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Market is Challenged


LOU DOBBS: A solid rally on Wall Street virtually collapsed today. The markets unable to hold onto early gains. The Dow lost 130 point advance, ending the day only 13 points higher. But that was enough to break a four-session losing streak. For the week, the Dow lost nearly 2 percent, however. The Nasdaq fell nearly 3 percent. The S&P 500 down 1.5 percent. Now for our weekly Wall Street panel, I'm joined by top performing fund manager, Bill Nygren of the Oakmark Fund in Chicago, the fund manager of the year, by the way. And congratulations. Economist Lakshman Achuthan and Jan Hopkins, Christine Romans and Greg Clarkin joining us. I'm going to start, if I may, with you, Lakshman. These are incredible numbers on productivity. We're seeing some real strong reports here, even though the market shrugged it off. What's going on?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INST.: Well, the market is I think focused on the geopolitical landscape and these things like Enron and reporting -- the fundamentals. The economy very much on track. We're seeing a classic, sequential set of data that comes out as you have an economic cycle recovery. Today's numbers proved it.

DOBBS: Unequivocally, a recovery? A strong recovery underway?

ACHUTHAN: A sustained recovery. I think there's a difference between... (LAUGHTER)

DOBBS: I love it when economists parse.

ACHUTHAN: Well, you know, the average first quarter recovery in the post-war period, 7.3 percent GDP growth. This one we have 5.6. So we're already in a sub-par recovery, which a lot of people are saying is great. Fine, I'll take it.

DOBBS: Thank you for that, because I really did not know that.

ACHUTHAN: First quarter GDP recovery in the postwar period, 7.3 percent. This at 5.6 is sub-par. We're going to come down from that a bit.

DOBBS: Now I'm disappointed. (LAUGHTER)

ACHUTHAN: Hey, it's better than a recession. And it's done the right thing. It's set us up for some sustained growth going forward.

DOBBS: Let me go to Bill Nygren. Bill, you have done a remarkable job in this market. How do you feel about the environment, the conditions of the market and the economy? And is that playing any part in your investment decisions?

BILL NYGREN, FUND MANAGER, OAKMARK FUND: Well, Lou, we basically approach things from a bottom up approach, trying to find individual stocks that look cheap. I would say overall that the market looks to us to be relatively fairly valued. It ought to return a little bit more than bonds going forward. But nothing like the teens to 20 percent returns that people got used to in the late '90s. We're seeing a shift in the stocks that look attractive. At this point I would say we're not believers that the economy is in a traditional recovery. Rather, we'd see it as bouncing back somewhat from an artificial depressant last fall. And still up in the air, whether or not the recovery will be as good as usual.

ACHUTHAN: What are the main things, Bill, that are making you hesitant about the sustainability of the recovery?

NYGREN: I think one of the big things would be the strength we've seen in the consumer market, all the way through the recession. We haven't seen the typical depressants there to recover from.

ACHUTHAN: But then, I mean, you still have the consumer hanging in there now. And their confidence, even numbers today, seem to look pretty good.

DOBBS: Well, they looked good and it's all about stock for Bill. Let me ask you, Bill, what are you buying right now? What do you own?

NYGREN: Well, our largest holding, my favorite stock idea is Washington Mutual, largest savings and loan in the United States. Sells at less than 10 times earnings. It's been growing 15 percent a year. That means when you think about it on a five-year time frame, like we do, they ought to see earnings growth something like 100 percent over five years. The P.E. is at nine times, the market's in the 20s. So even the multiples got a chance to grow by 100 percent. So I think for someone who's willing to take a five-year time frame, a stock that's out of favor like Washington Mutual offers great potential.

DOBBS: You were talking about 100 percent over five years. There are those who suggest we've got to adjust our expectations. What should an investor be looking for, in terms of a realistic appreciation in their portfolio over the course of any given year, in this new world of ours?

NYGREN: I think if you think about a one-year time frame, a long-term government bond gets between 5 and 6 percent. Maybe a reasonable return for the stock market is something like 8 percent, which if you think about five years, that's a 50 percent rate of return. So we'd like to think that our successful ideas could do at least twice that.

DOBBS: Terrific. Now, you also still own AT&T, right?

NYGREN: Yes, we do.

DOBBS: Beaten badly.

NYGREN: It certainly hasn't helped us this year so far. Stocks down significantly. But we think the Comcast shares that you'll get in the deal this fall, late this year, are worth almost $10 per share. That leaves you paying less than $2 for their telephony operations. And I'm certainly not going to argue that that's an average or above average business. But at that low price, I can't imagine that that business is worth less than that. We think it's worth several hundred percent more than a $2 price per share.

DOBBS: OK, let me turn to Jan and to Greg and Christine for the wrap-up. You guys get the last words. What can we expect next week?

JAN HOPKINS, CNN FINANCIAL NEWS: We're starting into the summer season. I think that investors are very depressed because of what is going on overseas. But from what both of these guys are saying, maybe from summer on we're going to have a rally. Because we're down so far this year.

DOBBS: Do you agree, Greg?

GREG CLARKIN, CNN FINANCIAL NEWS: At the moment, for big tech at least, it feels like more of the same. You have the constant drumbeat of lack of confidence in corporate America. Adelphia being delisted, the sixth-largest cable company in the country. Big tech traders I talk to at this point say it's a torturous market.

DOBBS: Adelphia, though, is not really representative of the cable industry though, is it?

CLARKIN: No, unique circumstances here. But certainly it drives home the point the balance sheets may be in some cases not to be trusted.

DOBBS: Christine?

CHRISTINE ROMANS, CNN FINANCIAL NEWS: Lou, you can't talk about Wall Street this week without talking about the World Trade Center recovery ending and the mood that was on the Street this week. It was a very quiet day on Thursday. Two minutes of silence, and Wall Street investors and traders and the whole community down there, still grappling with what happened here six months ago.

You can see it in the way we're behaving in the market. And you can see it on the faces down there. So it's important to remember that, to keep this in perspective this week too.

DOBBS: Absolutely. Thank you all very much. Let's look for a better week ahead.
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