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ADAM SMITH'S MONEY GAME Missed the show? Get a phone call half way through? Fail to catch the name of a stock in "Personal Best"? In case you did, we are happy to provide you with a transcript. If you would like a transcript from a previous season, please visit 800-All-News at www.800-all-news.com or call them at (800) All-News. ANNOUNCER: [voice over] This program is made possible by agrant from MetLife, helping people become financially secure for 130years. Funding has also been provided by the Roy R. and Marie S.Neuberger Foundation. ADAM SMITH: [voice over] The Money Game this week -- hedgefund champion Julian Robertson made a billion dollars last year sellingAsia short. Where could his next billion come from? Could your doctorbe next in the exodus from managed care? And, what is bestsellingauthor Suze Orman's advice on how to cut your credit card debt? Findout next. Back to top Face to Face ADAM SMITH: Hello, I'm Adam Smith and welcome to The MoneyGame. Hedge funds are outside the vocabulary of many investors. Theycan do far more than simply invest in stocks, like mutual funds. They'reprivate and, for the most part, secret. George Soros has become wellknown. He's a well-known hedge fund manager. Julian Robertson isless well known, but well known in the investment community. Hefounded and runs the Tiger Group of hedge funds -- $20 billion. Hisrecord is spectacular -- spectacular enough for him to have a profit inthe neighborhood of a billion dollars. Meet Julian Robertson, face to face. JULIAN ROBERTSON: I often say that our mandate is to find the200 best companies in the world and invest in them and find the 200worst companies in the world and go short on them. And if the 200best don't do better than the 200 worst, you probably should get inanother business. ADAM SMITH: This is what makes a hedge fund different, is thatyou hedge it. You sell something short while you're buying somethingother. JULIAN ROBERTSON: I think the other thing is that hedge funds ingeneral can go into every aspect that is legal and ethical in terms ofmoney management. For instance, we are in commodities. We are incurrencies. We are in government bonds all over the world. ADAM SMITH: [voice over] Robertson is cautious about the stockmarket. If you subtract the stocks he is short, his exposure to themarket is only 32 percent. [on camera] You come to work in themorning and unlike a normal investment manager, you have the wholeworld in front of you. You could do anything -- buy, sell, commodities,currencies, stocks. Walk me through it. How does it work? JULIAN ROBERTSON: The globe is the parameter we have towork in. We are really basically bottoms up investors, at least in ourstock selection. And we will actually have investments which exist incountries which we don't think are particularly good outlooks. Forinstance, we have a large investment in a Korean cellular telephonecompany, yet our outlook for the broad market in Korea is not a verygood one. We don't feel compelled to have a Polish stock or anAfrican stock or anything of that nature. But if there's a goodopportunity in one, we'd be glad to do it. ADAM SMITH: But you pull the trigger. How do you know what'sgoing on in Korea? Tell me how that works. JULIAN ROBERTSON: Well, I take frequent trips to most of theseplaces and our people here travel ceaselessly. We actually have anoffice in Japan, which is the most marvelous place to ply our trade.Japan-- some of the greatest companies in Japan are at the lowestmultiples. The worst companies in Japan are often at the highestmultiples. That dichotomy can work to our advantage greatly. ADAM SMITH: Give me the example in Japan that you were talkingabout -- the best and the worst. JULIAN ROBERTSON: I think the Japanese have so manywonderful traits and I'm a great fan of that country, but they areconsensus thinkers. Their greatness is the fact that government, laborand capitalism kind of combine in a quasi-socialism to really have agreat industrial output. Their weakness is that it is all consensus thinkingand that everyone follows the same leader and there's no originalthinking. ADAM SMITH: What did that lead you to do? JULIAN ROBERTSON: That leads us to go in there and do theoriginal thinking. And being the long-winded way of saying that banks inJapan are possibly the worst in the world. They have the highesttransaction costs. There are thousands of people running around withgreen eye shades and no computers. They have no ability to assesscredit. ADAM SMITH: [voice over] Robertson doesn't list Japanesestocks to sell short. Remember that hedge fund managers like secrecy.But it's no secret that Julian Robertson was right on Asia last year,making a fortune when markets there tumbled. [on camera] Youmade a lot of money in Asia when other people lost a lot of money inAsia. And you saw something that even the IMF didn't see. What didyou see and what was it that caused you to act? JULIAN ROBERTSON: Well, I think in Asia we saw the fact thatgrowth had been totally unrestrained; that the people had gotten cocky.And so there was so much that it was unsound. For instance, the Korean economy is based on great conglomerateswhich are called ``chables'' in Korea. Their objective is to increasesales, not profitability. We saw that in seven of the last eight years theborrowings on their expansion, the borrowings had cost them moremoney than they made on their expansion. As we look forward, we seereally a very bleak picture for Asia. ADAM SMITH: [voice over] Surprisingly, Robertson puts China inthat picture. JULIAN ROBERTSON: Well, you just would be shocked to knowhow electricity consumption, retail sales, all the measures we're lookingat are beginning to go down while economists expect an 8 percentgrowth in GDP this year. ADAM SMITH: Why is there this difference between the way yousee something and the way economists and the IMF see it? JULIAN ROBERTSON: Because I think economists are not goingover there and they are listening to the demagogues in China rather thanactually taking evidence of what's going on. And China will have anenormous effect on the rest of southeast Asia. I think a lot of the problems with the IMF are due to problems with theClinton administration's blind belief that all this can be solved withinjections of money. I think that the IMF did not want to put this latestinjection with Suharto and that they were concerned over the situationand Clinton and company -- Mr. Rubin and all -- pushed it through. ADAM SMITH: The prime minister of Malaysia, Mr. Mahatir,criticized George Soros for his country's troubles. He said speculatorswere causing the economic ruin to his country. And a Singaporenewspaper included you in this general indictment. What's your reactionto that? JULIAN ROBERTSON: It was certainly wrong on us. We hadactually a positive position in the rupee and we were hurt by the rupeefor a while. So the, the Mahatir has been very wrong. And I think it'ssort of tragic in a way because Mahatir has done a very good job ofadvancing a rather fabulous part of the world. ADAM SMITH: Prime ministers of countries are attacking investmentmanagers who run private partnerships, hedge funds -- that's somethingnew in world history, isn't it? JULIAN ROBERTSON: It's an example of the hubris that exists.The Mahatir really did a marvelous job for such a long time. And then Iguess the hubris got him. But, I mean, they had adopted a growth at allcosts scenario and it just had to come to an end. And I think, youknow, George Soros has been magnificent in helping these younger,under-developed countries move ahead, and probably is as responsiblefor the spread of capitalism as anybody around. And for him to becriticized by the egomaniacal prime minister of Malaysia is, I think,absurd. ADAM SMITH: [voice over] Looking outside Asia, Robertson seessome good prospects in Europe. JULIAN ROBERTSON: There is a German company called BASFthat we are very sold on. I've met their management and I think they arecommitted to shareholder equity and we're very, very high on that.And, let's see, in the final analysis I would probably pick a couple ofFrench companies that I think very highly of -- Alcatel and a companycalled Generale Des Eaux. ADAM SMITH: I notice one of your criteria for companies is to bestockholder oriented. JULIAN ROBERTSON: The amazing thing, Adam, is that outsidethe United States and the UK how really unusual it is for managementsto give a hoot about profitability. ADAM SMITH: [voice over] Julian Robertson was born and raisedin North Carolina. He was interested in investing from childhood. JULIAN ROBERTSON: I was lucky. I had a father who was in thetextile business and he loved investing. And he often got down on thefloor with me and we looked at the stock tables and I think he fosteredmy interest in all that. ADAM SMITH: [voice over] A dedicated family man, Robertsonplans a second career in philanthropy. JULIAN ROBERTSON: I hope to be creative of-- I'm very muchan admirer of Soros' funds. They won't be anything like his, but I thinkone of the wonderful things about his foundation is that he givesinjections of money and it stimulates a lot of thought about things. And Ithink all our family are kind of oriented towards helping families in theNew York area. And I suspect that will be a big emphasis on it. ADAM SMITH: [voice over] Meanwhile, there's money to bemade. Robertson's hedge fund, like most, keeps 20 percent of thecapital gain as a performance fee. [on camera] If you have a goodyear you could make another billion dollars. JULIAN ROBERTSON: Well, you can do the math better than Ican. ADAM SMITH: That's good pay. It puts you ahead of rock starsand movie stars and athletes. JULIAN ROBERTSON: Well, it's kind of ridiculous pay and werealize we're overpaid and we're just determined to continue to be.[Graphic: Robertson's Performance 1 Yr. 5 Yr. 10 Yr. Robertson/ Jaguar Fund 58.5% 30.3% 31.4% S&P500 33.4 20.3 18.1 Dow Jones 24.0 22.0 18.6 (Net of fees) Back to top
In Focus ADAM SMITH: Ask doctors what they think of managed care andchances are you'll get an earful of angry criticism. They say theemphasis in HMOs is on money, not patient care. So far, not manydoctors have broken away from managed care networks to go it alone.But that may be changing. My reporter, John DeNatale, has that storyIn Focus. JOHN DeNATALE, Correspondent: [voice over] For patients likeLauren Greenwald, a trip to the eye doctor can be costly. That'sbecause she's sworn to avoid managed care companies and HMOs. LAUREN GREENWALD: I like to pick the doctor that I have handchosen or a friend has been to that I know I'll feel comfortable with. Idon't want to pick from a book and a list of people that I have to go to. JOHN DeNATALE: [voice over] Most Americans are in managedcare. But those who opt out, pay higher fees. Greenwald is willing topay more to go out of network because she is wary of a largecorporation placing restrictions on her care. [on camera] It's notuncommon for patients to complain about their HMOs. But in thisoffice, the loudest complaints come from the doctor. And his diagnosisfor HMOs is not good. Dr. BARRY CHAIKEN, Association of Independent Physicians:The fundamental issue with managed care, which is going to cause itsultimate destruction, is that the kind of care that's practiced there is notin the patient's best interests. JOHN DeNATALE: [voice over] Dr. Barry Chaiken is the founderof the Association of Independent Physicians. His New York-basedgroup is taking on HMOs. Dr. BARRY CHAIKEN: We're telling doctors there is no need topractice within the confines of managed care. And patients, youdeserve better. JOHN DeNATALE: [voice over] Over 80 doctors from some ofNew York's finest hospitals have joined Chaiken's group. And inCalifornia, there's a similar doctors' revolt going on. [on camera] So isyour battle cry ``Doctors and patients of the world unite''? Dr. BARRY CHAIKEN: That's exactly what our battle cry is. JOHN DeNATALE: [voice over] Ken Abramowitz, a healthindustry analyst for Sanford C. Bernstein, disputes their motives. KEN ABRAMOWITZ, Sanford C. Bernstein & Co.: Physicianswant to stay in their own inefficient office, with their inefficient x-raymachine and say don't bother me about how many x-rays I do becauseI have an empty x-ray machine and I paid for it and I have a right to useit all the time because I feel like it. It doesn't cut it anymore. JOHN DeNATALE: [voice over] There's no question that managedcare companies have cut costs. KEN ABRAMOWITZ: They've reduced the costs 30-40 percent,that's for sure. In terms of the inflation rate, they've reduced annualinflation from 10 to 15 down to 5. JOHN DeNATALE: [voice over] But HMOs are experiencinggrowing pains. Oxford was popular with patients and doctors and adarling of investors. But it was unable to keep track of its payments. Itsstock went into a meltdown, losing over 60 percent of its value in oneday. For Chaiken, that was an omen. Dr. BARRY CHAIKEN: Managed cares have developedtremendous strengths because they have attempted and successfullygarnered the market of healthy people. The easy dollars for managedcare organizations are going to be very hard to come by. KEN ABRAMOWITZ: The HMO industry is in its infancy; sothey're babies. They're learning. And, unfortunately, they're making themistakes of babies. But as they mature, they'll make fewer and fewermistakes. JOHN DeNATALE: [voice over] But Dr. Chaiken says their babysteps have done enough harm. Dr. BARRY CHAIKEN: Many of these companies are reapingtremendous profits, or at least they have reaped tremendous profits inthe past. So that if every dollar-- health care dollar in the United Stateswas followed through a managed care organization, literally anywherefrom 18 to 35 percent of that money goes into profit and overhead andnot to medical care. KEN ABRAMOWITZ: There's no country in the world trying tomanage care. The rest of the countries have given up. They've let thepost office take over. Anyone can let the post office run the health caresystem. JOHN DeNATALE: [voice over] For Dr. Chaiken, puttingconsumers in the driver's seat is the answer. Dr. BARRY CHAIKEN: If we can convince the public that medicalIRA's and high-deductible indemnity insurance is a better way, I thinkthat we may be able to put the nail in managed care's coffin. JOHN DeNATALE: [voice over] Medical IRAs were establishedby Congress in 1997. They allow qualifying consumers to open tax-freemedical savings accounts, buy their own insurance and use the funds topay their deductibles. Chaiken says doctors and patients need to pushfor other alternatives to managed care. [on camera] Do you reallythink that your association can challenge managed care? Dr. BARRY CHAIKEN: The overwhelming majority of Americanphysicians are fed up with managed care. In a free society, theconsumer, the patient has every right and will demand the best of care,and that an artificial means of rationing care -- which is what managedcare is all about -- is not going to work. [Graphic: Unhealthy ProfitsHMO Profit Margins 1998 - 1% 1994 - 4% Source: Sanford C.Bernstein & Co.] Back to top
Personal Best ADAM SMITH: Credit cards. Every day it seems there's a newpiece of junk mail or a marketing phone call offering a deal on a newone. Many of you have asked us the question Kerstin Ramstrom ofBoston wants answered. ``I keep getting new credit card offers at whatseem like great rates. Should I sign up for new ones? Is there a rightnumber of credit cards to have?'' Kerstin, your signed copy of my book, The Money Game, is in themail. With me now to answer Kerstin's question is Suze Orman, authorof The 9 Steps to Financial Freedom, a number one bestseller. Suzewill be my guest for several weeks to help make your money gameperformance a personal best. What should Kerstin do? SUZE ORMAN: Be very, very careful. These credit card offers arecoming in to you, Kerstin, and it's, like, be careful because they areseducing you with wanting you to spend more money. If you happen tohave a credit card right now that has a higher interest rate and you havea balance on it than one of the offers coming in, then, yes, take one ofthose offers, apply for it and transfer your balance. But if you have a lotof credit cards, I don't care what interest rate it's on or at, you're goingto find that you're going to use it. And before you know it, you aregoing to be in deep credit card debt. And who cares if it's at 4.9 or 5.9percent, you still owe money. Don't do it. Don't do it. Take thosepieces of paper, crumble them up and play baseball with them. Batthem out of there, because I'm telling you, you don't want them. ADAM SMITH: In your book-- SUZE ORMAN: Yes? ADAM SMITH: --you say the thing to do with credit cards is cutthem up. Explain. SUZE ORMAN: Well, a lot of people are using today, Adam, onecredit card to pay the other credit card's bill. They're taking money --cash advances. I'm telling you, when you have a lot of anything, youtend to use it. ADAM SMITH: How do you know when you have too much creditcard debt? SUZE ORMAN: Easy. If you can't pay the monthly balance everysingle month on the credit card statements that come, you have toomuch debt. If you owe $10 on a credit card, you have too much debt. ADAM SMITH: So all credit card debt is bad, except what youcould pay at any given month? SUZE ORMAN: Absolutely, because if you have more, if you'recarrying that balance, what that is starting to tell you is you are spendingmore money than you have. And it will build and it will build and it willbuild. And before you know it, you aren't going to be able to get out ofit. ADAM SMITH: And you know what people don't realize is if you'repaying a credit card company 18 percent or 21 percent, that's moremoney than you could earn almost anywhere. That would be a verygood year in the stock market. SUZE ORMAN: That would be a fabulous year. And most peopledon't even realize that if they were only going to pay the minimum on an18 or 21 percent credit card payment, do you know it would take them30 to 40 years to pay for that item that they purchased. So if you buy asweater today and you can't pay for it in full, that sweater will be longgone and you're still going to be paying for it 40 years from now. ADAM SMITH: If somebody has a lot of credit card debt, how doyou get out of it? SUZE ORMAN: I have to tell you, the first thing they have to do isthey have to face it. They have to know that they are far more than thenegative balance on their credit card statement. They need not to haveshame about the fact that they have credit card debt. They are not abad person because they have credit card debt. They are simply aperson who has managed their money badly. So first you face it. Andyou start to feel powerful. Then you literally-- if you have a lot of debt,what I would do is I would call the Consumer Credit CounselingService. It is a non-profit organization set up throughout the entireUnited States. Let them work with you. Let them set up a payment planwith you. Let them negotiate to get your interest rates down for you andreally start tackling it. Also, always pay more than the minimum. I'mtelling you, a little bit can go a long way. If you have an $1,100 creditcard debt at 18 percent, it will take you 12-1/2 years to get out of itand you'll pay about $2,500 in interest by the time you do. Ten dollarsmore a month -- no big deal -- you'll get that $1,100 off your creditcard statement in six years and it will have cost you $676 in interest.Big difference. ADAM SMITH: Do you think if you have a house you could take outa home equity loan to pay your credit card debt? Or should you use themoney in your IRA? SUZE ORMAN: First of all, you cannot use the money in your IRA,because if you take money-- if you do a loan against your IRA, it'sdeemed as if you withdrew it. And if it's before the age of 59-1/2,you're going to get a 10 percent penalty plus pay income taxes on it. Soforget taking money out of your IRA to pay off credit card debts. Don'tdo it. However, a home equity line of credit where you take money outof a home to pay off credit card debt, I think is a good idea. You'll gofrom 18 percent to probably 8 percent. You'll go from a loan that'snon-tax-deductible to one that is tax-deductible. However, why do Iwant you to cut up your credit cards? I'll tell you -- you take out ahome equity line, pay off your credit card debts. So now you owe themoney over here. You still have these credit cards. You will chargethem again. And before you know it, you will have a loan here, fullcredit card debt here and now you've really lost it all. ADAM SMITH: So the first thing people have to do is to master thisaddiction to credit cards? SUZE ORMAN: They have to master how much do they havecoming in, really; how much do they have going out; and stop spendingwhat they don't have. To please realize that what you have around youisn't what defines who you are. That you don't have to have yourself-worth be defined by what people think your net worths are. Simplyshow people who you are by your insides, Adam, not by these falsethings that you have around you that mean nothing. [Graphic: Suze SaysFor free credit card advice call: Consumer Credit Counseling Service1-800-388-2227 (a not-for-profit organization with over 200 officesnationwide)] ADAM SMITH: What questions would you like answered to helpyou do your personal best in the money game? Get in touch at oure-mail address, letters@adamsmith.net. Or write to us theold-fashioned way at Adam Smith's Money Game, 885 Third Avenue,Suite 2800, New York, New York 10022. If your question getschosen, I will be sending you a personally signed copy of my book,The Money Game. We live in an age of capitalism rampant. Markets reign supreme and themost nimble practitioners in the markets are the hedge funds. With theirspectacular bull market profits, they can attract financial talent of thefirst order. One hedge fund manager many years ago said to me, ``Afee of 20 percent on the capital gain? When we heard that the first timeit was like e=mc2.'' Next week, tune in for an in-depth look at Conde Nast and theglamorous world of magazine publishing. I'll be talking to StephenFlorio, the man who runs it all -- Vogue, Vanity Fair, GQ and manyothers. And Suze Orman returns to answer more of your viewerquestions. I'm Adam Smith. See you next week as the Money Gamecontinues. ANNOUNCER: For more of the Money Game, visit us in cyberspaceat www.adamsmith.net. ANNOUNCER: This program is made possible by a grant fromMetLife with over $330 billion in assets under management. Fundinghas also been provided by the Roy R. and Marie S. NeubergerFoundation. [Graphic: Julian Robertson's interview was taped inmid-May. Portfolio management considerations or changes in aparticular company's circumstances after this taping could lead Tiger toadopt a different posture with respect to any individual securitymentioned.] CREDITS Produced by ADAM SMITH EDUCATIONAL PRODUCTION Thanks to: Special thanks to: 3-D Models Provided in Part by 3-D CAFE For a VHS cassette send $19.95 or $5.00 for a printed transcript to: Copyright _ 1998 Adam Smith Educational Productions Ltd.
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