Trying to make sense of a bad week
TEXT OF INTERVIEW
Bob Moon: This was another one of those unforgettable weeks on Wall Street that we’d probably all like to forget. If only we could.
But it’s probably more productive to try to make some sense of it all. So, joining us for our weekly wrap-up now . . . Andy Brooks, chief trader at T. Rowe Price, and Megan McCardle, editor for The Atlantic’s Business Channel. Welcome to you both.
Megan McArdle: Thanks for having us.
Andy Brooks: Hi, Bob.
Moon: So Andy, let me have you back there on the couch, take a deep breath, let it out slowly. Tell me what’s been troubling you this week. It’s been a rough one hasn’t it?
Brooks: Boy, it really has been a rough week, and I — about all I can say this thank God it’s Friday.
Moon: Yeah.
Brooks: I mean, it’s just been brutal.
Moon: You’d think that everyone would be used to the bad news and stop panicking at some point. What do you make of all the activity this week in particular?
Brooks: Well a couple of things, it seems to me. One is, every day people are waking up saying “I can’t take it anymore. I need to sell. I need to protect whatever I have left.” Secondly, I think, on the margin, the game right now — for those who play the game — is to sell and to sell short and to put pressure on things. And it sort of feeds on itself, so the whole psychology is just terrible.
Moon: Megan, I get a sense that President Obama is getting blamed for the declines in the market in the last six weeks. Is that fair?
McArdle: Actually, I’m going to say that part of it is a fair cop, which is that the administration has been pretty shamefully lax in getting its house in order. And the Obama administration has been willing to spend political capitol on things like a huge new budget, a very large stimulus plan, but they’ve not spent political capitol on getting people appointed to Treasury. Timothy Geithner is trying to do this all alone with no deputies, and that’s why when his served plan A didn’t work out, he ended up in Congress saying “Well, I’m going to fix things by fixing them.” And that’s a huge, huge problem. I think the Obama Administration really needs to sit down and rethink its priorities and, you know, go back to focussing on getting the banking system fixed, because that is the one thing without which nothing else will do any good.
Moon: Andy, we all know that the market loathes uncertainty. Is the Obama administration sending clear signals yet?
Brooks: Well, I don’t think they’re clear enough and I’m certain that the president and his advisors fully appreciate, you know, how important the markets are to the country’s psychology. So, you know, one of our mantra’s is we’re just one day closer to the bottom, because it’s been awfully difficult. I would say, however, you know, the credit markets continue to improve and that ought to allow, I would think, Megan, the banks a chance to start working better here as well.
McArdle: Well, you know, I mean I think that that’s right. When you look at things like the TED spread it’s clear that the liquidity crisis that we were having in the earlier part of the year has started to abate somewhat. That said, you’ve still got issues with no one can buy a car unless they’ve got credit that’s better than 700. No one can get a mortgage unless they’ve got 20 percent down and sterling credit. Those are issues where you’ve got, you know, huge pileups of consumer durables.
Moon: Does it help or hurt having the president in the role of financial advisor, if you will, warning people not to panic? Andy?
Brooks: Well, I think the president needs to lead and people want to know that the president’s in control and that we’re making strident efforts to improve things. There’s something else that’s going on here that’s related, which we really don’t I think probably know how to address, and that is, there’s a question of confidence, right. And if peoples’ confidence in an institution like Citi or Bank of America or JP Morgan is driven by watching the stock price, it can be self-fulfilling. And a lot of people have been leaning on stock prices — selling stocks short, pressuring those prices, as a way to hedge out other instruments that they might have. And it’s very destabilizing. And I think we’ve probably got some work to do to try and figure out how to make that better.
Moon: We started out talking about investors saying I can’t take this anymore. I had hopes we were seeing the investor capitulation that you expect at the bottom of a bull market. Way back in September. And then came November, then we saw a 24 percent rally. Now we’re back to these sickening dives again. When is it coming?
McArdle: One of my friends who’s a trader used to talk about this all the time because he worked at a small hedge shop. And he said that his boss was always saying, “I think it’s capitulated! I think it’s capitulated!” And he would go, “No! As long as you think it’s capitulated, it hasn’t capitulated!” The point at which it will have capitulated is the point at which we all just give up and decide to put our money into canned goods and ammunition.
Moon: I think I’m about there, I’ll tell you. Thank you very much. Andy Brooks, chief trader at T.Rowe Price. And Megan McArdle, editor for The Atlantic’s Business Channel.
Brooks: Our pleasure, thank you.
McArdle: Thank you.
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