Elaine Garzarelli, president of Garzarelli Capital Management

This is a partial transcript from Your World with Neil Cavuto, October 17, 2001.

NEIL CAVUTO, HOST: You know, today's mixed profit message from corporate America adding a lot more anxiety to an already anxious market. So where do we go from here?

My next guest made headlines when she predicted the crash of 1987. It's been sort of like a good gig for her since '87. Can she forecast what happens now for the financial markets? Elaine Garzarelli is her name. She is the president of the capital firm that bears that name.

Elaine, good to see you.

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CAVUTO: It's interesting, you and I were chatting during the break here. We were doing OK, and then, you know, we're up about 100 points. Then we got news about Daschle's office, then we got news about Pataki's New York office. We turned around, 250 points. What's going on?

GARZARELLI: I don't know. I don't know what happened at the end of the day, but I think that the market is very shaky right now. We don't know what's going to happen next. And what I found out that Iraq is involved and they do have a lot of germ warfare that I think a lot of people are beginning to realize.

I called a client yesterday and talked about some of the things that I knew, and he wasn't aware. He said I turned the TV off a week ago.

CAVUTO: I heard someone say that because of a lot of finger-pointing to Iraq, that now we're almost invariably going to look longer term invading Iraq. And then this becomes a much bigger pill for everyone to swallow. Do you buy that?

GARZARELLI: I think that would be the safest thing to do. So I think if we did that, that the market would definitely rally. That's what we're afraid, that we won't go...

CAVUTO: If we knocked him out, right?

GARZARELLI: ... (UNINTELLIGIBLE) and we wouldn't knock him out. Right.

CAVUTO: Let me ask you about your stance on the market on the market right now. Bullish or...

GARZARELLI: Well, my indicators are at 75 percent.

CAVUTO: What does that mean?

GARZARELLI: That means that they're bullish. Anything above 30 percent is in good shape.

CAVUTO: So you in other words...

GARZARELLI: The Fed is easing. We've got stimulus, we've got mortgage rates down to a three-year low. We've got refinancing at a very, very high level. And...

CAVUTO: So we're off to the races here.

GARZARELLI: ... G-7 rates are down quite substantially. Off to the races I think from here, and we have a 20 percent gain. But the problem is we have such a high P/E that whenever we have these...

CAVUTO: Price/earnings...

GARZARELLI: Price/earnings multiples. Whenever we have these big rallies -- we had one in January of over 20 percent; we had another one beginning in March of 20 percent -- my indicators give an overvalued signal after about a month or six weeks. So if this stretches out a little bit longer, we could enjoy it. But the problem is it happened so fast.

CAVUTO: So stretch away. What are you buying? You like GE.

GARZARELLI: I like General Electric. Yeah, it's down 30 percent and that's one of the reasons. And I also have been buying for myself Hilton Hotels.

CAVUTO: Really.

GARZARELLI: ... because it dropped so much, and it's 35 percent below its...

CAVUTO: (UNINTELLIGIBLE) an $8 stock. It had gotten down to six- something, right?

GARZARELLI: Really a good deal. Yeah, and you can even buy Boeing, it's crashed. So there are a lot of opportunities.


CAVUTO: In the brokerage arena, some old familiar haunts here: Lehman and...

GARZARELLI: And look at Schwab.

CAVUTO: Why? Why?

GARZARELLI: Schwab is down 70 percent from its high.

CAVUTO: Maybe for a reason?

GARZARELLI: For a reason: I think because the market has been in a bear market, but these stocks are usually the first to move up when the market begins its rally. Usually, the market will begin its rally three months before the end of the recession. The recession started, I believe, some time in February, so it will probably end some time in March. So we're in that period now where we should start to see the market take off, a cyclical bull market.

CAVUTO: All bets are off, though, if this thing widens and another bigger anthrax scare, right? That's the big imponderable.

GARZARELLI: I think it's getting into the market.


GARZARELLI: Yeah. I'm not afraid of anthrax anymore. I have two bottles of that medication, and now I'm not nervous anymore about it.

CAVUTO: OK, Elaine...

GARZARELLI: Coming here I wasn't nervous with this building.

CAVUTO: See that? And you're welcome. You're in a basement too. All right. Elaine Garzarelli.

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