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How Net changes the world
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April 14, 1999: 10:20 p.m. ET
Interest rates down to 4 percent, Dow up to 20,000, fund manager forecasts
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NEW YORK (CNNfn) - Interest rates could drop to 4 percent in a couple of years and the Dow average could shoot to 20,000 by 2004 as the Internet restructures the marketplace, a money manager predicted Wednesday.
Despite the setback in the tech sector on Wednesday, David Alger of Fred Alger Fund Management maintains an aggressively bullish view of the market. He said on the "Moneyline News Hour with Lou Dobbs" he expects the Internet will "change the way the world does business. "
Here are highlights of that interview:
JAN HOPKINS, ANCHOR: Now the stocks that are your top holdings did not do well today. In fact, they all fell. And some people are saying that we are actually seeing a big turn in the market -- we're moving more to cyclical stocks and value stocks and away from growth stocks. Do you buy that?
DAVID ALGER, FRED ALGER FUND MANAGEMENT: Well, not really. I think that this -- yes, it's true that today was kind of a disaster; they were all down a lot. But you have to remember these stocks have come up a tremendous amount from the beginning of the year.
I mean, some stocks that we own are up 60 percent, 70 percent and way ahead of the market. So, I think it's really just a chance for the cyclicals to catch up, which usually doesn't last very long.
HOPKINS: So you're still keeping with the same strategy that you have, your not willing to change strategies now?
ALGER: No, not at all. We're a growth stock manager, we'll always be one, and I think we're going to stay with that strategy.
HOPKINS: And the Internet is here to stay, and it's going to change the way we do business, in your view?
ALGER: I think it's going to change the way the world does business. I think it's the most important to happen to the world economy since probably the advent of the computer itself.
HOPKINS: And a lot of brick and mortar retailers are going to the wayside as a result of people buying things online?
ALGER: I think so. I think they're going to feel tremendous pain, because I think even if people don't buy things online, they're going to price things online before they buy, and that's going to push levels down considerably.
HOPKINS: So you have a situation where you go to a store and look at a product, but then you go to the Net and buy it, because it's cheaper.
ALGER: Exactly so. I think what's going to happen -- the mom-and-pop bookstore is experiencing that already; people go and look for a book they want to buy, and then they run back, get on Amazon and buy it there because it's cheaper, so this is going to happen everywhere.
HOPKINS: Well, it might help some of the wholesalers, really, people would go directly to the wholesaler and buy rather than going to the -- retailer. Is that a possibility?
ALGER: It's a possibility, but I think the wholesaler and the Net company are essentially going to fuse. After all, Amazon is, in a sense, a wholesaler.
HOPKINS: So are there some Internet stocks that you like at this point that aren't too expensive?
ALGER: Well, I think expensive is a relative term. Not many of them have any earnings, so it's really hard to value by conventional metrics. But I think that if these stocks pulled back a little bit more, I mean, I would buy all the big ones -- AOL (AOL), Amazon (AMZN), Excite (XCIT), which of course is being merged into @home (ATHM), which is one of our favorites. These are all great companies.
HOPKINS: Now, It's interesting, today we had signs, Federal Reserve governors saying that the economy may be strengthening and the Fed maybe will have to rethink those three rate cuts that it made in the fall, if things don't slow down. What about rates? Could higher rates put an end to this party?
ALGER: I don't think so. I think, in fact, if anything, rates are going to go lower. I think the economy is going to decelerate in the second half. But I think longer term, the absence of inflation is going to mean that the long-bond is going to rally considerably, and rates are going to come way down. Now we're thinking 4 percent within a couple years.
HOPKINS: Wow. So rates can come down from 5-1/2 percent to 4 percent within a couple of years, even with a strong economy?
ALGER: Well, I think so. I think you can have a strong economy with, really, zero or less than zero inflation. I think that's going to be the big surprise. And I think the Internet is going to have a big piece in creating that.
HOPKINS: So what about the stock market -- this year, next year?
ALGER: Well, we're saying the market on the Dow will go to 20,000 by 2004. This will be driven, of course, by the very strong bond market and the drop to 4 percent.
HOPKINS: And this year, a correction soon or not? Where do we go from here?
ALGER: It could be. I think that if the Fed does raise rates -- which we don't expect -- the cyclicals will be the first to go. That'll be the end of that party. But I think probably not. I think the economy is going to slow. I think interest rates are going to come down a bit. And I think probably, by the end of the year, the market will be 11,000, 11,500, something like that.
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