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Show Pag 8 Th UTAH Independent September 27 The Paper That Dares To Take A Stand 1973 Continued from page PCCE: Turning now to the international scene, what do you think are the major factors behind our recurring monetary crises? HOLT: In my opinion, the biggest factor is the excessive amount of fiat money the government is printing. None of these dollars are backed by gold. Businessmen in most parts of the world are still accepting and using dollars now merely because of inertia they have been using dollars for so long. But eventually, more and more people will get out of dollars 1 into something sounder. believe you will see the dollar 1 think even the Japanese Yen debt, and the net effect will be a and the Deutschemark will contraction of total debt. I be devalued. eventually Ultimately, all governments want their curriencies to go down as much as possible so long as they are not obliged to lose gold. This makes it increasingly risky for businessmen to carry on their international business. After all, you can see your profit margin vanish in a sudden devaluation or change in a tariff. So world trade will slow. PCCE: Do you think we will see an international situation like we had during the 1930's? HOLT: Yes, I think so. We could see the same thing almost chapter by chapter by Politicians never learn chapter. from history, unfortunately. I think we may end up with so PCCE: How will inflation and monetary crises affect the stock market? HOLT: Theyre already having an effect. Weve been in a primary bear market since 968. We didn't see the peak in 1 Jones theDow Industrial Average or Standard & Poors until this year. But looking at the broad-base- d averages that are not weighted by stocks with large capitilizations, you can see very, very clearly that the market started heading down since the end of 1968. Ifyouask the average investor, Did you make money in the stock market from the end of 1968 lose in importance on? he will say No. Thats international trade. perhaps the best way to view There are a couple of fallacies the situation. about the dollar want to touch PCCE: Earlier this, year, you on here. One is that the dollar is being predicted a stock market crash basically sound because the many currencies U.S. economy is the biggest and devalued, and so many trade was on the way. Do you still hold this view? strongest in the world. This is barriers, that well see a recession or HOLT: Yes, I do. Actually, like saying a guy who makes worldwide many stocks have already depression. S50.000 a year must be in better I think the stock financial shape than some one PCCE: It seems that whether crashed. is making $10,000. But that wrich you look at events from the market today similar to guy" could be spending S75, 000 domestic or international point a year and go bankrupt. The of view, you conclude that First, the big buying in the toward a tw enties came in 1928, w hen the check he writes may very well were headed market went up sharply. Then depression. bounce, whereas the SI 0.000 HOLT: Yes, either worsening individual investors started to man's check is perfectly solid. Like the "rich man's rubber inflation here or an get out of the market, and check, theres virtually nothing international monetary crisis stocks started to decline. By could trigger a depression. You September 1929, more than backing the dollar nowadays. Its just a piece of green paper. can't tell for sure which it will half of the listed stocks had Another fallacy is that because be, but 1 think an international declines 20 to 40 already. other countries are having monetary crisis is more likely to But the Dow Jones Industrial Average lagged behind the inflations worse than ours, our do it. What do you think general market trend. It was PCCE: comparatively lower inflation rate means that the dollar is the government will do in an supported by the big money. In early 1929, it went sideways strong. The trouble with this effort to get us out of a lor many months. During the idea is that the inflated dollar is depression? expect there will be summer of 929, the Down shot the primary cause of inflation HOLT: abroad. In an effort to support massive government spending up for a few weeks, turned around and headed down. the dollar in currency markets, and massive federal deficits. Germany, Japan and other We will probably have Now look at what happened in countries had to expand their government work forces like the market during the past year or two. Most stocks have been own money supply rapidly, the WPA of the I030's. I But dont expect these things declining long before the Dow bringing on bad inflations. Industrial This is why other countries to work. You see, whenever Jones Average off. Also notice that excessive credit have like dropped have recently become reluctant you we have now, there must be a for many, many months last to support the dollar. PCCE: You wrote in The Holt period of correction. The faster year the Dow was locked into a it is over with, the better, very narrow trading range of Investment Advisory that Then all of a sudden, because then we can begin 900-97President Nixon, by pushing it shot up and peaked in I THINK THE for wider powers over U.S. rebuilding. trade policy, has sounded the GOVERNMENTS January of this year. Since then WILL it has turned around and POLICIES bugle for an international trade INTERFERE WITH THE dropped. war." What would be the CORRECTION PROCESS We all know that the Dow has consequences of this? THE done better than the market HQLT: I think weve already AND LENGTHEN s AGONIZING PERIOD a whole, because some begun to see component stocks have been now. For a WELL GO THROUGH. PCCE: How will price controls supported by the institutions. while, we had tariff surcharges. During the past year, for We've limited textile imports affect our economy? from foreign countries, and we HOLT: Since the cause of our instance, every time the Dow have export controls. The inflation is the governments dropped to 900, institutional would drive it back up government is erecting these easy money policy, the new buying and other barriers against price controls won't help any as far as 975, sometimes for a international trade, thereby more than the last 3 phases did. few days, sometimes for a few Rather, these controls will weeks. Then gradually it went preventing people from buying back down again. bring more imbalances in the things they want to buy. Another parallel is the sharp Another thing, as the dollar economy. business American sinks. Besides, in the coming increase in margin debt. From 1926 to 1928, there was quite a becomes more competitive in depression I think that prices increase in margin debt, world markets. This, too, is will come down so fast that large increase was steady. the but part of the trade war, and it's controls wont make any Suddenly in 1929. margin debt very upsetting to the difference anyway. T he same thing and PCCE: So you dont expect surged sharply. Frcnch.Gcrmans, in 1972. All of a happened any inflationary depression, sudden Japanese, among others. margin debt increased will have U.S. despite massive government Eventually, the so sharply that it was 2 or 3 trade surpluses, but then other spending? times the previous years countries will have trade HOLT': Thats right. I think volume. deficits. They will then want to that while the government will Whats the of this? shore up their own trade spend heavily and increase In 1927, thesignificance public was selling positions with devaluations public debt, we will see an even stocks, institutions were and trade barriers of their own. sharper contraction of private buying, and speculators were 1 1928-192- 9. 1 1 5. some-consequence- also buying. In 1973, the public was still selling, institutions were but still buying, were speculators on margin forced to meet margin calls by selling. And the market this year has been dropping steadily. PCCE: You draw a sharp distinction between individual investors and institutions. Would you elaborate on that for our readers? HOLT: During the bull market years of the forties, fifties and part of the sixties, private individuals had confidence in the market and were buying stocks regularly. These people just bought and put away good stocks. It didnt matter whether the economy was booming or not people kept putting more and more money So the into the market. underlying market trend was upward. Temporary declines such as occurred in 1954 and 1958 were created sophisticated by investors, institutions, that including arc very When these economy-mindeinvestors had an inkling that a recession was coming, they started selling. Conversely, when they saw a recovery on the way. they started buying, and the market resumed its upward drive. All those ups d. and downs happened on top of an underlying upward trend. But then invididual investors began to think differently. Particularly after the sharp market drop of 1962, they began to think in terms of possible capital losses. Indeed, Federal Reserve Board figures clearly show that private individuals have been net sellers of stocks since the early I960's. Whether economic news is good or bad, individuals keeping taking more and more money out of the stock market. By the late sixties, their withdrawals were large to enough offset institutional buying, and the primary bear market began. Sometimes individual speculators (as distinguished from the serious inmvestor), by rushing into and out of stocks, will exaggerate advances and declines. You can gauge the amount of speculation from the volume of margin debt. Speculators, though, dont have a lasting impace on the market. hcyre like surface waves that do not change the underlying ocean tide. Now. many people think institutions are very, very powerful. And, in fact, they do account lor nearly ol the trading activity on the Big Board. But in terms of 1 two-thir- actual holdings, ds private individuals still hold more than hall ol the outstanding stocks, or roughly 300 billion dollars worth, Since individuals arc selling stocks on net. you have hundreds of millions of dollars ol stocks unloaded onto the market month after month. If reduce their selling they temporarily, it Cwcn be plfsct bu omstotitopms hit pvera;; omdovodia;s are mpw se;;omg far ,pre tjam omstotitopms cam biu amu PCCE: Why have a handful of glamor stocks managed to hold their own in the face of heavy selling by individuals? HOLT: We know from the How of funds analysis that the only major group that has been buying stocks is the pension fund industry. Because of their size, institutions must invest in companies with large capitalizations. So when all this institutional money zeroes in on a few hundred stocks, they have got to go up. Even though, say, the general public is selling more than institutions arc putting in, the selling is spread across the board, while the buying is concentrated into a small setment of the market. However, this cannot last We know, for forever. example, that individual investors have been selling at least partially because they want more income. Well, stocks are offering the glamor smallest yeilds right now. Disney, Polaroid, Avon-thes- e and other companies are selling at about 1; yield or less, and are not showing much growth either. Moreover, you have to discount their future growth 20 to 30 years or more before they can have even a 5 yield. With glamor stocks offering such small yields, the general public w ill now shift the selling pressure to these stocks. Remember that individuals hold about 300 billion dollars worth of stocks. If just 10 of that stock is sold, we are talking about 30 billion dollars worth of stocks that could be dumped on the market. No matter how big the institutions are, they cannot spend that much money to prop up the glamors. T hats why I think from nowon the glamor stocks will start coming dow n under new selling pressures. Meanw hile, some of the depressed stocks may begin to show some recovery. Already, some mutual funds have been getting into these stocks, causing them to head up. The typical mutual fund manager would figure, I can sell the high PE stocks to the trusts and use the proceeds to zero in on a stock and get a much higher percentage gain. As more and more mutual fund managers do this, we will have added selling pressure on the glamor stocks. PCCE: When do you think the glamor stocks will start to bank-manag- low-pric- ed ed crumble? IIOI.T: Sometime within the next several months. We have reached a point where the glamor slocks have already run out of steam. T hey have not come down a whole lot yet, but they have not been going up any more either. In the 1929 crash, the stock market dropped 40 to 50 in a lew months. T oday, if you disregard the weighted averages, you will find that the great majority of stocks have already gone down 50 from their 3 highs. What we arc waiting for now is Continued on page 13 1972-197- |