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Weekly Wrap: Good things from crisis?

Kai Ryssdal Jan 2, 2009
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Weekly Wrap: Good things from crisis?

Kai Ryssdal Jan 2, 2009
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TEXT OF INTERVIEW

Kai Ryssdal: Let’s call today a “gimme” in the world of business and finance since so many people took four-day weekends. In fact, there hasn’t been a whole lot going on for a couple of weeks now. Kinda nice, actually, to have a break from the drama of the fall.

But the peace ends Monday with Congress back at work and Wall Street trading at full strength. Before we all settle back into our regular routines we thought we’d spend our weekly wrap looking backwards and forward a little bit.

Joining us for that are Andy Brooks at T. Rowe Price in Baltimore. Felix Salmon writes for Portfolio.com.

Andy Brooks: Hi, Kai.

Felix Salmon: Hi, Kai.

Ryssdal: Felix, I’m going to start with you actually. And we’re going to look back before we go forward. I want to test a proposition on you that 2008, as bad as it was, did some good things; it brought us back to reality in the housing market, forced people to reconsider their own personal debt levels. And, in that way, not so bad?

Salmon: I don’t buy it.

Ryssdal: Really? Alright.

Salmon: I think there are ways of getting to those ends without having a major global financial crisis.

Ryssdal: Alright, so I overstate. Andy, what do you — are you going to back me up, or no?

Brooks: Well, I think it’s good that we eliminate excess out of markets and out of peoples’ personal behaviors, but boy, that’s a — that’s a really expensive, painful way to have done it and it’s caused a lot of carnage for a lot of families.

Ryssdal: What do we look at going forward then — since you’re the market guy — as 2009? I mean, today it started pretty well.

Brooks: Yeah, you know, I think 2009 we’ve got an opportunity to really rebuild confidence. The economic data in the news is probably going to stay bad for a while, but let’s think about a fresh start, a new president — all those things might provide the launch pad, if you will, for better markets in 2009.

Ryssdal: Alright. So, Felix, you buying that? If you’re not buying me, you buying him?

Salmon: I’m not buying Andy either, I’m afraid. I don’t think anything’s changed. I think the government has spent all of its bullets. We’re going to get another stimulus package; it’s not going to do any good. We’re already down to zero interest rates. Things are going to get worse before they get worse.

Ryssdal: They’re going to get worse before they get worse? Or they’re going to get worse before they get better?

Salmon: They’re going to get worse before they get worse. I can’t see light at the end of the tunnel yet. We haven’t even had the big wave or corporate defaults, which has priced into the bond market and maybe, probably, perhaps, priced into the stock market, if we’re lucky. And we need to get through all of that before we can ever start thinking about coming out the other side. We’re nowhere near the end of this recession yet.

Ryssdal: For a long time, Andy, the talk was recovery mid-2009 sometime. What I’m hearing Felix saying is, forget 2009, we’re looking 2010-ish, ’11-ish. What about you?

Brooks: It’s probably going to take longer, but, you know, the market generally anticipates a recovery before it happens. And I think it’s tricky to underestimate confidence and enthusiasm and, sort of, hope. And I guess I’m in that category, and I sort of wonder if we’re not going to look back and have a decent year; it’s not going to be a barn-burner, but we might have a better market, and much better than people expect.

Salmon: I think we might — I mean it’s always possible to have an up stock market, but confidence is function of the economy more than it is of the stock market and the economy isn’t going to be recovering any time soon.

Ryssdal: But we’re about to spend $700 billion — another $700 billion — so, I guess the question is, is none of that going to trickle down and make everybody feel better?

Salmon: It’s, it’s great for the long-term future of the economy, and it’ll be good for the short-term in terms of just spending money and getting some liquidity moving around the economy. But these numbers are small compared to the amount of money which people have lost on their houses, compared to the amount of money which people have lost in the stock market — tens of trillions of dollars of wealth, and you know, saying that $700 billion is going to make all the difference. I don’t buy it.

Brooks: Felix, you’re right. But, you know, restoring confidence and improving perception, you don’t have to spend trillions and trillions to do that. You have to just create an environment where people feel a little bit better. And, if we can get some transparency to these markets, where people see real-time quotes, and we maybe put some rules in around short-selling and proper disclosure, people are going to sense that the game is fair. And that has an amazing, sort of domino effect. You know, it’s going to take time for this, these billions, to get sort of down the pipe and I think once we start to see that happening, markets and investor perception might improve much more than we think.

Salmon: And I don’t see the government coming in on its white horse — even if it is Barack Obama — and solving all of this in a stroke. I think the markets are going to have to do it themselves and I think the customers of the markets, they just don’t trust anyone or anything.

Ryssdal: Clearly we will agree to disagree. Maybe we’ll have you back in a month guys and talk about January as it went by. Felix Salmon blogs at Portfolio.com. Andy Brooks is a chief trader at T. Rowe Price in Baltimore, Maryland. Thank you both.

Salmon: Cheers, Kai.

Brooks: Happy New Year, Kai.

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