Fallout: The Financial Crisis

Weekly Wrap: A reality check

Marketplace Staff May 22, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

Weekly Wrap: A reality check

Marketplace Staff May 22, 2009
HTML EMBED:
COPY

TEXT OF INTERVIEW

KAI RYSSDAL: How much you need this three-day weekend may well depend on which side of the economic fence you’re on: The “nope, we’re not out of it side” or the “hey, look how well the stock market’s doing side.” So before you hop in the car for your Memorial Day getaway, if you’re taking one, we offer our weekly wrap of Wall Street and beyond. Joining us for that this week is Leigh Gallagher, she’s an editor with Fortune magazine. Andy Brooks is the head of U.S. Equity Trading for T. Rowe Price.

Hello again, guys.

LEIGH GALLAGHER: Hi Kai.

ANDY BROOKS: Hi Kai.

RYSSDAL: Andy, I’m going to start with you actually. And I’m going to pull out that old stock market phrase “Sell in May and go away.” Is that what we’re seeing here?

BROOKS: You think it might be apropos, but my sense is you know the worst is behind us and it seems to me there’s a pretty good chance this market is higher at year-end than it is today. So I’m not sure I would head for the exits quite yet.

RYSSDAL: Leigh, how’s your sentiment there?

GALLAGHER: There’s definitely something to be said for things have stabilized. We are definitely not as bad as we were last September.

But I think a lot of this rally that we’ve seen in the past two months was based on just pure optimism, just the sense that things were getting less worse. And I think you have to remember that less worse is a lot different from getting better. And there was some optimism that things would start to get better in the second half of the year. Well, the second half starts next week. And I think that we are still a bit away from seeing some really positive signs that are going to tell us that this is finally all over and the market is going to go up.

RYSSDAL: Andy, don’t you think though that we can at least hope for a nice, quiet summer, that the stock market will be stable and there, frankly, won’t be much news until the fall?

BROOKS: Well I think everybody would vote for that. We’ve really had just an incredibly busy year and we’ve just had a fire hose of equity issuance come out in the last few weeks, and the market’s taken it very well, but I think we’re tired.

RYSSDAL: When you say “equity issuance” you mean new stock coming out in the market right?

BROOKS: Absolutely. You know after the stress tests so many of the banks have come to market with significant equity issuance and these are good offerings for the companies and hopefully good for the investors. But, you know it takes a lot of focus and attention to process this and to try and figure out the valuation metrics.

RYSSDAL: Valuation metrics is another way of saying price, right? And Leigh let me flip that to you and ask you about the mood of the banks on Wall Street that are issuing a lot of these stocks. Do you think that having passed the stress tests and now made it to possibly the doldrums of summer, that they’ve made it?

GALLAGHER: You know, I think they definitely have a lot more confidence and I think that they see in the markets that investors have a lot more confidence about the banks. But that could still change. I mean we still don’t know what other toxic assets are still lying on the banks’ balance sheets, but you know they definitely are riding this flow of optimism for sure.

RYSSDAL: All right, well let me rip some things from the headline than and we’ll do an optimism double check, Andy. And the first one would be the serious trouble that the recession has put the state of California in. They’re talking about rewriting the state constitution out here, because we can’t figure out how to manage our money. In the next week or so, General Motors will — odds are — file for bankruptcy. I mean there are some counterweights to the whole optimism thing, you know?

BROOKS: There certainly are and it’s clear that from these kind of headlines you see that there’s not a sector of the economy or a state or a municipality or a family that has not been adversely affected in a big way from this economic meltdown we’ve had. But again I think, you know, we know this and I think a lot of this might be priced in. The bear is talking, if you will. They keep rolling out these headlines and these stories and these reminders of how difficult things have been and I think the markets sort of have a pretty good understanding of that now.

To Leigh’s point, I think she’s probably right. I think we’re probably a touch premature and the market’s probably somewhat ahead of itself. So, this would be a good time for the markets just to back and fill and let us get our sea legs, if you will.

RYSSDAL: All right, the last question this week is going to be the sensibility question. And Andy I think we know where you stand on the general sensibility issue. You’re optimistic and you think it’s going to go well. Leigh, I go to you and ask you, are we making progress getting through this thing?

GALLAGHER: We’re definitely making progress. The credit markets have stabilized, the pace of unemployment has slowed. There is some truth to the reaction that the markets had in the past eight, ten weeks.

But I think there was also some overreactions, and now I think it’s a good sign that the market is sort of getting a reality check and really looking at things as they come out, for example, like the retail sales that were worse than expected. These things are also real. So it’s not going to be a fairy tale wrapped in a bow, you know, we start March 9th and go up forever. It’s going to be a little bit more complicated than that.

RYSSDAL: I was so counting on that whole fairy tale bow thing too.

GALLAGHER: Wouldn’t we love that.

RYSSDAL: Leigh Gallagher at Fortune Magazine, Andy Brooks at T. Rowe Price in Baltimore. Thanks to you both.

GALLAGHER: Thanks Kai.

Brooks: My pleasure. Thanks Kai.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.