JEFFREY BROWN: Two straight big drops on Wall Street, and plenty of post-election action in Washington. We start with the markets, and Hugh Johnson, chief investment officer at Johnson Illington Advisors.
Well, Hugh, two bad days in a row. What are the markets seeing?
HUGH JOHNSON, Johnson Illington Advisers: Well, I think the problem is, is that, now that we’ve gotten past the election and all the good feelings about the election, investors, Jeffrey, are focused back, refocusing on what really matters the most to them, and that’s, of course, what’s the economy doing? What are earnings doing?
And when you look at the October economic numbers that we’ve seen so far, automobile sales and retail sales, when we look at reports on manufacturing, reports on the non-manufacturing sector of the economy, they’re nothing short of very, very dismal.
So the numbers, the economic numbers we’re seeing that kind of tell us what the economy did in the month of October are very, very poor.
JEFFREY BROWN: You’re saying for the markets — and I guess now for the rest of us — it’s kind of OK, oh, yes, all that’s still out there, right?
HUGH JOHNSON: Yes, that’s all that’s out there. And it’s probably maybe a touch worse than I just described it, although I don’t want to describe it as much worse than I already have.
But there’s also indicators that are in these reports — that are embedded in these reports that tell us not where the economy went in the month of October or what it did in the month of October. It tells us where the economy is headed. They’re leading indicators for the economy.
And they say, not only things were bad in October, but they’re not likely to get any better for the remainder of this quarter and probably the first quarter of 2009. So it’s kind of dismal out there.
JEFFREY BROWN: And what sectors, what stocks were most hit — hardest hit, I should say?
HUGH JOHNSON: Well, yes, you know, Jeffrey, what we’ve been seeing is it’s actually fairly broad-based, but certainly the financials have been hurt a lot. We saw the price of oil decline because the expectation is that demand is declining, demand for oil is declining fairly sharply.
And, of course, automobile stocks, very, very sharply, consumer stocks, anything that has to do with consumer spending declined very, very sharply.
Market uncertainty continues
JEFFREY BROWN: And let me just ask you briefly, to the extent that markets don't like uncertainty, the uncertainty question in Washington now, new administration, new Congress, does that play any role? I know that's a tough question and hard to answer, but what do you think?
HUGH JOHNSON: No, it is a hard question, and it's very hard to answer the question as to the impact of uncertainty on the markets. And the uncertainty probably isn't so much about the new administration and their policies. I think we know quite a bit about that.
There certainly is ongoing uncertainty about the sort of length and severity of the current economic downturn. The consensus is, is that the economic downturn will probably last through the first quarter of 2009 and will start to see a slow recovery in the second quarter.
But the message of the markets now, which reflects the uncertainty, is, look, this might be a little bit longer and a little bit more severe. So there is a great deal of uncertainty about what's going to be the outcome for the economy. And the markets are saying, "We're unsure, but it looks pretty gloomy."
JEFFREY BROWN: All right. And tomorrow, another unemployment number, which is expected to be bad again, I guess, huh?
HUGH JOHNSON: Yes, that's probably the most important number that we look at in any given month, Jeffrey. And the expectation is that we'll see a loss of jobs of something on the order of 170,000 to 200,000. My expectation is that it will be over 200,000.
There are a lot of economists, strategists that believe it will be over 200,000. And that's the most important report for any given month.
JEFFREY BROWN: All right, Hugh Johnson, thanks very much.
HUGH JOHNSON: You're welcome.
Auto industry seeks aid
JEFFREY BROWN: And now for the Washington part of the story, I'm joined by John Shaw of the wire service Market News International.
Well, speaking of autos, which we just were, the big three and the representative from the union came to Washington today. What can you tell us?
JOHN SHAW, Market News International: Well, they had a meeting with the speaker. Nancy Pelosi hosted them in her office and also had the House majority leader, Steny Hoyer, and some Michigan lawmakers.
And it had the feeling of a somewhat ceremonial meeting. I mean, they made it very clear to the press this meeting was taking place. They staged a photo opportunity and all.
So it seemed very much a way of the Democratic leadership showing that they're aware of the plight of the auto industry. They wanted to see if they could find some ways to help it.
Pelosi was very clear about avoiding any specifics, but just said that the auto sectors are important to the American economy and Democratic leaders want to see how they can help it.
JEFFREY BROWN: The auto industry is still trying to find a way, I think, into that $700 billion rescue package, have not made a lot of headway with the Treasury Department. Candidate Obama had talked a little bit at least somewhat positively about trying to help, but you're saying now Congress is being careful.
JOHN SHAW: It's being careful, although it was interesting. Senate Banking Committee Chairman Chris Dodd had a press conference on his agenda this year and was asked if maybe some of these $700 billion rescue funds could go to the auto industry.
He said he thought they could. He said that he was not certain that the Treasury shared his view. But he said he thought that was something Congress should actively explore.
Second stimulus package planned
JEFFREY BROWN: The other big thing that's in the air today and the last couple of days post-election is talk about a stimulus plan. Now, again, Nancy Pelosi has been talking about that. What do we know so far?
JOHN SHAW: Well, what we know so far is that the speaker thinks that the Senate should pass a bill the House passed in September. They passed the second stimulus, a $61 billion package in September.
And she said, OK, now the Senate should go forward in the lame-duck session, which will be in a couple of weeks, and pass it. The lame-duck session is only expected to last about a week or maybe two weeks at the most.
And I think what she was signaling, that she wasn't interested in a real long negotiation. She wanted Congress to pass a stimulus in November. And then sort of teeing it up for President-elect Obama to step forward and probably do a much larger stimulus package in January and February.
JEFFREY BROWN: So some kind of two-stage approach?
JOHN SHAW: I think they want to lock in what they can in November, if possible, and then really set the stage for President-elect Obama to do a much bigger package in January and February.
JEFFREY BROWN: And still an open question about how it would work, in terms of tax cuts versus spending on infrastructure, for example?
JOHN SHAW: Right. And, again, there's some sense that there will be a tax component. Maybe part of Senator Obama's big tax package might be put together in this stimulus bill. So it looks like it's going to be a lot of economic activity in January and February.
JEFFREY BROWN: But in the meantime, an interesting dance in the interregnum not to over commit or to be kind of careful in that period, huh?
JOHN SHAW: Absolutely, yes.
JEFFREY BROWN: All right, John Shaw, thanks very much.
JOHN SHAW: Thank you, Jeff.