Assessing Wall Street's Shaky Week
SCOTT SIMON, host:
This is WEEKEND EDITION from NPR News. I'm Scott Simon.
Coming up, newly released documents from the National Security Agency about the war in Vietnam.
But first, New Hampshire primary voters, this week, reiterated their biggest concern is the economy. The stock market went up and down this week. Tech and communication stocks, including AT&T, plunged. Major retailers announced they had their worst holiday season in several years. The Dow Jones Industrial Average fell another 246 points on Friday. That caps a 5 percent free fall since the beginning of the year.
All of these and more has prompted Fed Reserve Chairman Ben Bernanke to vow that he would take some kind of decisive action, as he called it, to protect the economy from recession.
Art Hogan is the managing director and chief market analyst at Jeffries Investment Bank. We spoke with him on Friday from his very noisy office in Boston.
Mr. Hogan, thanks very much for being with us.
Mr. ART HOGAN (Managing Director; Chief Market Analyst, Jeffries Investment Bank): Well, thank you very much for having me.
SIMON: When we talk about impending recession or hoping to avoid an impending recession, how does that translate in very practical terms as to the kind of the cautions that people will have to apply to their lives?
Mr. HOGAN: I don't technically think we need to get into a recession to feel like we're in one. We're going to have an economic slowdown. That means that some folks that we know won't be - won't have jobs. It means that the - some businesses that we know about will go out of business. Some businesses that we know won't make as much money. That's going to affect some things like corporate earnings. Some of the companies that we might hold on our mutual funds won't make as much money.
But at the end of the day, what it really means is a psychological thing. That we sort of have to work our way beyond because 50 percent or 60 percent of what's going on in the economic slowdown pinches on whether or not consumers remain confident and continue to spend money.
SIMON: On Friday, the Bank of America announced a $4 billion buyout of Countrywide Financial. That's a lender that's kind of become poster child for toppling credit institutions. Does that suggest to you that the worst of the mortgage crisis is over?
Mr. HOGAN: We're not going to see the worst of the credit crisis until we start seeing two things. We're going to see very big write-downs, like the billions of dollars we've heard about. In agri(ph), we've seen about $80 billion in write-downs from some of the major financial institutions. And then we also need to hear some of the weaker players being bought out by some of the stronger players. So Bank of America buying Countrywide, JP Morgan perhaps buying a Washington Mutual, and more consolidation like that, which is likely to be talked about over the next couple of weeks, is a very important part of the process. And then we can clearly say that the worse is behind us.
SIMON: And what about the cheap dollar?
Mr. HOGAN: The cheap dollar is part of the process, but it's not always to be blamed because there's not a constant relationship. And an important thing to remember about the weak dollar is that it helps our exporters. And to put that in perspective, if you look at the S&P 500, which is a broad spectrum of companies in America, about 40 percent of them receive a majority of their revenues from overseas. So the weak dollar is helping, you know, almost half of the S&P 500 companies.
SIMON: But we had a rising unemployment figures this month, too, though, didn't we?
Mr. HOGAN: We saw a 5 percent number for the first time in two years. So meaning that unemployment rate had been under 5 percent for the last two years. Now, if you were to go back for the last 10 years, the average has been between 5.5 and 6 percent. So we've seen extremely low levels of unemployment that really weren't natural.
It's difficult for our economy to work with the unemployment rate below 5 percent. Believe it or not, we think full employment really stands at about 5.25 or 5.5 percent. And when we get below that, we really have some wage price pressure. It's very difficult to get new employees for new roles as you roll out new businesses. And I don't think a 5 percent unemployment rate is an unhealthy thing at all.
SIMON: Mr. Hogan, what are you going to pay particular attention to, let's say, over the next two weeks?
Mr. HOGAN: Well, unfortunately the next two weeks are going to give us some relatively disturbing news, and we know that. The major financial institutions here are reporting earnings in next week. The billions of dollars they need to write off because of the subprime mortgage, credit that are in big problems that are out there. We give a couple of reads on inflation next week. There's a Producer Price Index, and it's a price index that gets reported next week. And of course, we're always watching the price per barrel of oil because that sort of plays into just about everything.
SIMON: Art Hogan, managing director and chief market analyst at Jeffries Investment Bank in Boston. Thanks so much.
Mr. HOGAN: Thank you very much for having me.
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