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Larry King Live

How Can People Avoid Getting Mauled by the Bear Market?

Aired March 20, 2001 - 9:00 p.m. ET


LARRY KING, HOST: Tonight: a show you can't afford to miss! Wall Street is in a tizzy and Main Street is kind of tense. What should you be doing with your money right now? In New York to talk dollars and economic sense, financial planner Suze Orman, best-selling author of "Nine Steps to Financial Freedom."

Maria Bartiromo of CNBC's "Market Week" and "Squawk Box", author of "Use the News."

CNN senior financial correspondent Allan Chernoff, and you know him from "MONEYLINE."

From CNBCs' "Business Center," Ron Insana; his new book, "The Message of the Markets."

And Joseph Battipaglia, chief investment strategist for Gruntal & Company; they are all next on LARRY KING LIVE.

Good evening. The Federal Reserve Bank spoke today, but a lot of investors didn't like what they heard. The Fed cut key interest rates a half percentage point, stock prices nose-dived, the Dow Jones Industrial dropped more than 238 points closing at its lowest level in about 2 years. Nasdaq plunged nearly 94 points, and that set a 28- month low.

We will start with Suze Orman. What's going on?

SUZE ORMAN, FINANCIAL PLANNER: Well, that is a good question. I have to tell you, I'm not sure anybody really knows. We have a danger signal here now. You know, last time, Larry, I sat with you -- January 2nd -- they lowered interest rates January 3rd and we saw the markets for the next few weeks sky rocket.

All of a sudden we have a lowering of interest rates today, and the markets go down with it. I can't truly remember when the last time that has ever happened. I think people really are looking for the earnings of the market, they are buying this market on the news of the stocks, not on news of the Feds, and the Feds didn't give them at all what they wanted to hear today by any means.

KING: Allan, let's go from the initiative of, the question asker is dumb here. I am dumb. OK? What is -- if now I can buy a home loan for 7 percent instead of 7 1/2 percent, why does that mean that Phil across the street sold his stock? ALLAN CHERNOFF, CNN FINANCIAL CORRESPONDENT: Well, two different things we are talking about here. Certainly, the lowering of interest rates is great for the housing market, no doubt about that. And in fact the economy is looking not all that bad thus far. The stock market, as Suze pointed out, is or worried much more about corporate earnings, and that's where the real problem is.

People on Wall Steet are talking about a recession in corporate profits, not yet a recession in the economy. Only a few forecasters are saying we are having that right now. So, it is corporate profits that really count, and thus far, Wall Street does not see the light at the end of the dark tunnel in terms of corporate profitability.

KING: Then why, Maria, were interest rates -- even the announcement being important?

MARIA BARTIROMO, CNBC'S "MARKET WEEK": Well, Larry, I think you have a couple of things going on. First of all, today, the market was down because of disappointment over the rate cut. Now, the...

KING: Why?

BARTIROMO: Now, the majority of people on Wall Street expected that we would see the Fed cut rates by 50 basis points, but there was a much bigger hope in the market. A lot of people hoped that it would be a more aggressive cut of 75 basis points. So when we actually got a smaller cut than the more optimistic hope, stocks sold off.

The reason why people wanted a bigger cut than we actually saw because this economy has slowed down quite substantially, and they now are questioning whether the Fed is actually in control here. They are saying to themselves, wait a minute, for a decade, the Fed was having this perfect economy, growing not too fast, yet not too slow, and all of a sudden, we see company after company saying that earnings will not make what people are expecting, then we see layoffs galore, we see the stock market falling out of bed.

There is a lot of negatives happening, so Wall Street investors, money managers, really wanted to see the Fed be a lot more aggressive than that 50 basis points. That is the bottom line.

KING: Joe, who is wrong? The investor or the Fed?

JOSEPH BATTIPAGLIA, GUNTAL & COMPANY: Well, I don't think either one of them is wrong. The Fed is going about administering interest rates in the way they know how, looking at the economy as it stands, the strength of the dollar, and some of the underlying fundamentals of a 20-year bull market that has created great wealth in this country.

On the other side of the coin, there are those investors who have been in the market for quite sometime, and have seen corrections come and go, and they have been staying the course, and that is why investor confidence is still staying relatively powerful. But what we are seeing, though, are those who essentially want to trade the market and are relatively newer to investing who expect more from the market sooner, running way from this market at this point, which is too bad, because I think right now is the moment of great opportunity as an investor, as it opposed to moment of great distress. And now, unfortunately, there are two many running for the exits. And I think that's part of the bottoming process.

KING: Ron, is this a semi-unwarranted panic?

RON INSANA, CNBC'S "BUSINESS CENTER": Well, I don't know, Larry. I mean, I think the stock market has seized upon a couple of different issues, some of which you have already heard about, but we're also in the midst of a historic unwinding in the stock market of excess valuation.

Analysts, investors, got very, very euphoric about the prospects for stocks to continue growing at a 20 percent compounded annual rate forever. So, they bid stocks up to astronomical levels. When you have an investment boom go bust, it gets to be a fairly complicated process.

I think that's why the stock market was so disturbed today by the Fed's half-point cut. They wanted more. They needed more to get the Fed to stop the bleeding on Wall Street, which many investors fear could spread to Main Street over the next several months.

KING: So Suze, if they had cut it three-quarters of a percent today, we'd have seen market go up? There's no doubt in your mind to that.

ORMAN: I'm not sure that's true, either. I have to tell you, we may have seen it spike up and then maybe it would have come down again. I think it's really bottom line here is earnings. I think possibly we wouldn't have seen the carnage that we saw today, Larry. But we might not have seen the run-up that we did on January 3rd.

BARTIROMO: Yes, I think, Larry, the thing that investors really want to see right now is good news from corporations. I mean, they want to see companies come out and say, yes, business is improving, and yes we have seen an increase in orders over the last month or so, and, yes, we have seen more confidence on the part of our customers.

At this point, every company we speak with, every CEO we have on, they all say we can't tell you what we are expecting in the second half of the year. We don't know when business is going to turn. So, that's the crux of it. It is the fact that earnings are just not there.


KING: Allan, is this a good time or bad time, then? What is it?

CHERNOFF: Well, clearly, for corporate America right now, it's going through a bit of a bad time. I was going to say, Maria pointed to the issue of visibility. That's the new buzzword on Wall Street, and companies are saying they simply don't have much visibility. Wall Street certainly wants to have assurances. It wants to know exactly what's coming up, and in fact, it got used to that. Now, corporate America is not providing that visibility, and as a result, investors are afraid to buy stocks right now.


KING: Let me take a break, and we're going pick up with Ron and then with others, and I'm going to quote a critique, a strong critique of what everybody is doing tonight in the current issue of the "New Yorker" and get our guests to comment on it. We'll be including your phone calls as well. This is LARRY KING LIVE. The panel has just begun. Don't go away.


KING: We'd like to have everybody's opinion on this, but I'll start with Ron Insana, since he's mentioned in the article. There's an article in the current "New Yorker" by James Surowiecki in which compares the way this is covered. So, this zeros in on Maria, Allan and Ron, by the networks, and it has sort of like Ron Insana in a Irwin Allen disaster film. He's standing on the floor and everything is going to pot.

And James writes: "The funny thing was nothing really seemed to have provoked any panic. Oh, people were apparently worried the Japanese banks were going under, but we've known that for a very long time. So, what was going on? People were selling because other people were selling. They were afraid because they were being told that everyone was afraid.

Watching CNBC those two days provided a lesson in how pointless minute-by-minute coverage of the stock market is. It distorts the way the market works, helps turn what should be a diverse, independent- thinking crowd of investors into a herd acting upon a single collective thought. In this case, sell. As a rule, the more information markets have, the better. But often what CNBC and the other pillars of market information journalism offer is not information, it's noise" -- Ron.

INSANA: Well, you know, Larry, we hear these criticisms oftentimes during periods of particularly difficult market activity. It's really a shoot the messenger mentality. It's just not true that CNBC or any other television network causes the sell-off.

The market was going down before we began to discuss it. I mean, the ingredients for the sell-off were there. There was a development with respect to Japanese banks on the Monday that this writer is talking about. A rating house decided that some of these -- some 19 Japanese banks might be less creditworthy than they were before. We saw some very large sell programs in Europe that knocked bank stocks on that continent down rather sharply. It spilled over to the United States, and yes, we discussed it on a minute-by-minute basis.

We don't fan the flames up or down. We keep hearing this people, you know, and people who suggest that the media are responsible for movements in the markets fail to remember that in the 1600s in Holland, there was a mania over tulip bulbs, and the prices went to astronomical levels. There was no television. There was no television in 1929 when the stock market went up and crashed. It's not us.

KING: But Joe, as an observer, as an outside observer, in a sense, is writer right in saying nothing's bad? In other words, there's no reason for people to be selling other than other are guys selling. So the media fuels it.

BATTIPAGLIA: The economy has slowed fairly significantly in certain sectors. The stock market correctly has withdrawn itself, has pulled back because of that slowdown to lower valuation points. Interestingly enough, though, Larry, in 1998 and '99, Ron made this great point off camera, while we were talking about the Internet and the questions were raised in the media as to what about these valuations? Can this be so? Let's look at history.

Nobody heeded those remarks either as the market propelled itself higher. Now, I will take some blame onto analytical community, too, that's where I come from. No matter what the analysts said, capital was flowing, surging into telecom and to the IPO dot-com environment, and overriding anybody's sense of reality and they pushed it up as far as they can go and eventually, those things do not sustain themselves, and they collapse on themselves, and that's why you hear that reader and writer saying, hey, they were selling, so I should sell and that begets more selling. But eventually, the capital, the real capital will find a place to enter a market, and then turn things around once again.

KING: And the key, Suze, is when does that happen?

ORMAN: Well, it happens on an individual level more than on a whole level because you see, Larry, each one each one of us has our own individual timing when it comes to the market. And if you're going to enter this market and you have three years until you need this money and you're waiting until this market turns around, you could be in serious trouble. And this market may turn around here, but I don't think we're going to see it happen very quickly. Please keep in mind...

KING: So, are you saying don't sell, don't buy? What?

ORMAN: I think -- you cannot -- I know you want to make it that simplistic, but you can't.


KING: Well, it's buying or selling or nothing; right? There's only three choices.

ORMAN: No, because, what are you buying and what are you selling? What do you own? What is your time period? What is your risk factor? How much money do you have? What do you need?

We are not this herd of cattle where everybody needs to buy, everybody needs to sell. If you're young and you're in your 20s and you want to start -- or 30s or even 40s and you have 10, 20 years and you want to start nibbling, nibble. But not with everything that you have. People have to learn that it's not an all or -- there isn't a universal fix.

KING: Marie, let's try to break this down to a human being. Let's take a 43-year-old bus driver in Hialeah). He's got two kids, makes $53,000 a year, had $38,000 in the stock market, which is now worth $26,000, in mutual funds. What does he do?

BARTIROMO: Well, for starters, he needs to ask himself how much risk he wants to take on. He needs to...

KING: He's down from $38,000 to $26,000 in savings.

BARTIROMO: So, he doesn't want to take on much risk at all?

KING: Correct.

BARTIROMO: He wants to ask himself when does he need the money? What is he really trying to achieve? Is he trying to buy a house in one year or is he trying to get this money to pay for an infant's college in the next 15 years? He wants to ask himself what areas of this economy are actually seeing growth as opposed to slowdown? Where precisely is he looking to invest?

There are a lot of questions that go into it. Now, I am of the belief that the individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart investment decisions.

The fact is we are right now experiencing a very slow economy, and a slowdown from what we have been seeing. You look at the numbers that we get every month. GDP one year ago was at 5.6 percent. Today, it's zero or possibly negative. So, we've really seen a halt in things.

KING: Allan, who helps our bus driver?

CHERNOFF: Who helps our bus driver?

KING: Yes, who does he turn to?

CHERNOFF: Well, you really would hope that he'd turn to the Federal Reserve today, but apparently that didn't happen. Let me give you an analogy because the economy that Maria referred to really, to turn it around, it's kind of like a supertanker.

You can't turn it around very rapidly whereas the stock market behaves more like speedboat. It moves up and down very, very rapidly. A lot of investors, obviously, have gotten tossed out of that speedboat. And today, it seems that Captain Greenspan was throwing them a life preserver, but apparently a lot of people didn't want to grab on to that life preserver.

BARTIROMO: Can I add just one thing here? You know, you mentioned noise, Larry, and I just want to say that today, there has been a tremendous information explosion. There is so much information on CNBC, so much information on CNN, on Fox, in newspapers, in the financial press. Today, information has become commoditized, and the fact is that the best item that an investor has going for them is his or her own judgment because we have seen all of this information, and, of course, there is going to be noise when there is a lot of information.

KING: Ron, that judgment can get confused, though, if he's watching 17 different people give 17 opinions; right?

INSANA: Absolutely, and I think, you know, this where partly becomes incumbent upon the individual to educate him or herself with respect to the reality of the marketplace for one, the reality of the economy, and what bits of information are true over time.

You know, there is -- there are, I should say, a lot of movements within the market over the course of a year that some of which mean something and some of which don't. But we know from basic market history what's important, interest rates and corporate profits, sometimes war, although that happens very infrequently.

We know that the markets move in waves, and we know how the markets behave at certain stages of their maturation process. There are bits of information, solid bits that we talk about quite frequently, that individuals can use to their advantage. They have to be as informed, though, as the people they're listening to in order to make sound judgments.


KING: Let me get a break and when we come back, we'll pick up with Joe and I'll ask the simple question, what's wrong with just cash? We'll be right back.


KING: Joe Battipaglia, I know investment strategists may not like this, but what's wrong with just Treasury notes and deposit accounts and CDs?

BATTIPAGLIA: There is nothing wrong with them. In fact, that is one of your asset classes. It's stocks, it's bonds, it's cash, and depending upon what kind of risk profile the investor has, and what kind of economic situation we face, we will use that in the mix, so the income-oriented investor actually did very well over the last year-and-a-half, because bond prices went up, and they had an accretion of value.

The balanced portfolio approach gave them less of a downside in this market, so indeed, cash has a place, but I want to add one thing, Larry, that's important here. Investors and the providers of information should not be insulated from one another, and there is a great intermediary in there, and that's the advice giver. Let's not look past those who work up the analyses of what's going on and make it simple for the investor to use, make it direct to their particular needs. That's important to point out here.

KING: Is that what you do, Suze, right? ORMAN: That is what I do. And you know, now we are doing it more via the television networks than through books, newspapers and magazine articles. But the investor out there, the bus driver, they do need somebody at this point in time, to ask something too, Larry, because I have to tell you, they are confused and they don't know who to trust.

The time you learn about your money is not when the markets are going down, you learn about your money in good times, and in bad times -- so when something like this happens, at least you have a plan. You know, when we were on on January 2nd, you looked at me and said, Suze Orman, what would you would buy right now? And that day, I looked at you and I said the QQQs. They were at 52. Three weeks later, they were at 67, they were up 30 percent.

Today, they are down at $40 a share, but were we on again three weeks later to say to everybody, sell them! But common knowledge should have been, Larry, my God, I'm up 10 percent, I'm up 20 percent in two weeks -- of course, you sell! So, we have to put common knowledge to our money as well, besides just these statistical facts about money.

KING: Allan, sometimes it seems to the observer that you are never wrong. Because every day, there -- it's like the weather forecast. You are never wrong. You were wrong, but you were never wrong. Every day, there is a new explanation for what happened yesterday.

CHERNOFF: Larry, you know, there is an old saying on Wall Street: bulls make money, bears make money, pigs get slaughtered, and I think what Suze is talking about is you don't want to be too greedy, you don't want to be a pig, that's very important.

On your other note, the equation between stock market strategists and weather forecasters -- well, I often joke about that myself, because so many strategists on the Street, like Joe, have been extremely bullish as you have seen, the stock market has been declining quite a bit. They continue to believe that the market eventually will recover, and the emphasis is on "eventually." A lot of investors simply need to have patience.

KING: Ron, if I had a horse racing handicapper here, I would ask him to tell me who is going to win first tomorrow at aqueduct. Can you tell me a stock to buy tomorrow?

INSANA: That is absolutely not my job, Larry. I'm a journalist who reports on the movements of the markets -- this is where we have to very finely define the role of the players that you are describing here tonight. Suze and Joe give advice to investors.

KING: Right. You report?

INSANA: I report financial news. If I went out and offered advice, I would be violating the call of my profession. That is not what I do. I could tell people very well what happened, we can help handicap what will likely happen in future, based on information we have now.

KING: What do you think of the handicappers?

INSANA: Well, listen, I mean, some have very good track records, some have terrible track records, and some are right in the middle, and you know, it is our job to find the best, and offer those people to our viewers, as we have tried to do over the years. Some are very honest, some are unscrupulous -- I mean, you know, the world is...


INSANA: ... somewhere in between the middle.

KING: You mean, recommending stocks that they have their own interest in?

INSANA: That happens from time to time. You know, not -- fortunately, we found ways to weed those people out, and we force people to disclose their positions when they talk to us on CNBC, so the investor, the viewer, is always aware of the potential conflict that might exist.

KING: We'll get our panel's opinion of the tax cut. We'll be taking your phone calls as well right after this.


KING: Maria, is the tax cut a good idea for this economy?

BARTIROMO: Well, I think at this point, investors haven't really taken that into consideration, because we haven't seen anything materialize. We won't see anything materialize for a couple of years.

At the end of the day, lower taxes are a good thing for investors, for consumers. It's just putting more money in their pockets, just like lower interest rates are a good thing. I am of the belief that eventually these efforts will take this economy out of a slump, and the stock market as well.

KING: Joe, do you agree with that?

BATTIPAGLIA: Tax rates need to come down, there needs to be change in the tax code. Unfortunately, this plan was conceived during strong economic activity, and was just meant to balance out the books between what they spend and what they take in.

Now we are at a point where a stimulative package might be more beneficial, but we are stuck in a political logjam. If the Republicans push for a faster cut with bigger implications, the Democrats say we are going to be deficit spending, and the Democrats don't want to get behind a tax cut, because they fought it for a long time. So, the tax cut is not going to have the effect it would otherwise have.

KING: Suze? ORMAN: You know, the tax cut just scares me a little bit, because a lot of it, I think, was based on a lot of the capital gains coming in from the market, the wealth in the market, and how that translated to surpluses later on. Have they all gone away? What -- is the money there? Is it not? I do think we need a tax cut, I want a tax cut. But -- and I don't like this thing about yearly checks on it, because there are things about that that doesn't make sense either, but I think we need one, I don't think we have the right one in place at this point in time.

KING: Allan?

CHERNOFF: Larry, it is not a quick fix for the economy, and clearly it's not going to be a quick fix, because we have to wait for the Senate to actually pass...

KING: Assuming that it does.

CHERNOFF: Right, and that certainly will take time, according to what a lot of senators are telling us right now. But it is not likely to be the quick fix for this huge economy, just like these interest rate cuts don't immediately turn the economy around. It takes time.

KING: Ron?

INSANA: Well, I think, Larry, you know, at this point in the economic cycle, you can't overstimulate the economy. I think, given that the stock market bubble has burst -- we criticized Japan in the early 1990s for not cutting interest rates and taxes quickly enough -- I don't see any downside to tax cuts right now economically. There is a lot politically that people can talk about, but interest rates and taxes probably should come down to support the economy, as the market deflates here.

KING: Do any of you think we are in a recession?



KING: Who's saying yeah? Who said yeah?

INSANA: I did, Ron. I did. I think the manufacturing...



KING: I want to get a break, we'll pick up on that. We'll also start including viewer phone calls, we will re-introduce our panel if you have joined us late.

This is LARRY KING LIVE. Jennie Craig will be with us tomorrow night. We'll be right back.

(COMMERCIAL BREAK) KING: We are back. Let's reintroduce our panel, have a question on recession, then go to calls. The panel is Suze Orman -- they are all in New York -- best-selling author, financial planner, now out: a revised updated version of her number one "New York Times" best- seller, "The Nine Steps to Financial Freedom." She also wrote the current best-seller, "The Courage to be Rich."

Maria Bartiromo is CNBC's "Market Week" with Maria Bartiromo host as well as "Squawk Box" as she has an upcoming book, "Use the News."

Allan Chernoff is CNN senior financial correspondent and the senior correspondent on CNN's "MONEYLINE."

Ron Insana is co-anchor of CNBC's "Business Center" and author of "The Message of the Markets."

And Joe Battipaglia is the chief investment strategist for Gruntal & Company.

Now, Ron, you say that we are in a recession.

INSANA: Well, 20 percent of the economy, Larry, is definitely in a recession; manufacturing has been suffering now for over six months, and that is a big chunk; the consumer side of the economy is holding up relatively well.

But you know, one of the points we make in the book is that the markets are telling us that the risk of a general recession is in fact very real. The stock market has come down dramatically in the space of a year, profits continue to contract at major corporations. That is a precursor to an overall recession. We are very close to the zero line on economic growth, as Allan Greenspan told us, which means we are very close to an overall recession.

KING: Who disagrees with that; Joe?

CHERNOFF: I will. I would like to say that there is no doubt we are in a profits recession, and that is two consecutive quarters of declining profits. In terms of two consecutive quarters of negative economic, well, that's a little different because thus far, we haven't even had one full quarter of negative economic growth.

INSANA: But, Allan, slowing from a growth rate of 5 percent to a growth rate of zero, we're splitting hairs.

CHERNOFF: We're slowing down. No doubt.

INSANA: That's almost a recession, if not a real one.

CHERNOFF: But parts of the economy are holding up.



KING: Joe, are we in a recession? BATTIPAGLIA: No, we are not in a recession. What I see is that the consumer has great buoyancy because they have kept most of the wealth created over past 20 years. We are essentially still in full employment. The manufacturing side of the economy moved quickly once they had evidence last year of this deceleration that the fellows were talking about, so they cut their production schedules quickly, laid off workers unfortunately, and are letting those inventories come down very quickly.

KING: Why keep going up?

BATTIPAGLIA: What does it mean? Ultimately, is that is the economy has demand out there, to consume these products across the board for more materials since media goods to finished goods; and ultimately production goes back on stream the latter part of the year, and the service side of the economy -- our economy, which is the majority of economy, continues to move along, because frankly we need all those services.

KING: Let me start including some phone calls; Boise, Idaho, for our panel. Hello.

CALLER: Hi, Larry. I basically had a question of right or wrong. It seems that most investors depend on analysts. Why didn't they warn us at the March top when it seemed obvious to those of us who could read a quarterly or annual statement, there was always recurring, one time write-offs every quarter; inventory buildup; Cisco had less revenues a year ago...

KING: Suze and Joe, why didn't you tell us? Suze first.

ORMAN: I have to tell you, I did tell you; I told you on your show, Larry. I started saying on January 21 of the year 2000, I started saying, sell, sell, sell; went on your show twice and said, do not have more than 40 percent of your money in the market, and of that, only 25 percent here, and of that, only a few percentage points in technology stocks.

So, I have to tell you I did. But that doesn't mean I was right or wrong, it was because it made common sense. Alan Greenspan came out and this is what I would say to the caller: why do you need an analyst to tell you when to sell, when the fact of the matter was, truthfully, Alan Greenspan himself told you he was going to start to raise interest rates?

KING: I don't want to be like -- anti-God here, but Joe, what makes Greenspan -- why is he law and order?

BATTIPAGLIA: Well, because he seems to have the biggest stick right now, to apply to you economy, plus he's had great success with it. He was the one in '87 that stepped into the market, and provided liquidity to let the stock market recover from a deep plunge.

KING: So, is he at fault when it goes bad?

BATTIPAGLIA: No. I don't think you want to assign blame that way. It is too easy. But I will tell you the factors that caused me to miss last year's downturn was that interest rates moved higher than I thought they should have, and a plus-50 basis points to end it out. He was being too defensive in his position.

Secondly, energy prices broke through $30 a barrel; I didn't expect them to stay there, and of course, they went on to $35. And if that wasn't enough, we had an election that supposed to be over in one day, took 36 days and I think that took the country off its consumption path, off its normal look and really set us back, set us back significantly.

BARTIROMO: I just want to add, Larry, to underline what we are talking about right here, because earlier when Suze was talking to the bus driver, just a few minutes ago, she said that you probably want to speak to a professional. The fact is, that most of the strategists and analysts got it wrong in the year 2000. Underlying my point that judgment is the investor's and the consumer's best friend.

KING: It gets down to you.

BATTIPAGLIA: On the other hand -- on the other hand, Larry, again, it is time in the market, not timing the market, because I have been on the show with you before Larry, when we had the Asian crisis, when everyone thought, now we are going right down the chute. And I said then, that the market was going to work meaningfully higher and that the best course of action was to stay the course.

And if you look back over the history of the reports, on the market, you will find many strategists and analysts who have called it properly, relative to their groups and the coverage and have given the investor the insight to buy on the dips, which has made them successful as investors over the longer term

KING: San Antonio, hello.

CALLER: Good evening, Larry. I have a question for the panel, and it has to do with the psychology of the market, and in particular, President Bush's effect on the market. You know, back there in the campaign, we heard about this tax cut was needed because the economy was so good. Later on, we heard well, we need a tax cut because the economy is so bad.

Now, last week, we hear, well, the economy is not that bad after all, and it seems to me that Bush has been so adamant about this tax cut that he has waffled, in regard to the health of the economy and this in turn has affected the market.

KING: Good question. Allan, is it a self-fulfilling prophecy, in a sense?

CHERNOFF: Well, it has had a little bit of effect. I think what the president had been talking about, clearly, was politically motivated; he was trashing the economy when he was running for the presidency, now he's not trashing the economy anymore, and it is not because of the economy has suddenly improved, it is politics, Larry. INSANA: By the same token, Larry, we have to point out, if you go back to early 1993, late 1992, Bill Clinton was saying bad things about the economy, then to pass a $16 billion stimulus plan. Richard Gephardt, the House minority leader, in December, talked about the recession, he used the R-word before George Bush did, so they are playing politics with the stuff. I think it is all right for the president to acknowledge a slowdown, because it gets people to act to turn things around.

KING: We'll be right back with more, and more phone calls. This is LARRY KING LIVE, don't go away.



JAY LENO, HOST: In fact, I'm coming to work today. I'm on (UNINTELLIGIBLE). You know, the 99 cent store. Show this. Show the 99 cent store. Look at this.

Al, go in close. Look at that, look. Your Nasdaq headquarters now! Oh, man!



Man, that is bad news.


KING: Everybody is having fun with it. By the way, Maria Bartiromo, we congratulate you. The -- on March 30th, "Market Week" celebrates its first year anniversary.

BARTIROMO: Thank you very much, Larry.

KING: Congratulations.

BARTIROMO: I appreciate that. Thank you.

KING: Killingly, Connecticut, hello.

CALLER: Hi, Larry.


CALLER: I'd like to ask the panel, how low can interest rates ultimately go? And also, if the Democrats hinder the tax cut, won't that further erode confidence?

KING: All right. Who wants to grab that? How low, how low can it go?

CHERNOFF: Well, the Fed funds rate actually fell as low as 3 percent back in 1992. So the Fed still does have room to cut. There's no doubt about that.

BARTIROMO: Yeah, I think that you really have to be watching the data that comes out, watch the consumer, see if the interest rate cuts are actually working, pushing them to take out more loans, pushing them to buy a house, buy a car, and actually get this economy moving again. So I think in some cases you have to wait and see exactly how much lower they can go.

INSANA: Hey, Larry, I think they're going to go as low as it takes to turn the economy, until the Fed's satisfied that the economy turns.

KING: Daytona Beach, Florida, hello.

CALLER: Good evening, Mr. King.


CALLER: I just have two short statement and a question of your panel.

KING: Sure.

CALLER: I keep hearing financial advisers talking about the fact that this interest rate cut is going to put a lot of money in your pocket. Well, I'm living on Social Security, a senior citizen, living on Social Security, and CD investments, which I just rolled over. And instead of putting money in my pocket, I have just lost several hundred dollars this year because of the low interest rates.

I would like to ask the panel, what am I supposed to do in the position that I'm in as a senior citizen?

KING: Suze, what does do?

ORMAN: Yeah. What you should do is that when you have an economy where you think interest rates are going to come down, rather than either keeping your money in money market funds or short-term CDs -- like one year or one-year Treasury bills or notes, or two years -- go out longer term and lock up an interest rate.

You know, there are still people out there who bought 30-year Treasury bonds 30 years ago that are still getting a seriously nice interest rate.

KING: Well, a senior citizen would have a lot of confidence to buy a 30-year Treasury bond.

ORMAN: No, but you know, there is -- I have to tell you, I don't have a problem right now if one was to buy a two-year Treasury note or a 30-year Treasury bond. As interest rates come down, the value of fixed-income vehicles go up. He could ladder.

Never do everything with all of your money. There's nothing to say that you can't put 20 percent of your money in a two-year, 20 percent in a three year, four year, so that no matter what happens you are protected. But we tend to do all or nothing, and that's when we make a mistake.

KING: Manteca, California, hello.

CALLER: Hi, Larry. This is for Suze. I guess you just answered my question. I'm a single person, and after 30 years of retirement here, I put all my eggs in one basket. And -- so I've lost quite a bit of my money.

What -- I know what you said earlier in the show. Do I hold on or just see what happens? Or -- and I'm pretty well-diversified.

KING: All right. What do you do now? If your stocks are going down and down and down, do you get out?

ORMAN: It depends -- can you tell me what that basket is? Can she tell me what that basket is?

KING: Yeah. What's the basket, ma'am?

CALLER: Well, it was about 300,000. I have no debt. I'm single.

ORMAN: 300,000 in what, though.

CALLER: It was.

KING: In what?

CALLER: It was in, oh, Verizon, Microsoft, Lucent.

ORMAN: All right. Here's our problem: The Nasdaq, which many of those stocks are involved with, is down 63 percent as of today. For it to get back to the 5,000 area, that would be almost 150 to 170 percent increase.

Even if we went up 30 percent a year, it would take possibly five years...


ORMAN: ... to get up there. So you have to decide, does it make sense for you to take your losses now, maybe offset and use some tax ramifications there for yourself, and diversify into something that maybe will give you an income? Or are there strategies that you can do with the stocks that you own to provide more income for you?

It's hard, because this is where I would think that...

BARTIROMO: Can I -- can I make a point also, Suze?

ORMAN: Yeah, yeah, go.

BARTIROMO: I think that when you're investing in stocks, you also have to ask yourself, does this story still make sense to me? I'm not sure when you bought those stocks, but when you bought those stocks, there was a reason that you bought those stocks. You were looking at growth rates, you were looking at the potential for these businesses.

Just like when you're buying a home, just like when you're kicking the tires on a car, you need to revisit that story. That's why companies report earnings every quarter, so that we have a quarterly report card from these companies to see if this story is still intact.

Make no mistake, markets change, environments change, business change, and economies change. So you have to revisit the question and ask yourself if these investments still make sense. And frankly, if they do still make sense, maybe do nothing.

KING: We'll take a break and be right back with more. Time flies. Don't go away.


KING: Philadelphia, hello.

CALLER: Hi, Larry.


CALLER: Suze, when you talk, you really make people understand. I just wanted you to know that, and I wish you had your own financial program. But my question is...

KING: Well, give her a minute. She'll get one. They're growing every day.

CALLER: Oh, I hope so. I know they're watching her, definitely.

KING: What's the question?

CALLER: Well, I wanted to ask the panel -- and this is for Suze as well -- I just recently have taken 70,000 out of the market, and I want to know if it would be wise to pay off my home with it.

KING: Ah-hah. Good idea?

ORMAN: I love that idea. I have to tell you, I don't know how old you are, but I am a firm believer in owning a home outright. I believe that nothing makes a person feel more powerful than owning their home outright. You cannot live in a stock certificate. I love that.

KING: Can we assume that all of you, by the nature of the business you're in -- and we'll start with Allan -- that you do well yourself? That you know things we don't know?

CHERNOFF: Well, I think we share a lot of the knowledge. I mean, we're the -- as Ron said, we're the people delivering the news. So of course, we're informed on what's happening with regard to the economy and the market.

KING: So do you have bad days, too? CHERNOFF: Bad days regarding what?

KING: Investments.

CHERNOFF: Well, I mean, I don't think any of us -- Ron, Maria and myself -- we're not active traders. We all have very strict rules.

KING: Oh, you're not.

CHERNOFF: We don't do that sort of thing. I mean, we have to be extremely careful about what we invest in. So, that's really not necessarily a very applicable question.

KING: Well, that's good for the public to know. I'm glad to hear that.

Ron, is that true? You watch what you...

INSANA: Oh, absolutely. Larry, look -- oh, gosh. Listen, it's a much better life not to have the Securities and Exchange Commission calling you to see what you were doing in your personal portfolio while you were on talking about stocks on television. You know, we're very, very strictly limited in what we can do.

KING: Monitored?

INSANA: Absolutely. We have to tell CNBC what we're doing. They have 48 to 72 hours to determine whether or not it's a suitable investment. We have to hold for a minimum of four months if we buy something like an individual stock.

KING: Wow. Allan, you have the same with CNN?

CHERNOFF: Well, that's very true, Larry, and in fact, Ron and Maria and myself, we were colleagues over at CNBC for quite a few years. So I certainly still do live by all those rules, and we do have strict rules over here at CNN as well.

BARTIROMO: In fact, Larry, that's the reason why you'll often hear us on CNBC say that GE is the parent of this network, because we all own General Electric. That's our 401(k) plan. And the reason that -- the reasons that Ron mentioned these strict guidelines is the reason that I actually do not trade at all. I think it's a gray area for anyone who's actually coming on television and talking about companies and deciding what stocks to talk about.

KING: And Allan, you have to do the same about AOL Time Warner, right?

CHERNOFF: I guess that's the case, Larry, yes.

KING: Palm Coast, Florida, hello.

CALLER: Hi, Larry. My sense is that the very large investors are causing the markets swings. I don't hear about many small investors taking money out of their 401(k)s or IRAs. What does your panel think?

KING: Joe, we've heard that for years. It's the in-men that do this; true?

BATTIPAGLIA: Well, clearly, on a day-to-day basis, the large institutional investor can swing a market and if there's consensus among them that the interest rate cut wasn't enough, for example, they can push the market hard and down quickly.

However, the money behind many of those institutions are indeed the public's money through mutual funds, and those managers have to be prepared for liquidation should they come because of a bad time in the market or they need to reshift their portfolios because they think they're in the wrong place.

And quite honestly, there's an added pressure that existed for the last five years that was that the expectations for performance was so high, as Ron alluded to earlier, that these fellows worked that much harder to get performance, and that is something that's just not sustainable. So yes, they do have an influence on the short-term market fluctuation.

KING: Centralia, Washington. Hello.

Centralia, are you there? OK, I ought to hit the button, Hello.

CALLER: Hello, Larry. My question is for the panel. I'm in my late 60s and I'm in a 401(k) plan at work, and what suggestion do they have that I could do? I'm a little bit worried, too.

KING: Joe?

BATTIPAGLIA: Well, first we have to identify what the investments are on the 401(k). That's essentially a bucket where these assets are lied or resident, but what are they invested in. And then the next thing we have to talk about is what are investment goals? What are your personal goals for spending? What kind of coverage do we have for that spending? So, we have a lot of questions to answer before we can make that choice, and it's important that you know exactly what your 401(k) is invested in before going to the next step.

INSANA: You know, Larry, I have never been a big fan of really simple explanations about how individuals should allocate money in their portfolio, but there is a great old rule of thumb that you subtract your age from 100 and that tells you the amount of stocks you should have -- percentage amount of stocks you should have in your portfolio.

If you're 70, they suggest 30 percent because your ability to make up losses after you've stopped working becomes very limited. Now, obviously lifespans are extended. People need to provide more for themselves, but it's a decent rule of thumb. it doesn't hold true in every case, but something to think about.

KING: Let me get a break and we'll hear from Joe and get a prediction from each of our panelists about tomorrow. Don't go away.


KING: A limited time. Joe, you were going to say?

BATTIPAGLIA: Yes, the good news in all of this is that the American households in the aggregate actually have diversification. Essentially, a third in real estate, a third in cash and fixed income securities, and a third in equities, so that they're not feeling the pain, as it would appear, by what happened in Nasdaq that will give them resilience to be spenders.

KING: Mountain View, California, quickly. Hello.

CALLER: Hello, my question is for the panel. When you sell stock and realize a gain, you have to report that as income and you pay capital gain taxes. However, when you sell at a loss, you're only allowed to declare $3,000 year. Is that ever going to change?

KING: Suze, is that fair?

ORMAN: Well, I don't know if it's fair or not, Larry, but you can always offset losses against gains. So, if you had $50,000 of gains and you had $50,000 losses, depending, they could offset. So, it's only $3,000 if you have limited to $3,000 if you have no gains. But remember, if you're claiming a $10,000 loss, you carry it forward for years to come until you've used it all.

KING: Let's go around the group. Maria, worse before it's better?

BARTIROMO: You know, Larry, I'm sorry, I think it's a little silly to make predictions about what happens tomorrow over the near- term. I think over the long term, you have to remember when you;re a share holder in an equity, you are a shareholder of a company. You have to ask yourself if you want to be owning a stake in that company. Does this company make sense to you? Is it going to grow earnings? I believe that I am bullish on America over the long-term. That's my prediction. Long-term could be 10 years.

KING: Allan.

CHERNOFF: Well, Larry, some of the traders I spoke with today in my preparation for "MONEYLINE" were saying that they think tomorrow there could be a short-term bounce, but let's keep in mind that we are in a bear market. It's very difficult to shake a bear market mentality. We've had these bounces, and they have turned out to be selling opportunities. So, very tough to shake that bear market mentality. We need to see better news from corporate America, really, for markets to start really moving higher.

KING: Ron.

INSANA: Well, I think the safe thing to say is that we're going to experience more bouts of extreme volatility until the Fed's interest rate reductions take hold. And so, day-to-day, as everybody said, is kind of a fool's game, trying to predict which way the market goes. But the volatility will probably stay at the extreme levels that we have seen in the last several months.

KING: Joe.

BATTIPAGLIA: My colleagues are making me seasick here, but what drives markets, ultimately, is fundamentals, and what I see are very strong fundamentals: declining interest rates, no one will argue that. Inflation rates are coming down fairly dramatically. This is a $10 trillion economy that is outstripping all others. It will be back and back with a vengeance and on top of it, there is $2 trillion in money funds that can come back into this marketplace when the opportunity presents itself.

KING: And Suze, quickly, are you as optimistic as the rest?

ORMAN: I don't know what will happen tomorrow. Do I think it will get worse before it gets better? I'm sorry to say I do.

KING: Thank you all very much: Suze Orman, Maria Bartiromo, Allan Chernoff, Ron Insana and Joe Battipaglia. What do you think of tonight's show? Log on to our Web site and let us know. Send in your questions early for tomorrow night's guest, Jenny Craig. All you have to do is go to

We thank all of our guests. We thank you for joining us well. See you tomorrow night with Mrs. Craig, and don't forget on Friday night Tony Randall and Jack Klugman. "CNN TONIGHT" is next. Good night.



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