THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Joining us once again from Los Angeles, Larry Elder, syndicated columnist, radio talk show host at KABC. He also -- he writes a common for the Investors Business Daily. He was on with us a couple of days back.
Larry, good to see you.
LARRY ELDER, RADIO TALK SHOW HOST: Nice to see you too, Jack.
CAFFERTY: What did you make of that market situation today? Pretty dramatic.
ELDER: Well, the market came back. And, as I said when we talked the other day, look, if you're in the market as an investor, as opposed to a speculator, you just ride it out. That's why you should have a horizon of 10, 15, 20 years. Buy companies where they have good fundamentals, they have good earnings, they have had bad times before and they have pulled out, and you should be OK.
Obviously, the airlines are going to be hard hit; the insurance companies are going to be hard hit. But, for the most part, there's nothing fundamentally different about our economy than was the case before last Tuesday.
CAFFERTY: What time are you on out there? Is your show on while the markets are open, and do you get calls from people who are invested in the stock market?
ELDER: Yes, we talk about the market from time to time. My show is on from 3PM until 7PM here, in Los Angeles, on KABC's talk radio 790. And we do talk a lot about the market, but I've always urged people to be patient, to diversify your portfolio. I'm a value investor of the Warren Buffet-type strategy. And if you have that philosophy, you're not going to panic when something like this happens.
CAFFERTY: All right. Let's take a call. Lee (ph) is on the phone in Michigan. Lee (ph), what can we help you with?
LEE (ph): Yes, I had a question about fuel prices.
CAFFERTY: About fuel prices? Go ahead.
LEE (ph): Yes. I'm from Michigan, as you're aware. We're kind of taken advantage of as far as the fuel prices and where they shot all up right after ...
CAFFERTY: There was some gouging, I guess, at the gas pump. Is that what you're referring to? But, apparently, it didn't last too long, at least in the areas that I read about. Are you there?
LEE (ph): Yes, I am. I said, once they got caught, they immediately went down in prices.
LEE (ph): I was wondering if our presence in the Middle East is going to affect those prices greatly?
CAFFERTY: I don't know. Any thoughts on that, Mr. Hormats?
ROBERT HORMATS, GOLDMAN SACHS INTERNATIONAL: There is a risk of that. The -- oil is both an economic and a political commodity. And you can make the argument that oil prices and other energy prices will go down if growth in the United States remains very weak and growth abroad remains very week. And that's probably true.
The other part of the equation, though, is that oil can be a political commodity, too. And if the military action is in a country that produces oil -- for instance, Iraq -- or in a part of the Islamic world where people are killed and that leads to demonstrations in the more moderate governments, the more moderate countries like Saudi Arabia and Kuwait and elsewhere, that could also threaten the supply of oil.
Or, there could be acts of terrorism against oil facilities. So there's always a risk when events occur in the Middle East -- military events in the Middle East or areas around the Middle East -- that oil could get caught up in it. So there is a risk to the price and the supply of energy. In oil, particularly.
CAFFERTY: Oil spiked to -- go ahead.
ELDER: I think -- I think we also are going to have to be careful when we use terms like gouging. I mean, let's face it, we do live in a capitalistic society, and if something like this happens, you know, you're going to find business people trying to take advantage of that.
CAFFERTY: But that's what it is ...
ELDER: It may not -- it may not be nice, but it certainly isn't illegal.
CAFFERTY: Well, it's immoral, OK? It's wrong.
ELDER: Well ...
CAFFERTY: You can say it's not illegal, and I guess technically that's right. But -- I mean, look at the situation we're in. In the day this happened and the day after, you had people changing from 1.50 a gallon to 5.00 a gallon, when oil prices didn't do anything. So, you know, you might be right, it's not illegal, but it's wrong.
ELDER: Well -- you know, again, this is a capitalistic system. If people pay the 5.00, then the person that's wrong is the consumer. Not everybody did that, some retailers did that. And those that ...
CAFFERTY: Wait a second ...
ELDER: did it, rolled back the prices.
CAFFERTY: Wait a ...
ELDER: And so, ultimately, this is about supply and demand.
CAFFERTY: Hold it, there was no shortage of supply. And the people that were being asked to suddenly pay 5.00 a gallon are in one of the weakest areas of the national economy. The farming communities, and those rural communities in the Midwest, don't have wealthy citizens who can afford $5 a gallon for gasoline. There was no shortage. Oil prices didn't go up. That was just somebody being greedy. And ...
ELDER: Once again, Jack, greed is not illegal. Greed does not ...
CAFFERTY: I understand that. I said it was wrong. I didn't say it was illegal.
ELDER: ... of our capitalistic system. And, once again, the consumers don't have to pay it. Ultimately, the price will come down to reflect supply and demand. There are going to be some people who take advantage of it. And I've got a real problem with laws that prosecute people for taking advantage of stuff like this.
It's not nice; it certainly is not a -- not a considerate thing to do to people. But it certainly isn't illegal, and we ought not to condemn people for exercising the right to maximize profits.
CAFFERTY: Right. Let me -- I'm going to say one more thing, and then you and I will get back to getting along.
CAFFERTY: My wife comes from a town of 1,100 people in a place called Stewartsville, Missouri. It's all farms. There is one gas station in Stewartsville, Missouri. Now if that guy goes out and jacks his prices up to 5.00 a gallon, what are the people in a place like that -- and there are hundreds of towns like that all over the Midwest -- what are they supposed to do?
ELDER: Well, if you live in a town with only one gas station, it would seem to me you ought to think about alternative supplies. Look, this guy has to live in that community; he's got to be around there. He's going to have to go to church and interact with people in that community. If he wants to be a pariah and have people feel that way about him, pass the hat, sooner or later, build another gas station, have somebody else run it.
But, once again, this guy has a right to charge what he wants to charge, and that's the way it works in our capitalistic system.
CAFFERTY: You're a tough ...
ELDER: Not nice, but he has the right to do it.
CAFFERTY: You're a tough guy, Larry. You're a tough guy. I like you, but you're a tough guy.
ELDER: Well, thank you, Jack.
CAFFERTY: Let me -- let me go back to you, Bob, for a minute. I raised the question for you a few minutes ago. What should people do here?
The stock market has been going down for the better part of two years now. But it has really dropped here, this week, after being closed for those six days. We're down over 800 points, and we had already come down to where we were in what they call a bear market.
People who have 401(k)s, retirement money, how should they react to the events that are going on here?
HORMATS: Well, it's clearly very unsettling for people who have a lot of their wealth, that they've earned over a period of time, tied up in 401Ks that have lost a lot of money.
There are different ways of looking at it. One, I think, diversification is very important. You really want to be as diversified as you can both with respect to stocks and bonds and within the category of stocks, in various kinds of stocks. Particularly look for value stocks, at this point, because there probably are good values.
CAFFERTY: Well, now, you and I talk on the financial network and people know when we say we talk about value stocks -- explain that.
HORMATS: Well, stocks that have generally good earnings, generally good records, over a period of time. Companies that are well managed. And those are the companies that are most likely -- when things turn around -- to do relatively well. Look for good values.
There are also some technology companies that are oversold that are a little more risky because the technology sector may remain depressed for awhile. But diversification in your portfolio is very important, with an emphasis on good values, I think.
CAFFERTY: If you've taken losses, should you sell or just sit tight and wait? HORMATS: Well, I think that the market's going down so much that panic selling now is probably not in the interest of the investor because you're selling at such a low price. And at some point, presumably, we all expect the markets to recover. So you really would be giving up a lot in the short term. If you're a medium term investor -- if you need the money today or tomorrow, of course ...
HORMATS: ... then you may not have a choice. But if you can have a 10-year time horizon, then holding has tended over the time, historically, to be the right thing to do in these very complicated and panicky and tumultuous situations.
CAFFERTY: Got a caller in ...
ELDER: Jack, we were talking the other day about the privatization of Social Security, and this is precisely why we ought to be able to do this. Your guest is quite right, stocks and bonds over the long haul have performed quite well. And the younger you are, the better off you are if you get in early and be able to invest your own money and mange your own portfolios.
Unfortunately, with our Social Security system, you can't do that. You have to wait until your 65 years old, when the government wants to give it back to you at a much lower return than would have been the case had you been able to manage the money yourself.
CAFFERTY: Fair enough.
In Mississippi, John's on the phone. Good evening, John, what can we do you for?
JOHN: Thank you for the opportunity to be on.
CAFFERTY: It's a pleasure.
JOHN: After waiting this time, Lee (ph), basically -- from Michigan -- had the same question, but I wanted to take the gasoline issue a step further.
JOHN: And I hope that Larry doesn't have any friends that are truck drivers, because if diesel goes to three or four dollars a gallon, we'll all be in a mess.
CAFFERTY: Well, there you go.
JOHN: But we've had 26 years, basically, to try to gain independence from foreign oil, and we failed miserably, with our SUVs getting 12 miles to the gallon.
HORMATS: Amen. JOHN: What will the effect be in our aggression toward pursuing these terrorists for fear that we will alienate the (AUDIO GAP) and, therefore, create another oil embargo that might cripple our economy even further?
CAFFERTY: That's a very good question. And along with it is the -- you know, President Bush was pressing for the permission to drill in the Arctic National Wildlife Refuge. My sense is there might be a few more votes in Congress today in favor of that idea than there were two weeks ago.
HORMATS: Yes. I think that is a very good question. I'm really delighted you asked that, because you're absolutely right. We have neglected the energy sector in this country for quite some time.
It was also -- there was very little investment in part just for a very long period of time, oil and gas prices were quite low, which discouraged new investment in exploration and production. But now we need to change. We need to look at all the regulations that inhibit new drilling and new production. That's going to be very important to reduce our dependence on imported energy. And we have to begin to look at alternatives.
I was at a conference the other day. People were talking about what something that seems sort of science fiction, but is actually more and more important now: use of wind, wind power. There's some very new, efficient methods of using wind to create energy. One or two megawatt windmills.
So there are a whole series of things that can be done in this country, if we put our minds to it, to reduce our dependence on imported energy. I was Henry Kissinger's economic adviser in 1973. We were worried about the implications of our policies in the Middle East and their impact on energy supplies then. We're still worried we need a much bolder, more aggressive approach of reducing regulations. Providing incentives for energy production in this country to reduce our dependence. And use basic fuels like: oil and gas and coal and nuclear, but also develop new alternative fuels which now are technically possibly, and they weren't perhaps as economic or technically possibly 20, 15-20 years ago.
CAFFERTY: It would go a long way to our removing some of the political vulnerability we have in that part of the world, too.
HORMATS: Absolutely. We're vulnerable -- absolutely, Jack, we're vulnerable politically and we're vulnerable economically. I don't think we should compromise our diplomacy simply because of energy. But it does, as the caller points out, put a lot of pressure on us and raise concerns that if we'd have a misstep in the region or the region of the Middle East becomes more volatile, we will suffer economically, as will the rest of the world.
And one of the reasons other countries tend to be reluctant to support the United States in the Middle East, in some cases, is they're concerned about the oil supplies. They're more dependent on oil imports than we are, and that also can tend sometimes to compromise their support for our diplomacy.
CAFFERTY: I'm going to a commercial break here.
CAFFERTY: I got to get in the middle of this and do a commercial break. And we'll continue. And as we go to break, I want to thank you very much for coming in. I appreciate your time and your input and your wisdom on this.
Robert Hormats is the Vice Chairman of Goldman Sachs International, former member of the National Security Council. It's good to see you. Thanks.
HORMATS: Thanks. It's good to be here.
CAFFERTY: OK. We'll do this again.
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