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CARRET & COMPANY'S PHIL CARRET
(continued from preceding page)
You said earlier that we may be halfway through a bear market. Why do you think it's headed lower?
Carret: I was one of a group of nine at a luncheon in January. And each of us risked $10 in this gamble. Each of us put down three things - the Dow, the prime rate and the price of gold as of December 31st of this year.
At the time, the Dow was at about 2700. And the range was from about 2,600 to 1,800. Now who do you suppose was the low man? Right, me. I think 1,800 is a reasonable possibility.
It shouldn't frighten anybody. It doesn't mean you should sell everything and go into cash, because a lot of things have already had their bear market - like some bank stocks and some savings and loans....
What do you think of stock options and program trading? Do you think it's helpful to hedge or do you think it's driving people out of the market?
I don't understand program trading but it seems to me that it's probably rather on the bad side than the good side.
I regard options as a very useful method of speculation. Anybody who speculates on margin [though] is really sticking his neck out. And that I regard as exceedingly unwise and entirely unnecessary.
If you think some stock is going up in a big way and you can double your profit by buying it on margin, you can just as easily buy options on the stock. say six month options and renew them if you need to. The option will probably expire unexercised. That's been my experience with options. Occasionally, you'll make a killing with them. It's a very good way to speculate or gamble - as the case may be - with a limited amount of money and with perfectly limited risk.
Until recently, defense stocks have been unpopular. How did they do from 1942 to 1945? And are you looking at defense stocks these days?
Carret: Obviously, while I think the day of major wars has passed and it's highly unlikely that we and the Russians are going to get into a war, we're probably always going to have minor wars because people like Saddam Hussein are going to go haywire and cause trouble. So we're going to have to have armed forces.
I think the defense industry is going to shrink. But the well managed companies - and Boeing is the outstanding example - should continue to do well.
They didn't do too well from 1942 to 1945.
Any guess on the price of crude oil?
Carret: I would guess it's seen its peak for some time. That's purely a guess, but there's lots of oil in the world. When the price of anything goes up dramatically, a lot of people run out looking for the stuff.
I had a friend who was a professor at MIT. And during the middle of the war, he told me it was my patriotic duty to go out and find uranium. I had visions of myself with a mule and a pack wandering around the Rocky Mountains looking for uranium.
I said to him, I think it's much simpler than that. All you have to do is make the price attractive enough and there'll be plenty of people out looking for uranium. And they'll find plenty of it." And, of course, they did.
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