Where Will Volatility in Markets Lead? Economist Julianne Malveaux talks with Tony Cox about Tuesday's drop in the U.S. and Chinese stock markets and what that market volatility means for African-Americans.

Where Will Volatility in Markets Lead?

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TONY COX, host:

I'm Tony Cox and this is NEWS & NOTES.

On Tuesday, the Dow Jones Industrials had its biggest one-day drop in almost four years. One major cause was the nearly nine percent drop in the major Chinese stock index that same day.

On Wednesday, U.S. markets rebounded after Federal Reserve Chairman Ben Bernanke said the economy would grow moderately this week. But the Asian stock markets continue to reel. We saw on TV how the Asian upheaval affected folks on trading floors. However, the impact of the dip on other segments of the population is a little less clear.

So to help us sort through it all, Julianne Malveaux, who you just heard, the economist and president of Last Word Productions, is coming right back with me now. We're working you pretty hard today, aren't we, Julianne?

Ms. JULIANNE MALVEAUX (President, Last Word Productions): I don't mind hard work, Tony. Always a pleasure to be with you.

COX: Well listen, before we get into some of the more economic analysis of what happened, let's break it down for folks who need to understand, the people like me, for example. So many parts of our lives are at least influenced by stock market trends, just to name a few - mutual funds, 401k's, the prices of everything from groceries to gasoline to homes.

My question, Julianne, for you is this: How does a highly volatile market like this affect folks like us?

Ms. MALVEAUX: It depends on what run you're looking at, Tony. I know I sound like an economist now, but in the short run, it doesn't affect you much at all. This was a one-day dip that many observers are saying may be a trend to come and may just be an aberration. We saw the market come back by about 50 points yesterday. That wasn't a lot, you know, considering the 400-plus point decline.

But if we continue to see increases, you know, your next paycheck, your next bag of groceries, your next tank of gas isn't going to look any different. However, depending on whether you're 45 or 65, you might want to look at the way your portfolio is balanced and what you have where. Because if we see stock market volatility and you're about to retire, you might want to be careful.

But if you're 45 or even if you're 35, in the long run the stock market generates positive results of about seven to 10 percent a year. But in any particular year you may see large drops.

COX: Well, you know, economists never seemed to agree on the economic indicators and this downturn seems to be no exception. Some say, as you mentioned, it's a blip on the radar, like current Fed Chairman Bernanke. Others, including former Fed Chairman Alan Greenspan, suggest it's the tipping point into recession.

So what is the most reliable indicator of what this means and where it's likely to take us?

Ms. MALVEAUX: Well, you know, Alan Greenspan really needs to sit down and be quiet, with all due respect. His voice was very loud and very influential in his very long term as Fed chair. And he enjoyed that run. I don't think that he's quite on top of the numbers as Ben Bernanke is. And so to sort of start tipping us into recession I think is a little bit dangerous.

Certainly in the African-American community, Tony, some might argue that we're already in recession with double-digit unemployment rates affecting the African-American community and with many of the indicators really plaguing us. But by and large, when we look at the what's going on, you don't look at any one day; you look at trends.

Here is the thing that troubles me the most - even Ben Bernanke says that we can't expect growth at more than 2.5 percent this year, 2007. Well, that's down from the three-plus percent we saw in 2006 and about three or 3.5 percent is considered a healthy growth for an economy of our size. So if we're talking about an economic slowdown, that is something to be concerned about.

COX: As an investor, even a small investor - we've got about two minutes left -is it better to watch the market closely - I mean every day, every hour - or let it be and check it occasionally when something big like this happens? Or does it depend on how much money you've got at stake?

Ms. MALVEAUX: Well, it depends on how much money you have. And if you're a tiny investor, you need to be in a mutual fund. If you're a tiny investor and you know what stocks you have, you kind of have a problem and you're probably just a little paranoid if you're running back and forth to the computer to figure out what's going on.

If you've got less than $10,000 in the market, it needs to be in a mutual fund. If you've got a little more than that you should check episodically. Your pension funds, you should always at least annually check what the mix of those is as you age, as things change in your life.

You should not be an ignorant investor and you should figure out what the proper mix is for you in terms of what makes you comfortable and what makes you crazy.

COX: One more quick question in about 30 seconds. What are the strategies for weathering the storm? I know that's tough to do in 30 seconds. Especially if you either manage your portfolio or you don't and you don't know what connection you may have to stocks that are controlled by others, like your pension fund.

Ms. MALVEAUX: The strategy of John Rogers' Ariel Capital Management talks about the patient investor. I think patience is what most investors need to look at, but you also need to know what your tolerance is, what you want to do.

Again, Tony, the most important thing is your age. If you're a baby boomer, you ought to be a lot more concerned about this than if you're 25 or 35 years old because you always have time to bounce back.

But it's not just a stock piece of portfolio. What else is going on with your portfolio? What are you saving, what do you have in bonds, what do you own in terms of housing and other things like that? One of the interesting things in this market is that it's focused attention on sub-prime lending, and that's where you have an impact on African-Americans.

Too many of us have entered housing markets with sub-prime loans. Those are going to be cut back as people start worrying about people's financial mix, and those African-Americans who have not yet taken advantage of opportunities to get into home ownership may find it more difficult in the next year.

COX: All right. Good place to stop. Economist Julianne Malveaux, president of Last Word Productions and a regular contributor to NEWS & NOTES. She joined us from NPR headquarters in Washington, D.C. Julianne, you can hit the time clock and check out now.

Ms. MALVEAUX: Thank you, Tony.

COX: Thank you very much.

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