Live-blogging: The economy

The Dow dropped 500 points at the open today, dropping below the 8,000 mark for the first time since March 31, 2003. There are some interesting views being expressed today and I’ll be dropping them in here. An analyst on CNBC suggested before the open that “we hit bottom today.” Maybe it’s wishful thinking, or maybe it’s actual optimism, something we’re simply not used to.

8:42 a.m. Bob Andres, of Portfolio Management Consultants, says what’s happening is “irrational pessimism.” He called for “a timeout,” and suggests there be a few days of “bank holidays.” He also wrote earlier this week in the Washington Times, “The financial landscape will be remarkably different, and we suspect so too will the social landscape” after the historic events of the past month.

8:49 a.m. – It’s a rally! The financial sector is up. Is this it? Is this the end of the slide? The Dow is back above 8,000. The credit markets are, we’re told, “beginning to thaw.” President Bush to make a statement shortly.

9:03 a.m. - Blame Game O Rama. BusinessWeek has a good story on the earlier warnings sounded by two state attorneys general (no, ours wasn’t one of them) to a Congress not willing to believe them.

9:05 a.m. – Opinion piece: Forget about tax cuts. (Dow has stabilized with about a 200 point drop.)

9:11 a.m. – A cheer goes up on the floor of the New York Stock Exchange. It sounds like the Metrodome when Tavaris Jackson is pulled from the game. The Dow goes positive.

9:13 a.m. – The Dow drops again. “This place sounds like a stadium where a team is losing by 40 points and the backup quarterback is put into the game,” CNBC’s anchor says. Hey, get your own material, fella!

9:20 a.m. – At 2:30 this afternoon, officials from the Minnesota Department of Finance and Employee Relationswill discuss the state’s quarterly economic update. It’ll be interesting to see if there are sales tax receipt updates from August and September, one way we can determine whether the Republican National Convention helped or hurt the local economy.

9:25 a.m. Dow is down -83.95. President Bush just started speaking. He says the “United States government is acting and will continue to act.” He says banks holding mortgages have suffered serious losses and American businesses have not been able to finance expansion.

“Anxiety can feed anxiety and that can make it hard to see all that is being done to solve the problem,” the president said. “We can solve this crisis and we will.” He highlights the steps the government has been taking over the last few days.

He says the commercial paper market has been freezing up. (Explainer: What is commercial paper and why does it matter?) The president says it will take time for the bailout to work.

He didn’t take questions.

9:33 a.m. -186.06 The Dow dropped 100 points while President Bush was speaking.

9:35 a.m. – Here’s an interesting story worth chewing on. In the Washington Post (reg. required), The End of American Capitalism?


“People around the world once admired us for our economy, and we told them if you wanted to be like us, here’s what you have to do — hand over power to the market,” said Joseph Stiglitz, the Nobel Prize-winning economist at Columbia University. “The point now is that no one has respect for that kind of model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us.”

9:39 a.m. – Time Magazine: Charities are bracing for a long, hard winter. I beat you by four days, Time. (Dow now down 290)

9:46 a.m. – A very good comment in the comments area that I’m hearing more and more. Essentially, if the media would just shut up and report good news, these problems would go away. Discuss.

10:02 a.m. Wall St. Journal: Ten ways to protect your finances from the crisis. One controversial item:


6. Stop pulling a Monty Python when it comes to your worst investments. If you ever saw John Cleese and Michael Palin perform their famous skit about the dead parrot, you know exactly what I mean. No, your Fannie Mae shares aren’t “resting.” They’re lying at the bottom of the cage with their feet in the air. What more do you need to know? So stop waiting for them to “recover” before sorting out your portfolio.

These days all of my investments are my “worst investments.”

10:13 a.m. - As of today, average gasoline prices in the Twin Cities are just 17 cents higher than a year ago. 18 cents statewide. The price has gone down another 4 cents in the last 24 hours.

10:43 a.m. Dow down 343. Maybe you’ve seen ads on TV like this:

tv_ad_fha.jpg

What’s this? Refinancing? Without regard to credit scores. Isn’t that what got us into this mess in the first place? What’s going on here.

This company — Lend America — is actually trying to buy up mortgages and convert them into FHA loans. According to the Long Island Business Journal, the firm is bucking the trend by buying adjustable rate loans — usually at a loss to the investor. The warning flag is that the FHA requires a credit score of 580. The advertisement says people can refinance “up to 97 1/2 percent of the home’s value,” but many adjustable rate mortgage holders have mortgages that are now more than the value of the home.

Obviously, look carefully here. But FHA loans are still available to potential homebuyers. In addition to the credit score requirement and you need a 3 percent downpayment.

11:57 a.m. – In a few minutes, MPR’s Midday will take a look at the volatility of the markets. Guests are: Louis Johnston: Economics professor, St. John’s University and the College of St. Benedict; Ross Levin: Founding Principal of Accredited Investors Inc. and author of “The Wealth Management Index.” He is a regular columnist for the Journal of Financial Planning and the Star Tribune. The Dow is down 312.

12:12 p.m. – Johnston says there’s no sign of the credit crunch easing. Levin says this is temporary. Here’s a quote you won’t like: “The pain will be great and the bleeding will be extensive.”

12:19 p.m. – The two guests discussed the Wall Street Journal article today (I provided a link earlier) that said this isn’t a short-term deal. Neither bought the notion although one pointed out that, technially, the market has been down for 9 years.

Questions:

Q: Where is the money that people have lost?

A: Unlike a hat or unlike a pair of socks, this money “evaporated.” It didn’t really go anywhere.

Q: Should I plow a lot of money into stocks now while things are at bargain-basement levels.

A: Probably yes but not for the reason you think. The caller was 24. The percentage of what he’d invest is a small amount of “total future compensation.”

Q: Why not give everyone a pile of money rather than give it to the banks?

A: The $700 billion actually works out to around $400 and we saw what happened when we sent stimulus checks to everyone.

Q: If all the banks failed, what happens to my mortgage?

A: Good question. If it ends up in bankruptcy court, who collects the money from the mortgagee’s? It could take a long time to work out. There’d be nobody to provide loans or do any inter-company transfers. People with mortgages would be in legal limbo.

Q: Why should I have to bail out people who overextended themselves?

A: Resist the urge for vengeance; it will only make matters worse.

Q: is the media providing good information or fanning the flames of fear?

A: We constantly reporting what’s happening with the Dow . We need a patient discussion that goes through the problem and says “here’s what’s wrong and here’s what we need to do.” It’s far too much breathlessness.

Q: What should we do with the 401K statements that are arriving this week?

A: Put them in the shredder.

1:40 p.m. - Dow down 484. Looking for optimism? Try a spoonful of The Big Picture, which uses plenty of charts I don’t understand to come to a conclusion I can.

1:43 p.m. – Here’s the full MPR/Humphrey Institute survey that shows the economic crisis is reshaping the political agenda, just weeks before the election.

2:57 p.m. – This economy must have several feet because shoes keep dropping. Finance & Commerce reports today that pensioners of three state-managed plans are getting pretty squeezed.

3:09 p.m. The “every problem is an opportunity” award today goes to Barb DeGroot, PR specialist for the Minnesota Arboretum who just sent a press release out:


Stock market crashes, nasty political ads….the world is too much with us these days. Poet William Wordsworth’s refrain aptly describes the current mood in the United States. I invite to you come to the Minnesota Landscape Arboretum and experience “Autumn Unplugged,” a celebration of the colors and quiet beauty of fall. Please see attached release for weekend events and a color report We are nearing peak color, by the way! Thanks and have a great weekend.

That’s a pro right there.

And as long as we’re on the subject, here’s a photograph reader Kelly Rice sent me that he took while walking his daughter to school in Oakdale yesterday.

oakdale_tree.jpg

OK, now back to the economy…

3:14 p.m. Dow closes with its best showing of the week. It lost only 126 65 points.

3:18 p.m. - We’re on a tidal wave of unbridled optimism. The state took in more money than expected last quarter. The sales tax revenue was down. We need to see that broken out by city to determine if the RNC did any good, economically. The bad news: The economic outlook has worsened, which I guess isn’t really news at all.

  • b

    I think it is irrational pessimism. If most people with money in the market that is not in the financial sector would sit tight, things would stabilize. I wish people like Suze Orman would shut up with their doom-saying. A lot of this is emotional at this point, not factual.

    Imagine if the media started reporting that things were improving dramatically! That people were ready to weather the storm, and looking forward to the coming holiday season to spend carefully but enthusiastically for their families and their homes . . .what would the result be?

  • Bob Collins

    B, Take out the word “economy” in what you just wrote and insert the prhase “war in Iraq.”

    It’s certainly an argument to be made and it has been made since the days of Vietnam, that we were actually winning the war in Vietnam, but it was the media that turned the country against the effort.

    I, too, am detecting this anti-media sentiment beginning to creep in here.

    However, the question is: is the downtown here because of something WE the American are people doing? Or is it something bankers are doing. I’m hearing this morning that the problem is that banks don’t want to lend to other banks because they don’t know the valuation of the banks.

    Those are smart people who don’t much care what the media thinks.

  • sm

    How about a few days of “media holidays”? The 24/7 news churn thrives on drama and stokes the situation. This just feeds the frenzy. Maybe everyone needs a massive time out in the form of a a media blackout for most of the day to collectively breathe into a paper bag and calm down.

  • Bob Collins

    But anyone can make a media blackout any time they ant, of course. (g)

    Theoretically, however, if the media is primarily responsible for “irrational pessismism,” they would have been responsible for “irrational optimism.” But back then, people were making money hand over fist and no one was complaining.

    So what is it we really want here?

    I’ve heard media presenting people ad nauseum to say, “don’t panic and don’t sell,” and I’ve yet to run into a single person on Main Street who sold or is panicking.

    At the same time, I read comments — including here — from people who blame people who spent money and ran up credit cards.

    So now we’re turning on the media as the cause of all of this. But isn’t this the bill coming due. And aren’t we – not the media — the ones who ran up the tab?

    And, let’s face it, didn’t we have plenty of people in the media telling us back then that we should save more? But we didn’t.

    Why?

  • bsimon

    Bob Andres, of Portfolio Management Consultants, says what’s happening is “irrational pessimism.” He called for “a timeout,” and suggests there be a few days of “bank holidays.”

    This Bob Andres might be on to something. This week seems to be a drawn-out market panic.

  • Bob Moffitt

    I think there is some validity to the idea that a constant stream of negative headlines and use of loaded terms like “crash,” meltdown” and “collapse” might be influencing investors behavior and fanning the flames of fear and panic.

    Stop reporting the news? No — that would be wrong and irresponsible. However, editors (especially headline writers) should take special effort not to sound alarmist or to insert uneeded sensationalism (this story is sensational enough, thank you) on this topic.

    An example of what I mean:

    Two editors are handed identical wire copy on today’s financial news, concerning a 5% drop in the market. Yesterday, the market dropped 15%.

    One headline reads: “Stocks decline, but show signs of stabilzation” The other heads: “Global Market Crash Continues As Stocks Plunge Again”

    As a lot of people only glance at headlines, and as most broadcast news outlets are “headline reading services” (teevee adds pretty pictures), how the facts are presented CAN alter people’s reaction.

  • bsimon

    didn’t we have plenty of people in the media telling us back then that we should save more? But we didn’t.

    Why?

    Nobody likes the guy that turns down the music / takes away the booze at a party.

    We know we should keep it down.

    We know we should stop refilling our drinks.

    But once you have a buzz and you’re in the mood to party, who’s thinking about the hangover? The neighbors complaining about the noise are party-poopers who need to learn how to lighten up, right? Its not until morning & you see and feel the mess that you start thinking “Maybe I should have saved more.”

  • Bob

    Covering shiny happy news is fine, as long as there actually is some to report. I challenge anyone to show us where the good news is, cuz I sure ain’t seein’ it. We can’t scapegoat the media for causing the economic crisis, let alone blame them for doing their job and reporting on it.

  • Bob Moffitt

    “And, let’s face it, didn’t we have plenty of people in the media telling us back then that we should save more? But we didn’t. Why?”

    I think that on many levels, rampant consumerism and materilasm is not seen as a vice, but as a virtue — it has even been re-cast as a patriotic duty!

    I believe part of this comes from a generation (mine) that grew up in an era on unmatched prosperity, home ownership, etc. We want bigger, better and more, and we want it NOW. We don’t want to wait, or “pay as we go” or sacrafice.

    No the piper has shown up, the chickens are gathering, and the other shoes is….

  • bsimon

    “I’ve yet to run into a single person on Main Street who sold or is panicking.”

    Anecdotally, my wife, who works in Human Resources, reported last night that several employees have cut their 401(k) contributions to zero. On the other hand, new signups are going strong among new hires.

    We don’t know why the people ending their contributions are doing so – is it market pessimism, or a move forced by external pressures, perhaps an interest rate adjustment on a mortgage?

  • Bob Collins

    bsimon, are those contributions matched by the employer? If so, well, that’s just fixing one stupid mistake by making another. I’m not sure that’s a very good roadmap.

    Has your wife noticed if there’s a generational characteristic to those who are cutting contributions? My suspicion is that the younger folks are economically illiterate. We all are. We learn about how to save and spend, usually, by going through periods of comparative poverty.

    My youngest son’s TV went on the fritz the other night. His first reaction, understandably so, was to go by another one (well, after asking us for the money). It never occurred to him that there are hundreds of ways to get a free TV these days.

    Now he does.

    So, like I said yesterday, we are literally getting poorer, but wiser.

  • Paul

    Happy news? Please. That’s how we got into this mess in the first place. This crises has been brewing for 20 years and all we’ve heard in the media is how smart, strong, resilient and well off we are. MPR has been parading a series of happy talking financial advisers and economist by us for months, telling us not to pull our money out of the market, and that we’ve hit bottom. They’ve had three more on in the last three days. Things are bad, but as bad as 1983, wake up people. Maybe if the public had gotten accurate but not so happy information regarding inflation, unemployment, wages, and government efficiency we would have had a chance to make some rational policy decisions, instead we got free market cheer leading and voodoo economics. Instead of talking about what we wanted the government to do, we argued about how big it was- always too big gotta cut taxes, gotta deregulate, gotta privatize. I’m calling the period from around 1980 to today: “The Great Stupid”. This was the era when Americans decided to turn the country over to the greediest, most sociopathic people in our society while they went shopping and got preoccupied with sports. So much for that experiment. Now you don’t even want hear what’s gone wrong? Typical.

  • Bob Collins

    //MPR has been parading a series of happy talking financial advisers and economist by us for months, telling us not to pull our money out of the market, and that we’ve hit bottom.

    I’ll stipulate to the first part of your sentence, but I’d challenge you to provide the names and dates of MPR putting on either advisors or economists who said we’ve hit bottom.

    Similarly, I would challenge you to show where MPR has not accurately relayed the data on inflation, unemployment and wages.

    Unless of course what you’re really saying is we didn’t accurately relay the “sky is falling” mantra regarding employment. I’ll plead guilty to that, of course. Your contention is when the number of people out of work was the largest since 1983 was announced, it meant that it was 1983. However, as you know, that statement ignores the increase in the labor pool.

    I think you may be on to an accurate theme: inaccurate information. But I think you might have contributed to it here more than clarified it.

    Where the stock market is concerned, by the way, it’s 2003. It’s also important to understand that the stock market is NOT a lagging indicator.

  • sm

    When we got a house the FHA downpayment was 5 percent, now it’s down to 3? In addition to higher downpayments, riskier borrowers could be required to find a financial sponsor (parent, for example) to cosign the mortgage. If someone with something to lose is on the hook it might discourage unrealistic financial arrangements and subsequent walkaways.

  • Paul

    “I’ll stipulate to the first part of your sentence, but I’d challenge you to provide the names and dates of MPR putting on either advisors or economists who said we’ve hit bottom.”

    As I’m sure your aware, I don’t have the facilities to do a thorough search of transcripts in a timely fashion. Nevertheless I maintain that I’ve heard several times over the past several months that the markets have bottomed out. I trust that readers are also listeners and will confirm my point. In the meantime I offer this from your own Chris Farrell’s blog last Wednesday:

    “A financial crisis doesn’t stop immediately. The recession will be deep and long, and the recovery anemic. But we may be at or near bottom when it comes to “the worst financial crisis since the great depression.” Let’s hope so.”

    Since then we’ve lost what? Another 700 points?

    Put another way, why don’t you give us the names of advisers and guests that predicted we’d loose another 1000 points. I can give you names of people who did predict it, but none of them were on MPR.

    The media do accurately report the government figures on inflation, unemployment etc. the problem is that these figures do not accurately reflect actual economic conditions. When I ask you to report the actual data I’m asking you to do more than simply tell us what the government is saying, to the extent that you fail to do that you are contributing to inaccuracies. Alternative estimates are available. Anyone who thinks inflation has been less than 5% over the last fifteen years needs to have their head examined. The three biggest items in most American’s budgets are housing, health care and health care premiums, and energy, all of these are omitted from the inflation calculations, and all have increased hundreds of percent. If we calculated inflation the way they calculated it in 1990 we’d be looking at something like 14%. How many times have you mentioned that?

    As far as 1983 is concerned if I remember correctly, the discussion was about the “misery factor”. Your point was that this recession isn’t as bad as the 83 recession when factors like unemployment compared. My point was that this recession isn’t over, it’s going to get worse, and you can’t compare them until this one is over because you don’t have the data. I also argue that if you look at other factors one can claim that this recession is already as bad or worse, unemployment rates not withstanding. You can’t do direct comparisons of unemployment figures by the way because they were measured differently in 1983.

    When you refer the DOW not being a lagging indicator I assume you mean that even at 8,000 it’s higher than it has been in the past. You have to look at the DOW in the context of the over all economy. The reason the DOW has risen so high isn’t because so many people made so much money, wealth disparity has increased. Nor are the DOW’s numbers a reflection of a strong or robust economy. The main reason for the DOW’s historic highs is historic participation. Due to free market cheer leading, financial advisers telling everyone to put money in the market, public policy that promoted 401Ks, and rampant financial deregulation: market participation in the US has climbed from around 6% in 1990 to closer to 60% today. That put trillions and trillions of dollars into the markets, driving the indexes up. Was it good for the economy? Last year you have said yes, I would have said no. I think we’re finding out who would’ve been right.

    Pessimism is not inherently irrational, but willful ignorance is. When there’s good news by all means report it. In the meantime people deserve to know if they savings or retirements are being wiped out, even if it is bad news. And don’t worry, you’re just a reporter, you didn’t cause this recession, and you can’t end it.

  • Bob Collins

    I can wait while you check the site, Paul, but I think no matter how much time you’re going to make, you’re going to find the back half of your initial statement to be incorrect. I’ll chalk it up to hyperbole. You made it sound as though there was a steady drumbeat of people saying we’re at the bottom on MPR and clearly that is not the case. If some guy somewhere thinks we are, well, good for him or her.

    I don’t speak for Farrell, but I will pass along the cardinal rule for headlines. Don’t use the word “may.”

    Are savings and retirements being wiped out? You know, one of the things that’s disturbed me during this freefall is people attempting to answer that question without consideration of who’s asking.

    If you’re 24, no, your retirement is not being wiped out.

    If you’re 60 (or in my case, 54), I think the answer is obvious, especially when the economists *I’m* listening to on MPR are saying and have been saying that the economy is going to be bad for a good long time.

    This is one of the reasons I was quite upset with the presidential debate the other night. Neither of the candidates would say that the economy is going to get worse before it gets better, whenever everybody knew it would (and, indeed, did).

    The economy, from what I can tell, is going to be pretty crummy through 2010, which is also why it wouldn’t surprise me that the next president will be a one-term president. In a sense, he’s running to be the next Jimmy Carter.

  • http://erikhare.wordpress.com/ Erik Hare

    This is far from over. Wait for the retail sales figures from 3Q with projections into 4Q and then the mutual fund redemption figures for 3Q.

    That might be the end of the bad news as long as the hundreds of trillions in derivatives don’t break (hint: they will).

    This will not end until January at the earliest. Anyone who says otherwise, especially someone who claims that the spiking VIX is a bullish sign, is lying to you.

  • Paul

    “I can wait while you check the site, Paul,…”

    Ha! Don’t wait young man, until someone pays me to do this you got all your gonna get out of me on that one.

  • Bob Collins

    Well, it was worth it just to have someone refer to me as “young man.” Usually I have to go to church for that.

  • Minn whaler

    “The economy, from what I can tell, is going to be pretty crummy through 2010, which is also why it wouldn’t surprise me that the next president will be a one-term president. In a sense, he’s running to be the next Jimmy Carter.”

    Wow, this is proof (well nearly) that great minds think alike. I would not want to be in the position of being elected for President. Four years will not be long enough and since there is so much finger pointing going on it will take an incredible leader to change the “mood” of the country in 4 years.

    Message to Paul: You seem to like finger pointing, and so I need to ask… Do you truly believe that our economy is where it is because of interviews broadcast on MPR? Without the data to prove your point, you are as much a part of the problem as “the Media”, “the Government” or anyone else who hasn’t taken any steps to “enlighten” the rest of us about the “falsely optimistic” outlook broadcast repeatedly on MPR, or given anyone a wake up call that this was “tripe”.

    I can’t handle too many days of negative media coverage of anything. I turn it off. Ignorance truly can be bliss. daily updates of where the economy is is feeding the panic and frenzy, especially when we see and hear Meltdown, Catastrophe, bankruptcy, etc.

    i.e. kudos to Bob Moffitt for this

    “An example of what I mean:

    “Two editors are handed identical wire copy on today’s financial news, concerning a 5% drop in the market. Yesterday, the market dropped 15%.

    One headline reads: “Stocks decline, but show signs of stabilzation” The other heads: “Global Market Crash Continues As Stocks Plunge Again”

    As a lot of people only glance at headlines, and as most broadcast news outlets are “headline reading services” (teevee adds pretty pictures), how the facts are presented CAN alter people’s reaction.”

    Fear mongering is reaching every economic level and my biggest fear is those who are living on a shoestring, through no fault of their own are the ones who will pay the most for this “sensationalism”.

  • Grace Kelly

    I know the news this week has been ugly. However, your beautiful photo of the tree in the sunlight has given me some peace this day.

    I’m going to make it and so will the rest of you.

  • Paul

    Minn asks:

    “Message to Paul: You seem to like finger pointing, and so I need to ask… Do you truly believe that our economy is where it is because of interviews broadcast on MPR? Without the data to prove your point, you are as much a part of the problem as “the Media”, “the Government” or anyone else who hasn’t taken any steps to “enlighten” the rest of us about the “falsely optimistic” outlook broadcast repeatedly on MPR, or given anyone a wake up call that this was “tripe”. ”

    No I don’t think economy is shaped by MPR broadcasts. I think that our public discourse about the economy has been dysfunctional for the last couple decades or so, making rational policy impossible. The consensus media (including MPR) has played a role in that.

  • Gnorm

    // Q: Why not give everyone a pile of money rather than give it to the banks?

    // A: The $700 billion actually works out to around $400 and we saw what happened when we sent stimulus checks to everyone.

    This amused me considering it follows your “Why do Americans hate math?” blog post. I must be a math nerd because when I heard this assertion on the radio, I knew right away that the math was way off.

    I thought I heard the speaker say that the $700 billion would only amount to $400 per taxpayer. If you divide the $700Bn by the total population of the US (estimated at a bit more than 300 million in 2007), it’s more than $2,300 per person. The per-taxpayer number would obviously be higher than that.