One on One with Mike Holland, Chairman of Holland & Company
Tuesday, July 24, 2007
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SUSIE GHARIB: Joining us now with more analysis on today's Wall Street sell off, Mike Holland, chairman of Holland & Company. Hi, Mike.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hi, Susie.
GHARIB: So, Mike, is this the beginning of a sharp market correction?
HOLLAND: It could be, Susie. Anyone who's been in business for a long time should have some humility about guessing how far things go in any direction. Having said that, the report we just got on United Airlines reminded me of how strong the corporate sector is. If one steps back and looks at everything other than the housing market in the U.S., whether it's emerging market countries or U.S. corporations, the consumer themselves at this point have more jobs than ever before in the history of this country and they're earning more money, 2 percent real wage gains in the past year. So everything other than housing is doing very well. Now, you can say that housing is a huge part of the economy, well, it's knocking out 1 percent of this year's GDP or about 2 1/2 percent growth in the GDP. So none of this is a surprise. There were some new words that came out of Countrywide Financial today, but other than that, this is not a new development. This is an 18-month-old problem.
GHARIB: Exactly. We've had housing problems a long time and yet the Dow broke through 14,000 on a lot of momentum buying. And what was new today? What are the new worries and how serious are they?
HOLLAND: There was no new worry today, that's the news. The comments that came out of Countrywide Financial had some scary words in them, the worst housing market since the great depression and things like that and no recovery for at least two years. These were just more dire than the previous warnings about it. Having said that, the markets know that the credit problems of that part of the world are there. Now, having said that, we have corporations in the U.S. and countries around the world with the strongest balance sheets they've ever had and the consumers in the United States actually having the best balance sheets they've ever had. So housing prices are.
GHARIB: But do consumers have the best balance sheets? Because my reading between the lines of what Countrywide was saying is that it's not just the sub-prime mortgage market. It's credit quality deterioration across the board.
HOLLAND: The problem has been with the craziness of the lenders like Countrywide and the various people who gave many pieces of paper to people who shouldn't have had them. Whether they called them sub-prime or called them prime, the fact was that the lending restrictions were non-existent. So many people throughout this spectrum had loans they shouldn't have had and that's coming home to roost right now. And that process is going to take a while because this went on for several years. So I expect anyone, Dupont you mentioned earlier as a company which has a housing explosion. Any company that has housing explosion is probably going to have some problems for a while. It's a great excuse to take profits. We had stocks up in a major way in the past year, 25 percent over the past 12 months, almost no profit taking. So that's what's going on.
GHARIB: So is this a good time to buy or is it too risky? Especially for individual investors who have not participated in this market rally?
HOLLAND: Well, back to your original question, Susie, which is operative, is this the beginning of something significant? And my response is one that's experienced in terms of having made mistakes in the past. Nobody knows. It could last for an extended period of time, a short period of time. It could be -- Amazon reported after the close. Amazon's results were spectacular and the stock spiked up. So with the previous declines we've had in this particular bull market have been short, sharp, and over with. This may or may not be one of those. If I were advising someone who has no money in the stock market and were interested I'd say every time we get one of these declines, put a little bit in. If it goes up, step back. If it takes a while and goes down a little more, put a little more in. So that's the way to do it. I would probably buy a diversified basket using things like exchange traded funds.
GHARIB: OK, good advice, Mike, thank you so much for coming on the program tonight.
HOLLAND: Thank you, Susie.
GHARIB: We really appreciate it. My guest tonight, Mike Holland of Holland & Company.
