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Sunday Morning News

Wall Street Continues to Look for Outcome to Presidential Race

Aired November 12, 2000 - 9:23 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: That chart will show you that uncertainty over who'll be the next president is affecting the financial markets.

Joining me now from Minneapolis this morning to talk about that is Christopher Farrell of "Business Week" magazine.

Chris, good morning, good to see you.

CHRISTOPHER FARRELL, "BUSINESS WEEK" MAGAZINE: Good morning.

KAGAN: Well, in this week of so much uncertainty, one thing is certain, investors are watching what is happening in the political world, and they don't like what they see.

FARRELL: Absolutely not. On Friday, the market just fell apart. All this lawsuit discussion, great deal of uncertainty, talking about, oh, constitutional challenges, and that type of uncertainty the market just retreated from.

KAGAN: Coming into last week, we were talking about who do investors like better, Republicans or Democrats? But one thing does seem sure, investors don't like uncertainty, they want somebody to be in that office.

FARRELL: Well, they want somebody to be in the office, they want this to be resolved. But I think once it is resolved, and hopefully in a short period of time, whether it's Gore or Bush, this is going to be a good solution for the market, because neither president can have a big fiscal policy program.

Bush is not going to get a big tax cut, and Gore will not get a big spending program. So from Wall Street's perspective, the resolution may be positive. It will provide continuing evidence of fiscal discipline, which has helped support this economic expansion.

KAGAN: So what you're saying is, investors like the very thing that's driving voters out there crazy, and that is a possible deadlock and not much happening in Washington.

FARRELL: Absolutely.

KAGAN: That would be a good thing. FARRELL: It would be a good thing, because, you know, this long economic expansion that we've had, one thing that has supported it -- I mean, there are many things, but one thing has been fiscal discipline. And interest rates, real interest rates, you adjust for inflation, when the debt was expanding in the first half of the 1980s, real interest rates were above 8 percent.

As the debt began to contract, and we move into a balanced budget -- and now we have a surplus -- real interest rates have been about half that. With low real interest rates, you -- companies can afford to go out and invest more in plant, in equipment, and educate their workers.

So fiscal discipline has helped lead to an environment of low real interest rates, and that's good for tech spending, and that will help support the economy.

KAGAN: Well, and speaking of interest rates, in the middle of all this, the Fed is about to meet again. And why not just throw one more interesting twist into the party here?

FARRELL: That's right.

KAGAN: Do you think you're going to see any change in interest rates from the Fed?

FARRELL: You will see no change in interest rates from the Fed. The inflation numbers have been good. Core inflation in the producer prices, you adjust for energy and food, was down 0.1 percent in October. That's the first decline since January. So there's no evidence of inflation.

Secondly, the conversation that we're having about all this uncertainty with the presidential election, the Fed is not going to hike interest rates in that kind of environment.

KAGAN: A bottom-line number that almost everyone can understand is their 401(K) and their savings account. Of course, as the market does these flip-flops and doesn't like the uncertainty, you click on or you get that statement in the mail, it doesn't look so good.

FARRELL: No, it doesn't.

KAGAN: What's your advice to the small investor at home watching those numbers go down lower than they would like?

FARRELL: Well, for the small investor, for anybody with a 401(K) or a 43B if you work with a nonprofit, you can't let these gyrations in the market dictate your strategy. You'll go crazy. I mean, we've had a lot of downturns in this market. Remember with the Asian crisis, and it looked like it was the end of the world?

So you have to adjust your portfolio if something's changing in your life, you have a child, or you're nearing retirement. If there's an event in your life that says, I need more money, or, I can take more risk, then adjust your portfolio. But the kind of uncertainty that we're going through right now, I wouldn't make any adjustment.

KAGAN: So just hang on, and meanwhile just bear those stomach aches, because they're going to be there, I'm telling you.

FARRELL: Oh, they're there, oh, absolutely.

KAGAN: Chris Farrell, thanks for joining us this morning.

FARRELL: Thank you.

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