile, etc. But as these governments address that fact and fund their pensions, you're going to see an enormous in-flow of money into the market. It's money that's going to go in there but for autonomous management and be invested for the longer term. So the behavior pattern that we've witnessed here in the last two decades is going to begin to apply in the rest of the world.
A final comment on globalization: it's a well-worn word in many people's minds. You hear about it. You read about it, But I suggest that, in terms of implementation, globalization is somewhere between genesis and birth -- that it hasn't been born yet.
WALTER MEAD:
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Well I'll think you'll agree with me that we've really had a very exciting set of presentations. Anybody have any questions for any of our panelists? You can direct your questions either to a particular panelist, or I'll refer it to the group.
QUESTION: What is the impact domestically and globally of the new telecommunications bill?
MICHAEL MURPHY:
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I'll start. I'm sure others have their opinions. A lot of the bill is Congress trying to catch up with reality frankly, and trying to keep their hands on something that's going to be incredibly difficult to regulate. And parts of it are just silly. Basically, the thrust of the bill is to open up the telecommunications market and create more competition. The underlying reason that's happening is the spectrum or the available ways to get information to people is broadening out a lot. Both in the terms of allocating new spectrum, as they just did with these personal communications services where they actually auction it off, but also for each individual available area of the spectrum, the new technology could jam a lot more information down it.
What you could put one voice down 15 years ago today you could put almost a thousand voices down in exactly that same spectrum. The telephone lines that go into your house, those ordinary telephone lines, today can carry three TV signals right into your house with no degradation of quality. The technology has gotten way far ahead of this sort of bureaucratic regulation that it had on it, and it was hurting things; it was starting to hold people back.
The thrust of the bill, although obviously the people who had established interest resisted, and went along kicking and screaming, the thrust of the bill was to move more towards opening it up to the new technologies, opening it up to competition. We are really going to have the 500 channels, everybody's going to have the 500 channels, and then somebody's going to provide all of the content for that. We all really are all going to end up five years from now walking around with a relatively small pager-like device that keeps you plugged into your computer, to the Internet, to your voice mail. All that stuff is actually going to happen. This bill is basically an enabling bill to start letting that happen. We're going to need another telecommunications bill in three years, because the technology is still ahead of the regulators.
QUESTION: What's going to happen to capital gains tax, and when is it going to happen?
FRANK CAPPIELLO:
-------------------
There ain't going to be none.
WALTER MEAD:
---------------
By when?
FRANK CAPPIELLO:
------
I wouldn't overemphasize capital gains. I think short-term, capital gains would be negative for the market. Long-term, it'd be great. But most of the people that are going to benefit are not the stock holders, but farmers, who have enormous capital gains in their farmland, and want to transit this over in some ways to protect themselves. Politically, it's welfare for the rich. If we do get a bill, it's going to be very diluted. I don't think the market needs it anyways. Hold it for next year.
RALPH ACAMPORA:
--------------------------
I would like to respond to the first question that was asked about telecommunications. I'm not an expert on the industry, but I look at the companies in that industry. I look at the telephone companies, when I look at the paging companies, they're very, very exciting. We heard before that we should be participants in that type of investment in the second part of the decade. I couldn't agree more, whether it's Ma Bell, or PacificTel, whether it's Paging Network or Telecommunications, Inc. Buy them. They look great.
CLARK WINTER:
-------------------------
I'd like to add a word of caution. The other day it was announced there's $55 billion of privatizations trying to occur this year in Europe. The majority of that is European telecoms. I would urge a word of caution because you want to avoid the purchase of hard assets. It's a bit like buying old computer manufacturers. I think the opportunity is going to be in those who control the flow, have their control of the tickets, and are able to use what they call cash flow in the financial industries -- the use of the machine. So be very careful, I think, when you're looking at foreign telco operations as to whether you're buying the old machines or the access to the new people who are going to use them.
(Gap in cassette tape used for transcription)
FRANK CAPPIELLO:
------------------------
There are going to be a lot of losers in this game, and it's going to be very, very difficult to win. Maybe with a Motorola, that's across the board, or an Erickson, but maybe with the GM-Hughes, with the pizza-size dish satellite. But they're going to be a lot of casualties, because there's going to be a lot of price cutting, a lot of competition. The winner in this game is the guy that builds the product pipeline. The guy that provides entertainment for the 500 channels. And you're sitting in the domain of one of the big winners: Walt Disney. People that have big film libraries...there's going to be a voracious appetite for entertainment. The people that can supply it are the people that are really going to win the game consistently every year. Unfortunately, all those stocks are high-priced. But no one said anything good was going to be cheap, at any time.
Just a further point on communications. There are some cheap hard asset companies that are pretty dull. They're private telephone companies, independent telephone companies which have been spun off or developed by entrepreneurs. They're selling two, three, four times cash flow. They will be beneficiaries of this new bill because they'll receive payments from people like AT&T when you make your local call, if anybody ever uses those machines. But we think they will.
(Someone asks if he would mention a few of these companies.)
I'd rather not, because we're buying a few. (Laughter)
WALTER MEAD:
--------------------
Would anybody else care to mention some of those companies? (Laughter)
(A question is asked regarding Jeff Vinick and his endorsement of a stock he was allegedly selling at the same time.)
MICHAEL MURPHY:
--------------------
I am sure that no one here would ever do such a thing. (Laughter). I am shocked, shocked to hear that this is going on. (Laughter). I think the reality of it is that it's been going on forever, and when you read somebody in Wall Street Journal's "Heard on the Street" talking about that this is their number one favorite stock of all time, you know they probably own an awful lot of it already.
Actually, I honestly think what happened with Jeff was that between the time they wrote that and sent it to the printer, and the time he started looking at what was going on, the world did change. We turned negative on that whole PC/semiconductor group last June, and we were really the lonely voice in the wilderness until about October. But Microsoft introduced Windows '95 on August 24th, and it was only about three or four weeks later that people started waking up and thinking, "wait a minute, there's something wrong here." And you did see quite a change of sentiment. And he was in an exposed position with Micron as well as a number of other stocks.
So, my answer to it is that if they do that in a stock, take advantage of it. In other words, know the company, and let them beat it down, and you take advantage of it as a buying opportunity. If they do it in something you own that's a good stock, ride it through. Because as individuals, there's not much you can do. And, frankly, he probably did the right thing selling Micron. He has to protect his shareholders first.
FRANK CAPPIELLO:
----------------------
Can I make a comment on Jeff Vinick? Last year, in Boston, someone asked me, because we had a lot of high tech stocks going into 1995, what's the greatest thing you fear? And I said Jeff Vinick. Because, then we knew what he had, and we were just worried he would drop the shoe. And it took him about eight months to drop the shoe. But I think Michael will attest to the fact that once he dropped the shoe, we all knew the shoe was being dropped. But it was just like a torrent of stock coming out because everyone is trying to beat him out of the box.
But nothing changes in the mutual fund industry. A guy is going to talk up his stock: He owns it. He's not going to tell you about a stock he doesn't own, and push it up. So you've got to be wary of people that are enthusiastic about their stocks. You got to remember they're in the stock, and the stock will probably go higher but it could go lower. Be very careful about all these recommendations here.
WILLIAM NASGOVITZ:
------------------------------
One additional comment about the power of funds or the institutionalization of the market. We try to turn it into our friends. We want to sell to institutions. Therefore, we're looking to buy companies that have low institutional ownership. We think that's a risk. It might be a great company, great product, great management. But if it's 99 percent held by institutions, which some of these companies are, who's left to buy? When they're selling at thirty, forty, fifty times earnings. If they miss a quarter, or if Microsoft doesn't get the sales...I mean the stocks -- Micron Technologies -- plummeted 66 percent in a matter of weeks or months. Part of our evaluation process is to determine who are the owners of these shares. We feel that most institutions are renters, and temporary holders. They are speculators. Not of course this panel, (laughter) but all the other 7,000 mutual fund managers out there.
WALTER MEAD:
-----------------------
Anything else from the panel before we go on? You've really managed to touch a couple of strong nerves on the panel this morning.
QUESTION: In view of the fact that for two years running index funds have out-performed most money managers, how would Frank and others like to defend their marketing practices and say where they're going?
FRANK CAPPIELLO:
------------------
Well, generally speaking on a quarter by quarter basis, our four funds, with the exception or the gold fund, because gold is in the doldrums, have matched or equalled the indexes. We've beaten the utility index two years in a row. Our growth fund has beaten the index and our merging growth fund has beaten the index up until the last quarter. But a quarter is a quarter. So I can speak with a certain amount of objectivity regarding not being one of the guys who hasn't matched the index.
I'd say that you've got to give a money manager at least two years. Meaning he may not beat the index this year, but as it's been commented on, this is a hell of a year -- the last year was a hell of a year -- for the S&P and the Dow. But there've been years when the S&P hasn't done well. And all you have to do is go back to the early part of the eighties and a couple of years in the eighties. So recently it's been hard to beat. But I also share a sort of apprehension that everyone is talking about indexing--money is pouring into indexes. And remember that the index is a market only because it is a market that has been hard to beat recently. But it hasn't always been hard to beat. If everyone pours into the index, the index could get into trouble, and then the money managers could beat it. Be very careful of going into indexes.
Now my recommendation for indexes would be to go into indexes on areas that are hard to control. Like there's an emerging market index, there are a lot of overseas indexes. And I think if you want to participate overseas in an emerging market, indexes probably make some sense. But domestically, if you've got a good manager who's beaten the index a year or two, but he didn't beat it this year, I'd stay with him another year. I don't think you ought to jump around. Remember, if you jump around, you pay taxes, you have less money to invest in the index.
WALTER MEAD:
----------------
Clark, would you like to comment on the idea that global funds are where the index is a good idea?
CLARK WINTER:
----------------
First of all, when we run a portfolio for people with a wide range of funds in it, we often buy index funds. It's a fine way to access certain strategy. I see no inherent problem with buying index funds from time to time.
Second, internationally, though, I think it's a real danger. Some of you may know that the rest of the world's market capitalization is primarily Japan, anywhere from 60 to 40 percent. So when you index a non-U.S. portfolio, you're making a market on Japan, and just leaving it there. Simply stated, you're abandoning the most important decision an international manager can make. Which is how much he should and should not have in Japan. So I can categorically think that index funds for non-U.S. investing is the wrong thing for U.S. citizens.
There's another anomoly which I will not try to answer but simply open. If in fact for U.S. taxpayers the smartest thing to do is buy an index fund, and I think there've been many studies that show that from a tax point of view, that's right. We are setting up for an incredible situation. If in fact the smartest thing to do with your money over time is to do nothing with it, then I think that's sort of the intellectual equivalent of financial arterial sclerosis -- you're just letting it build. So you're going to create a situation where those funds are immobile, and there's going to be tremendous valuation discrepancies. I agree with Frank's point: you're going to see small cap and mid cap get very, very interesting prices.
QUESTION: How do international fund managers work around the different qualities of statistics in many countries around the world?
CLARK WINTER:
----------------
I think the simple answer is the good ones (and I talked earlier about foreign fund managers who do the analytics, not the macro) simply avoid those situations where they can't get their hands around the numbers full stop. Which is one of the key reasons you've seen so little money go into Eastern Europe. We don't doubt it's cheap, we don't doubt there's opportunity there, we just can't get our hands around the number. You are paying us to make prudent and wise decisions, and if we can't make them, the smartest thing we can do is not put money in that area. So there are whole regions, nations, continents that receive virtually no money.
One thing I have observed, if you will, was in Washington recently when visiting the SEC. I asked one of the commissioners, "Where are you getting the most intelligent questions?" This is not to say the most frequent request for a favor, but where are they getting the deepest level of intelligent questions. And they said, "Unilaterally, it's coming from Asia." Because the Asian regulators, and the people charged with creating a regulatory environment in certain Asian markets (and I do not include China) are trying to figure out what they have to do to make investors, or professional investors comfortable with that environment. So they're learning about disclosure, they're learning about consistency, they're learning about auditing.
I think that when the money shifts from the U.S. overseas, which it will at some point, those countries with the safest and soundest regulatory environments will get money, and the others absolutely won't. So I think your point is absolutely valid. I think if you ask Arthur Andersen where their largest source of new business is coming from, sort of like Coca-Cola, it's coming from overseas. The rest of the world capital allocators, or those who wish to issue securites, are finding out that there's no other faucet than Wall Street. If they don't play by Wall Street rules, they simply won't get the money.
(Regarding interest rates)
CLARK WINTER:
---------------
I think the drop of interest rates in Europe will have a profound effect. I think it's nearer than people realize. I think there aren't as many interest rate sensitive stocks in Europe as you might find in the United States, so you're going to see some activity in the bonds. But as I said earlier, beware, because you may see a rebounding dollar simultaneously. But I think there will be a profound lowering of interest rates.
A very interesting area, I think, to look at if you want to make money on that score, is a whole series of companies particularly in Central Europe which were not able to access the credit markets before. Germany, a case in point. If you wanted to raise money as a private German company over the years you usually had to sell some of your share capital to the bank that lent you money. So if you didn't sell them some of your share capital, they didn't lend you money.
Well, guess where Goldman Sachs' largest new business office is in the world right now. Germany. There are a lot of mid cap German companies that are fed up with the German banking system. They have fine financial statements, they have not endebted themselves over the last few years and they're going to go right up and out to the public capital markets probably ahead of and better pricing than the big giant ones that are such big household names. So I think there's some great opportunities in the falling fixed income over there.
QUESTION: What is going to be the impact on global capital markets of a low interest rate climate?
CLARK WINTER:
----------------
I'll answer that in one word: bullish. So I think, yes.
WILLIAM NASGOVITZ:
----------------
We've had an earnings explosion last year for corporate America. They were up by somewhere north of 20 percent. This year, I don't think corporate profits are going to be up much at all. I think it's going to be a tougher year for corporate America, and I think the surprises will be on the downside. I think maybe you saw some of them in the tech area, but I think we'll see more. Coupled with a stronger dollar, it could be quite surprising. Because many of these Fortune 500, S&P 500 large companies derive -- I think Coca-Cola gets 75 percent of its earnings -- abroad. So you have a strong dollar, the wind is not at their back. All of the sudden, they've got a wind right at their face.
CLARK WINTER:
------------------
Russell 2000 corporate earnings, they were up, I haven't seen numbers, but I suspect they were in line perhaps not as much, there's been a lot of restructuring in large companies. And that perhaps might account for that tremendous surge in S&P 500 profitability.
RALPH ACAMPORA:
-----------------
I'd like to make one observation. Everybody talks about a strong dollar, that it's going to be very, very bad for multinational companies in the United States. I just completed a preliminary study with my staff, granted I only went back 10 years. I took every S&P industry average -- there are about a hundred of them, I'm talking about airlines, aerospace, computers, whatever -- and I compared them with the U.S. dollar. You would think that some of these industries with a strong dollar would be down. I didn't find that correlation. I found that went the dollar went down, these groups actually flattened out. When the dollar went up, these flattened out, and went up. So all of this talk about a strong dollar crippling the U.S. market, the blue chips, the S&P and the Dow, I think it's hogwash.
Number one and number two, as the dollar goes up, think about it. The foreign investors are going to come here. This Dow is up 17 or 1800 points. There isn't a pound sterling in our market, there isn't a D-marc. There are no foreign investors here. And when the foreigners finally wake up, that they have to come back to the States because they're going to make money on the currency conversion, and then if they buy stocks, they'll make money in our blue chip market. What are they going to buy? Big blue chip stocks. So I think the strength in the dollar is not going to have a material effect on our stock market. And if anything, a strong dollar should help small and mid cap names.
CLARK WINTER:
-------------------
Definitely. I mean, that is a fact. As the dollar strengthens, small stocks out-perform. They have in the last 10 years, and we they will in the next five.
RALPH ACAMPORA:
-------------------
If you remember my presentation yesterday, the first part of the secular bull market which we are in, is lead by blue chips. The second part of that bull market, secular bull market are his (points to Bill Nasgovitz, in small caps) stocks. They haven't even come yet. So by the time they get there, the Dow is going to be well over 6,000, and we'll pass the baton to small and mid cap names and then the speculative stocks will take us over 7,000.
WALTER MEAD:
--------------------
So is or isn't foreign money coming into the U.S. market? (Laughter). Let's settle this once and for all. (Laughter).
CLARK WINTER:
-----------------
I wish I had my laptop. But I can show you. If you look at the hockey stick turn of the U.S. equity market, it occurred in November of 1994, a couple weeks after the election. And I would suggest that it is Americans evidencing the fact that not necessarily they like the Presidential election, they like the fact that either way there's going to be action on the budget. So we've had a move up. If you look at that same chart, expressed in marcs, the hockey stick turns up in February. If you look at that same chart, expressed in yen, it starts in April. The return in yen of the Standard & Poor's from April through last week, make sure I explain that clearly: Measured in yen, the return of the U.S. stock market is 55 percent. That's the dollar and the yen. So I suggest that shows ample evidence that it took them a little while, but they see it. And the money from overseas is coming aggressively into the U.S. market right now. But it's not a fraction of what will come after the news gets dissipated. (Laughter).
WILLIAM NASGOVITZ:
-------------
An additional point, in our bond market, the treasury bond market is certainly helped by this. It has to. If you can borrow in Tokyo at one half of a percent, and invest at four or five percent, it's certainly been a positive for that market as well.
CLARK WINTER:
--------------
Another indication then, do you remember the theory, when you were in school, they taught you that that there was something called the risk-free return? Remember that? U.S. Treasuries? That's the baseline and it was always flat. You measured all of your other investment alternatives off of that? Well, guess what. That doesn't work if you measure treasuries in any other currency. U.S. Treasuries measured in marcs or yen are down between 60, 40 percent over the last ten years. In 1994 alone, U.S. government bonds, depreciated more than 25 percent measured in yen. So a Japanese who held a U.S. bond lost 25 percent. Now that is inverted right now.
So I suggest what has also happened out there is that the rest of the world's investors who understand this, no longer believe that the U.S. Treasury is the risk-free return. As one of them said, it's like that little cartoon where the guy goes off a cliff and is still running -- (laughter) -- we've seen it, but he still hasn't seen it. It's still the safest instrument in the world, and talk about the fall is very important, and it's still the largest instrument, and it's still the best place to put large amounts of liquidity. But it no longer is viewed in the rest of the world as a risk-free return. That's a thought only a few Americans still share.
WALTER MEAD:
---------------------
Well, I think we've settled that one, and as far as I can tell from the panel, the Dow is going to be somewhere between zero and 10,000 by the end of the decade (laughter). But I'm glad at least we know that foreign money will be in on it, whatever it is. (laughter).
QUESTION: What is the outlook for banks and chemical companies.
RALPH ACAMPORA:
--------------------
I'm boring it. They're very bullish. Both of them. Buy them.
WILLIAM NASGOVITZ:
----------------------
Regional banks and thrifts in your own backyard I think make a lot of sense. They've been a great place to put money over the past ten years, and that trend will probably continues as the industry consolidates. Companies that you do business with, perhaps, on a private business, or on a personal basis, perhaps deserve some attention in terms buying their stock.
FRANK CAPPIELLO:
----------------------
I would say regional banks are still good to invest in, because we're going to probably end up with 5,000 banks in the United States down from 11,000 in another five years. And all of those consolidations are going to make money for the company that's being acquired. So with a little diligent search, you can get in the path of some of that acquisition. So I think regional banks are fine. I would worry a little bit about the metropolitan banks. They're doing well now, I just don't see that kind of visibility.
WALTER MEAD:
--------------------
Now people are being rather silent about the chemical companies. Is there a reason for that?
FRANK CAPPIELLO:
-------------------
Too many pollution problems, environmental problems.
RALPH ACAMPORA:
------------------
I think the chemicals will do well because the cyclicals are coming back in their favor. The cyclicals started the turn up about two weeks ago. You had papers, aluminums, steel stocks went crazy yesterday I was told. Now it's just a matter of time for the chemicals...Union Carbide, DuPont, Monsante would be my three favorites.
FRANK CAPPIELLO:
----------------
Well, Ralph likes everything I think! (Laughter).
RALPH ACAMPORA:
---------------------
Buy anything with a symbol, Frank. (Laughter).
WALTER MEAD:
----------------------
I have to say, I'm with Ralph, that if I could, I would buy every share of every stock on the New York Exchange.
(Panelists are asked to give their predictions as to the highs and lows of the stock market).
They hate this! (Laughter)
RALPH ACAMPORA:
---------------------
I'll start first. It's very interesting. Last year when I made my commentary about the market going to 7,000 in three years, I was in the minority. I found out this year, much to my chagrin, I'm in the pack, concensus opinion. This is officially what I put on Wall Street Week: the high would be 6,000, the low would be 4,900. The Dow would close 5,950. But you know what? Most of the people I talk to or I listen to are here, bascially saying somewhat the same thing. Most people are saying that 1996 won't be as strong as 1995. You know what? You want to be a contrarian against the concensus, including myself? You need to take one of two stands. Either the market crashes here, or we'll all wrong, and the market is indeed like 1995. And I'm very close to changing my opinion officially, and saying I think the market in 1996 will be as strong as 1995, and the target is 6,600 and not 6,000.
WALTER MEAD:
----------------------
Whoa! Okay, I hear 6,600, do I hear 6,700? (Laughter). I got a 6,700...
WILLIAM NASGOVITZ:
-----------------------
I'll be somewhat cautious. 5,700 cautious as the high. We've seen the low this year, and we'll close below where we are today, let's say 5,200.
CLARK WINTER:
-------------------
I think we're going to see a high of 6,400. I think if we fall it will fall to 5,100, and we'll finish about ten percent higher than where we are now.
MICHAEL MURPHY:
---------------------
Well, I'd have to agree that basically the fourth year of a presidential cycle nothing much happens. I think the high is more like 5,700, and the low 4,800. So, pretty contained. Then we close about where we are right now. I would worry along with, I think Frank's worry, that 1997 is the bad year.
FRANK CAPPIELLO:
--------------------
I'm going to be a little higher than I was on Wall Street, because associating with Ralph is catching I guess. (Laughter) But I'd say 6,100, and I think the low will be 4,600 to 4,700. Because I think the second half, while it will be good, I think we may get a bad election. And I'm not going to tell you what a bad election would be! I think we'll close probably around 5,100, and people realize it's not as bad as they think. But I do think the thing to worry about is 1997, not '96.
CLARK WINTER:
---------------------
Speaking of the election, I want to ask a question. If Ralph ran for office based on what he said, (laughter) how many of you would vote for him?
WALTER MEAD:
---------------------
Let me see what the audience thinks. How many people here would agree with Ralph's revised forecast of 6,600 on the Dow this year? No one really. We have two panelists holding up for 5,700. Somewhat stronger. 6,100? Now that brings them out. Anybody think it's going to be higher than any of the panelists said? That Ralph is just a pueling pessimist? Okay. We've got one! Is there anybody who thinks they're just sky optimistic? No. Okay. Well that's a pretty bullish crowd.
So is the gambling craze going to have an effect on the economy beyond what it's done already?
MICHAEL MURPHY:
-----------------
Well if you think it's bad so far, you can get on the Internet and gamble in the cyber casino, which is run out of one of the Caribbean islands with credits anywhere in the country.
Gambling is actually a benefit for technology companies. There are a number of companies in that area, like video lottery terminals, that are fairly attractive. What I think gambling basically takes money away from, unfortunately, is small charities. It appears to be, if you look at those two lines, gambling up, money to small charities is down. I think it's unstoppable at this point, though, because of the government's need for revenue without calling it taxes.
Well, it may be coming some out of consumer, the real hit seems to have been the small charity, so far. That's where the real pain is being felt.
