In market, psychology beats economics
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TEXT OF INTERVIEW
Renita Jablonski: Richard De Kaser is watching the markets from his office in Washington, D.C. He’s chief economist at National City and joins us now. Richard, we have the markets dealing with an incredible slowdown, what do you make of it?
Richard De Kaser: What’s driving it all is an open question. In fact, I would say psychology is the place to look more than economics. Reports as to what triggered this latest event is worries about earnings, i.e. worries about a deeper and longer global economic recession. But for that kind of worry to emerge over the course of a 24-hour period without any real compelling evidence to support it is a bit of a stretch.
Jablonski: So what’s your view as to how serious this recession may be?
De Kaser: My best judgement is that the recession’s likely to be a modest one. The two big bogeymen have been the housing market and the commodity markets. Well, commodity prices have fully reversed and are now very low, and that’ll be helpful to consumers going to the gas stations and the supermarkets. The housing market does remain in a tailspin, but mathematically it’s almost impossible — well, it is impossible — to reproduce that kind of decline going forward.
Jablonski: But I guess there are some realities to this panic — like unemployment. How are we going to see the unemployment picture change in the next couple months?
De Kaser: Well, we’re not likely to see it change for the better in the next couple of months, and that is to say these financial repercussions are reverberating in the real economy. The question is, do we start to see some traction that begins to turn this market around? Now the government policy actions taken have been extraordinarily decisive, and in my opinion right on target. But again, they have proven insufficient to overwhelm this tide of pessimism.
Jablonski: Richard, what about the psychology for the rest of us outside of the financial services industry? What are we supposed to think right now, the average investor?
De Kaser: Oh, I think the most important thing to do is not to panic, not to make decisions based on the short run and lose sight of the big picture. What we’re going through is extraordinary, but that does not mean extraordinary is likely to get even more extraordinary.
Jablonski: OK, chief economist of National City Richard De Kaser. Thanks a lot for joining us.
De Kaser: My pleasure, Renita.
Jablonski: And some breaking news — we’re just hearing PNC Financial Services Group said it agreed to buy National City in a $5.6 billion transaction.
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