In the last few months, many of the nation’s wisest financial experts have created the impression that they have no clue what they’re doing. Bear Stearns has crashed and burned in a hurry, led there by people who actually went to school to learn how financial markets work. The Fed tries a little of this and a little of that and in the end, it all appears to be a crapshoot.
And yet, we listen to what they have to say and watch their interviews on the CNBCs of the world (here’s a sample of expertise on YouTube you don’t want to miss.), figuring that they simply must know something we don’t and until we learn it, we’re doomed to wallow in the financial mess that they helped create in the first place.
Logic is often the first victim of an economic downturn.
Marktplace’s Kai Ryssdal tried his best on Tuesday when speaking to Daniel Scotto of Whitehall Investment Advisors. Scotto made it clear that the Federal Reserve Board is trying to stabilize the markets, he thinks stock prices are still too high, and he thinks it’s a seller’s market. Got it. Easy. Stay out of the markets and head to the casino.
Then, speaking of market prices, he said, “risk is really being repriced in here,” and, when Ryssdal asked what he meant, we got this:
Essentially it’s the price of the premium over treasury yields that investors are demanding to place their money in stocks. Not to be too technical but in the reciprocal of the price earnings multiple. Essentially the sensitivity of the price earnings multiple and what that’s showing is the price earnings multiple needs more E than P right now
Perhaps consumer confidence has something to do with whether we can understand what the heck the experts are talking about.
The New York Times’ David Leonhardt had a good idea this week:
I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: “Can you try again?”
That said, Leonhardt does a decent job of explaining what’s going on and why.