Big Fat Story
We asked three financial experts how long they expect the market mayhem to last
Ask three different experts and you get three different answers. "I think it's going to take another two years,” says William Cohan, former managing director at JP Morgan. “My sense is that there will be repercussions in the consumer economy that we haven't seen yet,” says Strauss Zelnick, founder of ZelnickMedia. And Jeff Leeds, co-founder of Leeds Equity, says, “To say that it has a natural course to run seems to be ludicrous. It's not a natural disaster. It’s not a Tsunami. It's man-made.” You pays your money, if you have any left, and takes your choice.
Photo: Brendan McDermid/Reuters
The UK Treasury has worked out a package it is trying to sell to the rest of the world
It is not all doom and gloom, fear and panic. Gordon Brown’s government have moved smartly to shore up Britain’s huge banking sector with government money underpinning liabilities in exchange for an equity stake. And deposits have been guaranteed to help prevent a run on banks. “The measures announced by the U.K. represent intellectual progress and offer the most sensible plan to date,” writes the Wall Street Journal. “Unlike U.S. Treasury Secretary Hank Paulson's plan of buying up toxic assets to create a market for them, the British approach addresses the root of the crisis.” The Brown Plan is the main topic of conversation for a hurriedly arranged meeting of finance ministers of the G7 in Washington.
Photo: Dominic Lipinski/PA Wire/AP
The market will readjust itself, but only when equities have fallen enough to provide value
There will come a time when the price of stocks has fallen so low that they will look like a bargain. At that time, and perhaps not before, people will start buying again and shrewdness will replace panic in the market. Fritz Meyer, senior market strategist for mutual fund giant Invesco Aim, has been crunching the numbers and believes that market pessimism has already gone too far. "The bottom will have come when people say: 'Screw equities,'” Barry Ritholtz, director of equity research at Fusion IQ, told Business Week. But he adds a word of caution: the current financial crisis is so different from all those that have gone before that previous bear markets may not be guidance to the way things turn out this time around.
Photo: Aaron Favila/AP
When will the crash reach the bottom?
How long can stocks keep falling? Will it be over this weekend, by election day, by year’s end? There is no one answer to today’s burning question
Business leaders expect at least two or three years of hard grind before the world economy recovers
Steve Tappin, a managing partner in executive search firm Heidrick & Struggles' global CEO practice, has been interviewing CEOs to discover how they see the future. They are universally bleak. "Many CEOs think this is going to be a multiyear downturn,” Tappin told Fortune. And that was before the financial meltdown began to hit the markets hard. "For the last 3½ to 4 months I've been asking people to operate as if we were going into a recession," said Ian Livingston, CEO of British Telecom, the telecom company that ranks 116 on the Fortune Global 500 listing of the world's largest corporations. "I wasn't anticipating things would be as bad as they are." The CEOs seem to be on the money: the IMF thinks it will be the end of 2009 before the world economy begins to settle down.
Photo: Mal Langsdon/Reuters
Invisible liabilities in the shadow banking system could prove catastrophic
“The scariest uncertainties of all involve the unknown liabilities lurking out there in the shadow banking system,” writes Steve Coll. No one knows the extent of credit default swaps, the unregulated insurance contracts sold privately to financial institutions to protect them against losses in stocks or bonds. “Published estimates of the nominal value of all credit-default-swap contracts in the world today are in the range of $55 trillion to $60 trillion,” he writes. “So here is a global private market whose products, combined, have a nominal value roughly equal to the total size of the world economy’s output in a year, and apparently no one in any government knows the full market’s shape, distribution, or true vulnerabilities. Gulp.”
Photo: Larry Downing/Reuters
It may feel like 1929 all over again, but this year’s market panic is nothing like as terrible as the one that heralded the Slump
Although the cumulative stock losses since the plunge on Sept. 29 are comparable with those suffered in the stock market crashes of 1987 and 1929, there is no real comparison. “Today, our mortgage mess looks like a disaster, too, but at least banks made loans against houses, assets that should continue to have at least some value,” writes Karen Blumenthal of the Wall Street Journal. And in 1929 the administration dithered and delayed before doing nothing. “The acknowledgment and quick action by the Federal Reserve and Congress truly set this crisis apart from 1929,” writes Blumenthal. But all this is small solace as investors see their stocks and 401Ks melting before their eyes. “It may feel more like a tumble down the stairs than a jump from an airplane, but the end effect is the same,” writes the Journal’s David Gaffen.
Photo: Dorothea Lange/FPG/Hulton Archive/Getty
Partner Sites: Expedia| Hotels| Hotwire| Urbanspoon| Vimeo
Thank you.
As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.