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RAY SUAREZ: Finally tonight, what’s going on with the markets? Weeks of heavy losses, four days of big gains beginning last Wednesday, a big loss of 219 points on the Dow yesterday, and a bump up today of 239 points. Joining us is Gretchen Morgenson, financial writer and columnist for The New York Times. Well, in normal times, Gretchen, a multi-hundred-point move is a big story all on its own, but what are we to make of five days of it?
GRETCHEN MORGENSON: Well, I think that the reason this is getting everyone’s attention now is that the S&P– the Standard and Poor’s 500 Index, which is the index that most people own through their mutual funds if they do own Index funds– has been even more volatile than the NASDAQ, which, you know, has been traditionally the extreme volatility index. So people are really noticing this and are probably a little distressed by it. But we have had the up moves so they are certainly appreciative of the move up rather than the move down, but I think the volatility shows that there is… there really are sort of two different very well-argued points of view about the economy and about the future for the stock market. And there’s sort of a tug-of-war going on between those two points of view.
RAY SUAREZ: But wouldn’t that mean a market that’s sort of treading water, waiting for a very clear direction in earnings and the value of these companies?
GRETCHEN MORGENSON: Well, yesterday you had the stocks down 200 or so. Today they’re up 200. So, you know, between those two days, right, you really do have sort of a wash. Now luckily we have bounced off a low that we had in September and early October. So there is a camp that believes that we have seen the lows, have seen the bottoms and that this is the beginning of another rally or a sustainable rally, but there are also very well reasoned arguments for the economy is not turning around. I think people are just extremely confused and don’t really know how to react and how to plan.
RAY SUAREZ: Economic data comes out in dribs and drabs so there will be a number one morning that everyone seems to seize on. Housing numbers were very good today, but it was announced this week, also, that manufacturing was still in decline. How does a market set a direction off of what sometimes seem to be very conflicting numbers?
GRETCHEN MORGENSON: Well, we’ve seen a strong consumer and the housing market has been strong. Those are sort of the strong legs of the stool. The weaker aspects have been, as you point out, manufacturing. Certainly telecom equipment continues to lay off people — very disturbing. So I believe what investors who want to buy stocks but are not want to see is strength on the manufacturing side too, strength in technology spending, come back into the market. Then you’ll really have a reason to go out and buy stocks. Now this week the numbers just came out for the mutual fund outflows and inflows. And in the week ending Wednesday there were net redemptions in stock funds of $4.2 billion, so people are still selling.
RAY SUAREZ: And getting out in many cases at lower prices than they got in. When people anticipate new buyers coming into the marketplace and bidding up the indices, where is this money going to come from? Wasn’t a lot of value simply evaporated over the last year- and-a-half of trading?
GRETCHEN MORGENSON: Trillions, as a matter of fact. There is a lot of cash on the sidelines waiting for the right moment, whatever they feel that is, to come into the market. Certainly mutual funds do have cash. So there is money to be, you know, put to work. But I think that you still have to work off this incredible wealth destruction that people have endured since March of 2000. This is now the third year that stock prices have been down, that people have had a down year as investors. And that’s a difficult triple whammy as it were to come out of.
RAY SUAREZ: The indices, all of them are still way, way down from their highs. How many weeks of one direction or another before you can really safely say one market is on this kind of course? It really looks like something that you could, without fear of contradiction, call a trend?
GRETCHEN MORGENSON: Wow — if I knew the answer to that, I think I wouldn’t have a day job. I’d just be investing. But I do think you need to see more than four or five days. While it is nice to see these up moves, people are sort of in more of a “show me” mood particularly coming off the brutal September and third quarter that investors had. If you’ve opened your statement for your 401(k), your eyes were probably popping out at how bad the numbers were. That’s a difficult thing to change.
RAY SUAREZ: Gretchen, thanks a lot.
GRETCHEN MORGENSON: Sure.