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Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, July 19, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the short-lived gains typical of today's market, the overdrawn retirement
accounts whose current gains can't keep pace with withdrawal rates possible
in recent years, and the fallout from the steel tariffs imposed some months
ago by the Bush administration.
David Barnett - Wall Street worked back into positive
territory for one bright and shining day this week, but then continued
the slide of the last two weeks. The Dow's most familiar index has now
fallen 975 points in nine sessions! But corporate earnings reports show
business has plenty of wind in its sails and inflation is still in check.
Scott Roulston is Fairport Asset Management's company guru for us - he's
our business guru. He stops in every Friday to check business and today
is no exception. Good morning, Scott.
Scott Roulston - Good morning or I should probably
say "Beam me up, Scotty."
David Barnett - I'm telling you, in talking about
beaming and bumping it has been a bumpy ride on Wall Street. Those market
gains must have been a big relief but what's coming that might rock the
boat, do you think?
Scott Roulston - You're right, those market gains
were very short-lived. I think that you are going to see continued volatility.
I don't like focusing on the short-term but especially between now and
August 14th. We've talked, David, about August 14th as being that date
when the CEOs and the CFOs have to certify their financial statements.
I think the market is very concerned right now about waiting for another
shoe to drop, so to speak. So you could see a bumpy ride between now and
then. Short-term also, today is an options expiration date. Generally
we've seen a lot of swings in the market in the last half-hour. I would
expect today and the next few days for that to continue.
David Barnett - Actually, if you're looking at
the market, it had a winning session this week, but it just closed down
yesterday. Has it found the bottom yet, do you think?
Scott Roulston - You know, I'm very hesitant to
say that. I'd say until 9:30 it has been (laughter). You know, David,
two or three years from now (and it's very hard to focus 2-3 years out,
I know that as I've never seen such a short-term focus) but two or three
years from now, finding the exact bottom of the market or for that matter
selling out right at the top, is next to impossible. You buy stocks and
bonds to make money. I think there will be quite a bit more volatility,
as I mentioned before. I don't know if we've seen bottom or not. I'm not
smart enough to figure that out. But I do think that 2-3 years from now
we will look back and say why didn't we buy at that point, it was so obvious?
David Barnett - How about a little advice here.
With the stock market plunge, people nearing retirement are wondering
if they have enough money. How do you know how much to draw out of your
account without using up that nest egg?
Scott Roulston - That's a great question and we're
dealing with that a lot. All financial professionals are. You know, rules
of thumb are kind of dangerous. When equities were earning 20+%, a lot
of people thought they had plenty to cover their retirement. And they
were withdrawing 10-12% per year and their account still grew! The best
rule of thumb I can give as advice is to say that you have to assume some
inflation and you keep up with that. Let's say 3-5% inflation. Well, if
you're earning on average over the long haul 8%, that means you can draw
out about 4-5% of your nest egg and still keep up with inflation.
David Barnett - If you do have money, a slowdown
is usually a pretty good time to spend it. Is that true now?
Scott Roulston - Well, I think that there is a
reason they have zero percent financing - they're trying to get those
cars and trucks sold. I don't know that it's not a good time to save money.
You know, one thing we haven't talked about it is a lot of people are
putting money in real estate these days. I think you could even see a
real estate bubble coming along.
David Barnett - Save money - what is that? I don't
understand (laughter). Scott Roulston - It's not in our vocabulary in
the United States, it seems, but I think we are going to become better
spenders over the next few years. We're going to have to.
David Barnett - Now, as we look overseas this week,
the European Union issued a warning to the U.S. - "prepare for retaliation".
The EU nations are still sore over those steel tariffs that President
Bush imposed on foreign products earlier this year. What do you think
they have in mind?
Scott Roulston - Well, going back, we had these
steel tariffs go into place. And what didn't get a lot of publicity is
this third amendment of Senator Robert Byrd. That basically said those
tariffs that shelter U.S. companies, when customs collects on those tariffs,
it turns around and pays those tariffs back to the companies. So companies
like U.S. Steel and Hershey Foods have been getting those tariff rebates.
Well, you know it kind of sounds like a subsidy to me and I think that
is what our trading partners are saying, too. Matter of fact, the Canadians
called it "dirty tricks" but I don't think the Bush administration is
on the right side of the fence on this nor is Congress. As a matter of
fact, I hear the Bush administration doesn't really like this program
but they won't really come out and say it. But we can expect some unhappy
trade partners over this issue.
David Barnett - There seems to be some hesitation
among the EU members to really go toe-to-toe over this. When it first
came up, the Bush administration wiggled out of a confrontation by allowing
some exemptions to the tariffs. That hardly seems like free trade in the
classic sense, does it?
Scott Roulston - No, it's not. I think - you know
if it looks like a duck and quacks like a duck, it is. And I think if
other countries were doing this, we would call it a subsidy. That's sure
what it looks like. So I think they are on the right side on this one.
It's not fair trade.
David Barnett - Scott Roulston of Fairport Asset
Management stops by every Friday to update us and give us his thoughts
and opinions on the business world. Scott, thanks for dropping by this
morning as well.
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