Fears of the Future
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TERENCE SMITH: You don’t have to go looking for bad economic news these days; it comes right to your doorstep.
Headlines in newspapers across the country have been highlighting the slumping economy and corporate chicanery on a daily basis. And news weeklies and business journals paint a grim picture of times to come, asking of Wall Street, “How corrupt is it?”, and focusing on the “Wickedness of Wall Street,” “The angry market,” and “Big business’s bad behavior.”
This week’s Time Magazine, for example, asks an upsetting question: “Will you ever be able to retire?” The story inside story shows a retirement-age lifeguard and says, “Everyone back in the labor pool.” There are many questions, few answers. What started as a Wall Street story consigned to the business pages and tucked in the middle of news broadcasts has become the lead.
CBS ANCHOR: CBS’s Jim Axelrod has more tonight about this crisis of confidence.
JIM AXELROD: On Main Street, people have been splattered by the blood flowing on Wall Street. What they’re trying to do now, it seems, is avoid getting soaked.
CORRESPONDENT: Glen and Nancy Stevic of Pittman, New Jersey, sold out of the market last week after watching the $80,000 they had saved up for their kids’ college education be cut in half.
GLEN STEVIC: I actually kind of felt like I was having a nervous breakdown last week, but I pulled myself together.
TERENCE SMITH: Even as President Bush addressed the nation last week, trying to spur investor confidence, the cable networks showed that confidence heading south, in the bottom right of the television screen, by superimposing the falling market numbers. Newspapers reinforced the notion the next day, suggesting that try as he might, the nation’s CEO could do little to rally Wall Street.
TERENCE SMITH: Joining me now to discuss how Americans are reacting to their diminishing returns are business writers and editors from around the country: Kathy Kristof of the Los Angeles Times, Chris Lester of the Kansas City Star, Beatrice Garcia of the Miami Herald, and Doug Heuck of the Pittsburgh Post Gazette. Welcome to all of you.
Kathy Kristof, we have a new word, a new phrase in the language these days: “retirement panic.” In your reporting, are you sensing that?
KATHY KRISTOF: Well, I’m not seeing panic but I’m definitely seeing profound worry. And I think the reason that we’re not seeing panic is a lot of people really don’t know how to calculate how much they actually need.
TERENCE SMITH: When you say “profound worry,” profound worry that there simply is no bottom?
KATHY KRISTOF: Well, that there’s no bottom, that suddenly their retirement funds won’t be adequate to actually finance what they need when they retire. And it’s a legitimate concern especially if you’re close to retirement.
TERENCE SMITH: Chris Lester, what do you think is the right word: Nervousness? Panic? Anxiety?
CHRIS LESTER: Anger. That’s what I’m hearing from folks. I sat around a lunch table last Friday with 12 retirement-age investors and what I picked up on more than anything is just anger.
TERENCE SMITH: Anger at?
CHRIS LESTER: At the numbers, at the numbers that are reported by public companies and whether they can trust them — you know, certainly there have been a few specific examples and that raises questions about all the numbers that are put out.
TERENCE SMITH: Beatrice Garcia there are of course a lot of retirees in Florida. Is there anxiety in that population or panic if that’s the word?
BEATRICE GARCIA: I think anxiety is the right word here among some of the people who are close to retirement or already at retirement. I talked to a financial planner last week who said she got a call from a couple on vacation, and they wanted to entirely sell out their stock position. And they were going to come in on Monday morning and figure out what to do because they just felt they couldn’t withstand the losses any longer because, like other folks around the country, they just feared they weren’t going to have enough to get by for the years of retirement they’ve got left.
TERENCE SMITH: Was that reaction typical, that sell it, sell it all?
BEATRICE GARCIA: No, I think they were perhaps in the minority. I think there are a lot of other retirees who are thinking that perhaps they may have a little bit of time on their hands. And what they’re doing is maybe redirecting new money not into stocks but maybe into a money market fund or bonds — kind of to bide their time and rebalance their portfolio very gently at this time when there’s just so much chaos going on.
TERENCE SMITH: Doug Heuck, what sort of reactions are you hearing?
DOUG HEUCK: Well, I think we’re seeing some people who are close to retirement age just even if they’re sophisticated they look at their numbers and they realize I’m going to have to work a couple more years. I think among a lot of other people, the question that is mounting is, you know, how far are we from some point of inflection and, you know, are we at the point we’ve sustained so many losses but would we be better getting out now? I think that people have held on but I think that’s an increasing problem in their minds.
TERENCE SMITH: Kathy Kristof, the word anger has come up here. First of all, are you hearing that? And secondly who are people angry at?
KATHY KRISTOF: Well, I think people are angry at the dishonesty that they’re perceiving on both Wall Street and Main Street. They have every right to be in this whole debacle. What we’re seeing is people who have broken the law and stolen money from shareholders. When you wonder about how far lower we can go in the stock market, the answer really pivots on how many people are out there, how many CEO’s did the same sort of thing? How many falsified the numbers? If you can’t rely on the numbers, you don’t know how low this market can go.
TERENCE SMITH: Chris Lester, these drip-by-drip disclosures that we get every day, what’s the impact of those?
CHRIS LESTER: Oh, it just wears away on public trust and confidence in the numbers. And folks are on a buyers’ strike. I mean. people are watching these things and they are not being given a compelling reason to invest until they’re convinced that the system has been wrung out. I think a real key date is going to be August 14. That’s the date when all the CEO’s and CFO’s of the thousand largest companies are supposed to submit in writing that they stand by their numbers. And I think a lot of folks who watch the market very carefully are saying, okay, let’s wait and see what we learn over the next few weeks. And I think we’re going to learn a few more things but I think that process among many other things is going to help cleanse out the market because there’s a lot of pressures on CEO’s to stand by their numbers. I think most CEO’s are more than happy to do that, but this is going to flush a few things out of the closet, I think.
TERENCE SMITH: Beatrice Garcia, that would suggest that people are not simply ready to get back into the market when they conclude that it has reached the bottom, that there’s a greater hesitation or, as Chris suggested, a buyers’ strike.
BEATRICE GARCIA: He’s probably right about that. I think it would really be a good thing for the market if you saw investors walking away from a lot of companies where the CEO’s did not stand by the numbers. If you recall in the mid ’80s when there was a movement to avoid stocks that did business with South Africa because of its apartheid policies, in that situation investors stood up and said, “we’re not going to invest in these companies.” Companies eventually had to change the way they did business. And we might be at another inflection point in the market like that where investors say, you know, you’ve got to come clean with your books. You have got to be honest about your reporting. You didn’t do good this quarter. Okay. I’ll take that. But don’t lie to us. We can’t believe in any of the companies now. It’s a real crisis of confidence among investors.
TERENCE SMITH: Doug Heuck, what will it take to restore that confidence?
DOUG HEUCK: Well, I think it’s going to take a lull in the steady drumbeat of bad news and it’s going to take some good news. I mean the trouble is you have good companies right now that are certainly getting washed out just in terms of the sentiment. But a lot of the good companies are also getting really hit because, for instance, they might be supplying a company that has been one of the high-profile companies that is now suddenly bankrupt. We have a local company that their biggest, one of their biggest customers was Adelphia and they make fiber optic. They may be doing very well but all of a sudden this big customer is in trouble. So it’s not just kind of investor panic. It’s actually inter-connectedness of these companies and the supply chains really are hurting more than just the troublesome companies.
TERENCE SMITH: Kathy Kristof just in the last week we’ve had the President, the chairman of the Federal Reserve in effect trying to talk up the market and to assure people that the economy itself is fundamentally sound. Is this jaw boning having any effect?
KATHY KRISTOF: I don’t think so and I frankly think the politicians are a little bit extraneous in this whole thing. If you want to see who’s going to have an effect I think it’s the Justice Department. If some of these corporate wrong doers are not sent to jail, I don’t know that we’re ever going to restore confidence in the market.
TERENCE SMITH: Chris Lester, what’s your view of that? Is that the requirement, or is there something even more?
CHRIS LESTER: That certainly is one of them. People want to see wrongdoers prosecuted. I mean the folks I talked to around that lunch table last Friday, they want folks in handcuffs and in jumpsuits being walked away. They really, there’s a real hunger for that, to see some justice done where folks broke the law. You know, the economy broadly is still relatively healthy. And that gets lost all the time in these conversations. The market is a mess. The economy so far at least is pretty healthy. We did a story here in Kansas City about how the labor market has actually grown through some serious times for some of our major companies here in town. The other point that is being lost I think by a lot of folks is that stocks today are cheap, cheaper than they have been in years and years and years if we can trust the numbers. When the numbers can be trusted, investors will come back and there are people– maybe not folks at retirement age or about ready to send their kids to college– but there are people that will make a lot of money in the stock market if they have got a long enough term time horizon. There are going to be some real deals out there over the next several months I think.
TERENCE SMITH: Beatrice Garcia, that goes to this much advertised disconnect between a fundamentally sound economy and a market that keeps falling. How do you reconcile that and at what point does the market finally respond to the positive signs that Chris Lester is talking about?
BEATRICE GARCIA: Well, I think the market usually anticipates an economy turning around or an economy moving into a recession, and I think here what we had especially after September 11 when there was so much uncertainty, you know, everything basically came to a standstill that the market really anticipated a big rebound. I think some of that has happened but it hasn’t been I think as strong as the market anticipated. That’s what I think as we were moving into the spring of this year, you started to see the market falter. And I think it has to regain its footing by seeing some numbers that are, you know, more positive and real solid gains. I think some of the economic indicators have not been really strong. They’ve been up but not really strong. And I think that’s given the market some pause. I think one of the things that is also giving the market and investors in general some concern is that there may be a fear of people feeling less wealthy, less well to do, because of their stock market losses. So maybe they’re not going to buy that new car. Maybe they’re not going to trade up to a bigger house. And that in a sense can then become a sort of a domino effect and slow down the economy some if all of a sudden consumers begin to retrench because they feel poorer.
TERENCE SMITH: Doug Heuck, have you sensed any of that, a situation in which a falling market would actually undercut an otherwise solid economy?
DOUG HEUCK: Absolutely. In fact I’ve been surprised that we haven’t seen that earlier. If you remember the peak was, what, March 2000. We’ve had a falling market for a while. I’ve been surprised that the consumer confidence numbers that we haven’t seen that. I think we may well see that more now. I think what’s also interesting is that reverse wealth effect — it is not only going to affect the individual, certainly at some. They’re going to be less likely and willing to buy the big items but you’re going to see it affecting the institutions and kind of community largesse. You’ll see it in hospital systems that were able to fund some of their missions through a market that was doing well. You’re just going to see a change in that regard that isn’t just limited to the individual.
TERENCE SMITH: Kathy Kristof, you said earlier that much in Washington on this issue anyway is extraneous to what’s going on in the market. Is there anything Washington can do? Is there anything this administration’s economic team can do to either persuade people that the economy is fundamentally sound or otherwise affect the market?
KATHY KRISTOF: Well, I mean, I think the proof in the pudding is actually what happens here. We just don’t know how fundamentally strong the economy is because we don’t know whether people are going to start to feel poorer and stop spending, which of course could derail the economy. But I think that one of the things that we fail to see is that the stock market dropped not just because the economy went into the tank but because stock prices were way too high. People had been telling everyone, look, stock prices should not be at these levels, for years and years and years. And we just all ignored it because we were all exuberant about, you know, life as a whole and the economy. But sooner or later it had to come down. We are now at prices where this begins to reflect the future and these are more reasonable prices. But we didn’t get there until just recently.
TERENCE SMITH: Enough about irrational exuberance.
KATHY KRISTOF: We were wringing out excesses in this market for a really long time.
TERENCE SMITH: Thank you all four very much.