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TEXT OF INTERVIEW
SCOTT JAGOW: We’re just about half-way through the 2006. And a few months ago, it looked it might be a banner year for Wall Street. But things have definitely turned sour for investors and markets all over the world. Newsweek’s Allan Sloan says the keyword here is liquidity.
ALLAN SLOAN: Liquidity means, at least as I define it, the availability of a lot of money at cheap prices. And if you take Wall Street in the global sense, not only United States stocks but all the world stock markets, you remember at the beginning of the year, these things were booming and everyone said, except of course for me and you, that you gotta get into these foreign markets because that’s where the growth is. And since really about the middle of May people have gotten their heads handed to them. And just like the money going in ran the stocks up artificially, the money coming out runs it down artificially.
SCOTT JAGOW: So would you call this a correction? That investors were a little too exuberant before and now it’s kind of backpeddling?
ALLAN SLOAN: Scott as a recovering English major, I don’t use the word correction when stocks go down. I call it a decline or a fall, because if stocks go down and it’s a correction that must mean when they went up it was a mistake.
SCOTT JAGOW: Well was it?
ALLAN SLOAN: No, no, if you’re investing in stocks, there are two elements. One is what are the fundamentals of the company or the country you’re investing in, which determines in the end the long-term results. The short-term results are, are these things going to be popular or unpopular among other investors. If they’re unpopular among other investors the price is going to go down regardless of the fundamental value. And what’s happened is the United States Federal Reserve Board and the monetary authorities in other countries are raising short-term interest rates making it more expensive to borrow, freaking out — I think in many cases without justification — investors and what you’re seeing is a fleeing of money from markets.
SCOTT JAGOW: Sounds like you’re suggesting that investors may be overreacting?
ALLAN SLOAN: Well sure, they overreacted up. You remember early in the year we were having these conversations, ‘Oh the Dow’s at a six-year high’ and now ‘Gee the Dow is at a low’ you know we were talking about in early June. I mean you can’t really invest this way. You can speculate this way, you can have opinions this way. If I knew where things were going to go in the second half of the year, you can be sure that I’d be in all of these things. I’ve been uncertain, as we’ve discussed, for the past year I haven’t really understood what was going on and I was very heavily in cash which made me look sort of foolish early this year. I look a little smarter now. The real question is how will I look on December 31?
SCOTT JAGOW: Allan Sloan is the Wall Street editor for Newsweek magazine. In Los Angeles, I’m Scott Jagow. Thanks for joining us and have a great day.
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