Shop Talk

I advertised in the United Arab Emirates this week.I extend a special greeting to you,Arab friends and allies.Your country becomes more important in the business world every year.It's great to host you today.I would also like to remember Michael Metz of Oppenheimer,who died yesterday.A distinguished analyst,Mr.Metz was a frequent guest on business television.He began his career in 1959,but remained active through old age.We shall miss him very much.

Dislocation And Danger

As Wall Street goes back to work after Labor Day,the outlook of many analysts remains one of dislocation and danger.Martin Weiss of Martin Weiss Research thinks we've seen just the first shock of the mortgage earthquake.We are only beginning to see a scarcity of credit.We don't have data until it's too late.The mortgage crunch is occurring right now.There has been a blow to the gut of the economy,and it is unlikely the government can stop it.Frank Cochrane of Market Timing Consultants says the market will rally,then fall.The market is seizing on a Federal Reserve rate cut,but it probably won't happen,and the market will fall.We will head down for the next 6-9 months.Michael Metz of Oppenheimer sees the U.S. economy slowing dramatically.There will be a recession because there is a big overhang of debt instruments,and the leverage market has a lid on it.Richard Iley of BNP Paribas notes that we are years away from a housing recovery.The Federal Reserve has underestimated the downturn,and there will be a drag on the economy until 2008.It is the biggest housing slump since World War II.How bad can things get? Between 2000 and 2002,the S and P 500 index fell 47%.Many portfolios lost half their value.One approach for concerned investors is to hedge every stock purchase with a bond fund purchase or savings account deposit.BlackRock's Income Opportunity Trust(BNA) is a broadly based bond fund.Branch Banking and Trust(BBT) offers an eSavings account that yields 4% and includes an ATM card,as well as free online and telephone banking.

Whitecaps On Wall Street

Rough seas have reached Wall Street.There seems little chance of a quick return to the bull market of July,when the Dow Jones Industrial Average crested the 14,000 mark.On Monday,the world's central banks continued to inject liquidity into the credit market.The European Central Bank gave 65 billion dollars,while Japan chipped in 5 billion and the U.S. Federal Reserve added 2 billion more.This succeeded in arresting the decline of stock prices in the short run.Just how the market will progress remains unclear.Robert Stovall of Wood Asset Management says we are in a small credit crunch.This could continue into the fall.Michael Metz of Oppenheimer predicts that institutional investors will shift from elite funds to big cap stocks.U.S. spending has exceeded income,so there will be a major tempering of spending,causing a recession by early 2008.Mark Sunshine of First Capital sees a lot of risk ahead,on account of years of over-leveraging and under-capitalized lending.Many funds were invested in the lowest form of securities.In consequence,fund redemptions will cause downward pressure on stock prices.There could be a series of big redemptions over the next 6-9 months as investors flee to quality.ING Direct offers a no-minimum savings account that is currently yielding 4.52%.Among stocks,Johnson and Johnson(JNJ) and Honeywell(HON) are also good options.